<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON OCTOBER 25, 1996
REGISTRATION NO. 333-
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- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
----------------
PRODUCTION GROUP INTERNATIONAL, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
2200 WILSON BOULEVARD, SUITE 200
ARLINGTON, VA 22201-3324
(703) 528-8484
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
----------------
DELAWARE 7389 52-1710407
(STATE OR OTHER (PRIMARY STANDARD (IRS EMPLOYER
JURISDICTION OF INDUSTRIAL IDENTIFICATION NO.)
INCORPORATION OR CLASSIFICATION CODE
ORGANIZATION) NUMBER)
----------------
MARK N. SIRANGELO, PRESIDENT
PRODUCTION GROUP INTERNATIONAL, INC.
2200 WILSON BOULEVARD, SUITE 200
ARLINGTON, VA 22201-3324
(703) 528-8484
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE
OF AGENT FOR SERVICE)
----------------
COPIES TO:
EDWIN M. MARTIN, JR., ESQUIRE MICHAEL J. SILVER, ESQUIRE
NANCY A. SPANGLER, ESQUIRE HOGAN & HARTSON L.L.P.
PIPER & MARBURY L.L.P. 111 SOUTH CALVERT STREET
1200 19TH STREET, N.W. BALTIMORE, MD 21202
WASHINGTON, DC 20036 (410) 659-2700
(202) 861-3900
APPROXIMATE DATE OF COMMENCEMENT 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 of
1933, as amended (the "Securities Act") check the following box. [_]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) 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 this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_] ____________________
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box.
[_]
CALCULATION OF REGISTRATION FEE
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<TABLE>
<CAPTION>
PROPOSED MAXIMUM
TITLE OF EACH CLASS OF AGGREGATE AMOUNT OF
SECURITIES TO BE REGISTERED OFFERING PRICE (1) REGISTRATION FEE
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<S> <C> <C>
Shares of Common Stock, par value $.01
per share............................. $56,810,000 $17,215
</TABLE>
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- -------------------------------------------------------------------------------
(1) Estimated solely for purposes of determining the registration fee pursuant
to Rule 457(o) under the Securities Act.
----------------
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, as amended, or until the
registration statement shall become effective on such date as the Commission,
acting pursuant to said Section 8(a), may determine.
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<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A +
+REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE +
+SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY +
+OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT +
+BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR +
+THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE +
+SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE +
+UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF +
+ANY SUCH STATE. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION
OCTOBER , 1996
[LOGO OF PGI APPEARS HERE]
Shares
Common Stock
--------
All of the shares of Common Stock offered hereby are being offered by
Production Group International, Inc. ("PGI" or the "Company"). Prior to this
offering, there has been no public market for the Common Stock. It is currently
estimated that the initial public offering price per share will be between $
and $ . See "Underwriting" for information relating to the factors to be
considered in determining the initial public offering price. The Company has
applied for quotation of the Common Stock on the Nasdaq National Market under
the symbol "PGII."
--------
THE COMMON STOCK OFFERED HEREBY INVOLVES A HIGH DEGREE OF RISK. SEE "RISK
FACTORS" COMMENCING ON PAGE 6.
--------
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>
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UNDERWRITING
PRICE TO DISCOUNTS AND PROCEEDS TO
PUBLIC COMMISSIONS COMPANY(1)
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<S> <C> <C> <C>
Per Share............................... $ $ $
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Total(2)................................ $ $ $
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</TABLE>
(1) Before deducting expenses of the offering estimated at $ .
(2) The Company has granted to the Underwriters a 30-day option to purchase up
to additional shares of Common Stock solely to cover over-allotments,
if any. To the extent that the option is exercised, the Underwriters will
offer the additional shares at the Price to Public shown above. If the
option is exercised in full, the total Price to Public, Underwriting
Discounts and Commissions and Proceeds to Company will be $ , $ and
$ , respectively. See "Underwriting."
--------
The shares of Common Stock are offered by the several Underwriters, subject
to prior sale, when, as and if delivered to and accepted by them, and subject
to the right of the Underwriters to reject any order in whole or in part. It is
expected that delivery of the shares of Common Stock will be made at the
offices of Alex. Brown & Sons Incorporated, Baltimore, Maryland, on or about
, 1996.
--------
Alex. Brown & Sons
INCORPORATED
Montgomery Securities
Robertson, Stephens & Company
THE DATE OF THIS PROSPECTUS IS , 1996.
<PAGE>
[PHOTOS OF PGI EXHIBITIONS AND BUSINESS COMMUNICATIONS EVENTS AND A
DESCRIPTION THEREOF APPEAR HERE]
----------------
The Company intends to furnish its stockholders with annual reports
containing audited financial statements and quarterly reports containing
unaudited financial information for the first three quarters of each fiscal
year.
----------------
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK
OF THE COMPANY AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN
MARKET. SUCH TRANSACTIONS MAY BE EFFECTED ON THE NASDAQ NATIONAL MARKET OR
OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information and the Consolidated Financial Statements, including the Notes
thereto, appearing elsewhere in this Prospectus.
Production Group International, Inc. ("PGI" or the "Company") is a leading
worldwide provider of event services on an outsourced basis for corporations,
associations and other organizations as well as on a proprietary basis for
exhibitions owned and managed by the Company. In fiscal 1996, PGI planned and
executed over 1,800 events attended by more than 900,000 people in
approximately 50 cities in 12 countries. In order to provide its clients with a
single source solution to their event planning needs, PGI offers a wide range
of services that encompass the event planning process, including general
management, concept creation, content creation and execution. In addition, the
Company owns and manages proprietary exhibitions that utilize these services.
The Company has developed internally and through acquisitions a vertically-
integrated infrastructure capable of providing event services on a
multinational basis. The Company believes that its vertically-integrated
organization, creative talent, network of 24 offices in the United States and
abroad, technological leadership and willingness to commit capital to acquire
or develop proprietary exhibitions are competitive advantages in a fragmented
industry where most vendors provide a limited set of services on a local basis.
PGI's revenues have increased at a compound annual rate of 76.2% from fiscal
1994 to fiscal 1996.
The events industry consists of companies that provide business
communications and event management services and organizations that own or
manage exhibitions. Corporations, associations and other organizations hold or
sponsor events on a frequent, often recurring, basis throughout the year in
order to communicate with customers, employees, members and other
constituencies and either produce these events internally or outsource their
production to third parties. Examples of business communications and event
management services are the design, production and execution of conventions,
sales meetings, conferences, executive presentations, shareholder and investor
meetings, training sessions and product launches. Examples of exhibitions are
trade shows, consumer shows and special events that provide a forum for face-
to-face interaction and communication, typically between buyers and sellers. A
recent study by Deloitte and Touche LLP estimated that the events industry
generated approximately $80 billion in direct spending during 1994 in the U.S.
alone, exclusive of travel and internal spending by corporations and
associations.
The Company believes that the market for event services is undergoing a shift
toward outsourced management as organizations focus on their core competencies
and seek to improve the professionalism, creativity and cost-efficiency of
their events. Most vendors of outsourced event services cannot provide the wide
range of services, international coverage, creative talent, purchasing power
and technological capabilities required by large corporations and associations.
The Company believes that there is an increasing trend on the part of
associations, historically the largest owners and operators of exhibitions, to
outsource the operational management and often the ownership of exhibitions as
they focus on their core missions and seek to improve efficiencies.
As a vertically-integrated service provider, PGI is able to offer a
comprehensive solution to these organizations with the assurance of high-
quality service and the opportunity to form a long-term relationship. PGI
provides its clients a wide range of services such as video and media design
and production, including creation and production of CD-ROMs and Internet
broadcasts, graphic design and production, speech writing, staging and lighting
design and the design of brochures and promotional materials. The Company
offers execution and fulfillment management capabilities, including on-site
quality and logistics control, hotel and venue coordination, transportation
management, entertainment and talent booking, permit and approval management,
food and beverage management and telemarketing services for the sale of
exhibition space. PGI concentrates its selling efforts on large corporations,
associations and other organizations with recurring needs to plan and execute a
wide range of events in diverse locations. The Company centralizes many of its
administrative and purchasing functions at its headquarters, while creative,
production and sales personnel service clients from PGI's field offices.
3
<PAGE>
PGI believes that it differentiates itself through the creative talent,
energy and commitment of its professionals. The Company's full-time staff of
over 350 professionals is complemented by a pool of over 750 professionals
hired on a project-by-project basis who have distinguished themselves through
prior experience with PGI. For individual events, the Company brings together
professionals from a wide range of creative disciplines, including writers and
editors, video producers, digital media designers, graphic designers and
logistics experts. PGI seeks to attract and retain the best operational
personnel through attractive compensation, benefits and training programs and
long-term career opportunities that smaller competitors cannot duplicate. To
execute PGI's expansion plans, the Company has recruited a number of senior
executives with broad and diverse experience managing rapidly growing
international businesses.
Through fiscal 1996, PGI devoted substantial capital and management attention
to completing acquisitions that broadened its service offerings and geographic
presence. In fiscal 1995 and fiscal 1996, the Company incurred significant
costs to close certain unprofitable and redundant locations. Beginning in late
fiscal 1996, PGI began to increase its focus on achieving marketing synergies
among its acquired operations. The Company believes that substantial
opportunities exist to develop new client relationships and to expand
relationships with existing clients by cross-selling the full range of the
Company's services, building out its international office network and expanding
the Company's multimedia services.
A major focus of the Company's growth strategy over the next several years
will be the ownership of proprietary exhibitions and special events, both
through acquisition and internal development. Exhibitions offer a number of
attractive economic characteristics including (i) relatively high gross
margins, (ii) attractive cash flow characteristics arising because revenues are
prepaid while expenses are generally paid following an exhibition, (iii)
predictable recurring revenue streams from successful shows that often sell out
in advance and (iv) the ability to benefit from initial marketing costs over a
series of exhibitions. PGI acquired its first proprietary exhibition in the
first quarter of fiscal 1996 and currently owns 18 trade shows, consumer shows
and special events. The Company's ownership of proprietary exhibitions and
special events gives it complete decision-making authority over all aspects of
an event. Owning and operating these events will permit the Company to
capitalize on its vertically-integrated infrastructure, increase recurring
revenues, reduce subcontracted costs and more efficiently allocate resources.
Ownership of exhibitions allows the Company to replicate successful exhibitions
in new locations, to spin off portions of exhibitions into stand-alone
exhibitions and to develop new exhibitions in geographic and product markets
that are underserved.
The Company's headquarters are located at 2200 Wilson Boulevard, Arlington,
VA 22201-3324 and its telephone number is (703) 528-8484.
RISK FACTORS
The Common Stock offered hereby involves a high degree of risk. See "Risk
Factors."
THE OFFERING
<TABLE>
<C> <S>
Common Stock offered by the Company... shares
Common Stock to be outstanding after
the offering ........................ shares (1)
Use of proceeds....................... To finance possible future
acquisitions and for general corporate
purposes.
Proposed Nasdaq National Market
symbol............................... PGII
</TABLE>
- --------
(1) Excludes (i) 1,027,995 shares of Common Stock issuable upon exercise of
stock options outstanding at October 15, 1996 at a weighted average
exercise price of approximately $1.19 per share and (ii) 393,004 additional
shares of Common Stock reserved for future issuance under the Company's
1995 Stock Option/Stock Issuance Plan (California), the 1995 Stock
Option/Stock Issuance Plan (Virginia) (collectively, the "1995 Stock
Plans") and the 1997 Directors' Stock Option Plan (the "Directors' Plan").
See "Management--Employee Stock and Other Benefit Plans."
4
<PAGE>
SUMMARY CONSOLIDATED FINANCIAL AND OPERATING DATA
(IN THOUSANDS, EXCEPT PER SHARE AND OPERATING DATA)
<TABLE>
<CAPTION>
FISCAL YEARS ENDED AUGUST 31,
---------------------------------------
1992 1993 1994 1995 1996
------ ------ ------- ------- -------
<S> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF
OPERATIONS DATA:
Revenues.................... $3,755 $8,724 $25,213 $41,950 $78,290
Gross profit................ 1,296 2,478 6,237 9,678 25,137
Reorganization and consoli-
dation expenses (1)........ -- -- -- 2,112 6,897
Operating income (loss)..... 289 176 (1,787) (7,632) (10,680)(2)
Net income (loss)........... 288 167 (1,551) (7,452) (12,086)
Net income (loss) per common
share (3)..................
Weighted average common
shares outstanding (3).....
OPERATING DATA:
Number of clients served
during period (4).......... N/A N/A 156 204 648
Number of proprietary
exhibitions at end of
period..................... -- -- -- -- 18
Number of managed
exhibitions held during
period..................... 1 5 5 10 16
Number of employees at end
of period.................. 37 60 180 180 365
Number of offices at end of
period..................... 1 3 16 18 24
</TABLE>
<TABLE>
<CAPTION>
AUGUST 31, 1996
---------------------------
ACTUAL AS ADJUSTED (5)
-------- -----------------
<S> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Working capital................................... $(18,588)
Total assets...................................... 43,723
Total debt (6).................................... 16,935
Total stockholders' equity ....................... 8,408
</TABLE>
- --------
(1) For fiscal 1995, includes a $2.1 million write-off of goodwill associated
with a fiscal 1994 acquisition. For fiscal 1996, includes the write-off of
impaired assets and goodwill associated with certain of the Company's
acquisitions completed prior to fiscal 1995, a write down related to
certain investments in proprietary events and accruals related to
consolidation of certain operations. See Notes 2 and 4 of Notes to
Consolidated Financial Statements.
(2) In fiscal 1996, excluding (i) the reorganization and consolidation
expenses, (ii) a $1.3 million non-cash compensation expense related to the
grant of stock options with an exercise price below the deemed fair value
and (iii) $215,000 of expenses associated with the write down of certain
fixed assets and the accelerated amortization of capitalized video library
costs, the operating loss would have been $2.2 million.
(3) For a description of the computation of the number of shares and the net
income (loss) per share, see Note 2 of Notes to Consolidated Financial
Statements.
(4) Includes only clients whose annual billings were in excess of $25,000.
(5) Adjusted to give effect to the issuance of shares of Common Stock
offered by the Company hereby (at an assumed initial public offering price
of $ per share) and the use of the net proceeds therefrom as set forth
in "Use of Proceeds."
(6) Includes bank term debt, subordinated notes and outstanding borrowings on
lines of credit.
Except as otherwise specified, all information in this Prospectus assumes no
exercise of the Underwriters' over-allotment option. Except for the
Consolidated Financial Statements and as otherwise noted, all information in
this Prospectus has been adjusted to give effect to the conversion of all
outstanding shares of convertible preferred stock (the "Convertible Preferred
Stock") into 5,231,555 shares of Common Stock on the closing of this offering.
See "Description of Capital Stock" and Note 11 of Notes to Consolidated
Financial Statements. The Company was incorporated in Delaware in October 1996
and is the successor by merger to a Virginia corporation incorporated in 1990.
Unless the context otherwise requires, all references to the "Company" shall
mean Production Group International, Inc., all of its subsidiaries and its
predecessor. The Company's fiscal year ends August 31.
5
<PAGE>
RISK FACTORS
An investment in the shares of Common Stock offered hereby involves a high
degree of risk. In addition to other information in this Prospectus,
prospective investors should carefully consider the following factors in
evaluating an investment in the shares of Common Stock offered by this
Prospectus.
Limited Operating History; Losses. The Company was founded in November 1990
and has experienced operating and net losses for each of the last three fiscal
years. As of August 31, 1996, the Company had an accumulated deficit of $21.2
million. The Company's limited operating history makes prediction of its
future financial performance difficult. Although the Company has experienced
substantial revenue growth in recent years, no assurance can be given that the
Company will sustain revenue growth or achieve profitability on a quarterly or
annual basis. Much of the Company's growth has occurred as a result of recent
acquisitions of companies with which the Company has little operating
experience. The Company is in the process of implementing additional common
financial controls for the acquired businesses and therefore its ability to
forecast results of these businesses is limited. See "Historical Overview" and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
Fluctuations in Quarterly Operating Results; Episodic Nature of
Business. The Company has experienced significant quarterly fluctuations in
its operating results and anticipates such fluctuations in the future.
Quarterly revenues and operating results depend on the scheduling of business
communications and event management services and exhibitions that are episodic
in nature and therefore difficult to forecast. For example, some of the events
owned or produced by the Company do not occur on an annual or recurring basis.
Operating results may also fluctuate on a quarterly basis due to factors such
as the timing of clients' business communications projects, delays in or
cancellation of clients' projects and changes in the Company's revenue mix
among its offered services. The Company's revenue recognition policy for
certain of its business communications and event management services requires
that both costs and revenues are deferred until a project is completed.
Accordingly, the Company believes that period-to-period comparisons of its
results of operations may not be meaningful and should not be relied upon as
an indication of future performance. Typically, revenues, operating income and
net income for the Company's second fiscal quarter are lower than those of the
other quarters because traditionally fewer events are scheduled during the
winter season.
The Company owns and manages exhibitions and provides business
communications and event management services on a project-by-project basis and
has few long-term agreements with its clients through which the services of
the Company are retained on an on-going basis. Accordingly, there can be no
assurance that any client will retain the Company for future projects although
the Company may in the past have produced similar projects for the client on a
regular basis. Because the Company's staffing and other operating expenses are
based on anticipated revenue levels, a substantial portion of which are not
related to identified projects, delays in the scheduling of projects can cause
significant variations in the Company's operating results from quarter to
quarter. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations."
Management of Growth; Growth Through Acquisitions. Since its inception, the
Company has experienced rapid and significant growth, particularly through
acquisitions. This growth and the related changes in the Company's operations
have placed significant demands on the Company's management, administrative,
operational and financial resources. Many of the acquisitions were in
geographically dispersed locations and involved activities not previously part
of the Company's business. If the Company is unable to successfully integrate
acquired businesses or otherwise manage growth effectively, the Company's
results of operations and financial condition will be materially adversely
affected. The Company's future growth will depend on the Company's increased
penetration of existing accounts, development of new large accounts,
diversification of services provided and acquisitions of proprietary
exhibitions. The Company has a limited history in penetrating client accounts
gained through acquisition.
6
<PAGE>
The planned growth of the Company's client base and services can be expected
to continue to place a significant strain on the Company's management and
operations. The Company plans to continue to expand its business in part
through acquisitions. There can be no assurance that the Company will
be able to successfully identify, finance, complete or integrate acquisitions
or that any acquisition, particularly those involving exhibitions, new
services or new markets, such as those overseas, will perform as expected or
will contribute significant revenue or profits to the Company. The Company
incurred $2.1 million and $6.9 million of reorganization and consolidation
expenses in fiscal 1995 and 1996, respectively, relating in part to the write-
off of goodwill and the impairment of certain assets associated with
acquisitions completed in prior years. See "Historical Overview" and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
Risks Associated with Future Acquisitions. An element of the Company's
growth strategy is to pursue strategic acquisitions of proprietary exhibitions
and special events and companies that provide business communications and
event management services. In the event the Company identifies an appropriate
acquisition candidate, there is no assurance that the Company will be able to
successfully compete against other potential acquirors, negotiate terms
favorable to the Company, finance such acquisition and successfully integrate
the acquired business into the Company's operations. The negotiation of
potential acquisitions as well as the integration of an acquired business may
cause diversions of management time and resources. There can be no assurance
that a given acquisition, whether or not consummated, would not materially
adversely affect the Company's business, results of operations and financial
condition. The Company may find it necessary to incur substantial
restructuring and consolidation costs with respect to future acquisitions. If
the Company proceeds with one or more significant acquisitions in which the
consideration consists of cash, a substantial portion of the Company's
available cash, including proceeds of this offering, could be used to
consummate the acquisitions. The Company may also be required to seek funding
from third party sources. There can be no assurance that the Company will be
able to secure such financing on favorable terms, if at all. If the Company
consummates one or more significant acquisitions in which the consideration
consists of stock, stockholders of the Company could suffer significant
dilution. The Company does not receive management fees for events that it
owns. The revenue generated by owned events is dependent upon the Company's
success in attracting exhibitors and attendees. There can be no assurance that
events acquired by the Company will generate revenue in the near term or
whether they will become profitable. See "Use of Proceeds" and "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
Dependence Upon Key Personnel; Recent Management Additions. The success of
the Company will depend to a significant extent upon the ability and
experience of its senior executives and other key employees and, in
particular, those of Mr. Mark Sirangelo, Chairman of the Board, President and
Chief Executive Officer. Although the Company has entered into employment
agreements with its senior executives and key employees, the loss of the
services of any of these employees could adversely affect the Company's
business, results of operations and financial condition. During fiscal 1996,
the Company hired several senior executives including an Executive Vice
President and the Chief Financial Officer. Because the Company's management
team has been assembled only recently, there can be no assurance that the
management team will be able to work together effectively to manage the
Company's operations and to implement the Company's business and growth
strategies. The Company also believes that its future success will depend in
large part upon its ability to attract and retain experienced personnel. There
can be no assurance that the Company will be successful in retaining its key
employees or that it can attract or retain the additional personnel necessary
to expand its operations. The Company has non-competition agreements with
certain of its key employees. However, courts are at times reluctant to
enforce such agreements. Failure to enforce such agreements may have a
material adverse effect on the Company's business, results of operations and
financial condition. See "Management."
Competition. The events industry is highly competitive and fragmented. The
Company competes with owners, operators and managers of exhibitions and with
providers of business communications and
7
<PAGE>
event management services. The Company competes for the ownership of
exhibitions with a wide variety of potential owners including divisions of
several large, multinational publishing companies. PGI competes for management
of exhibitions with divisions of multinational publishing companies as well as
with small to mid-sized companies specializing in managing exhibitions. PGI
competes for exhibitors and attendees with corporations and associations that
offer alternative exhibitions. For business communications and event
management services, the Company competes primarily with Caribiner
International, Inc. as well as with small, independent and generally regional
firms typically offering a limited range of services. Because there are few
barriers to entry with respect to certain aspects of the Company's business,
the Company anticipates that as the industry evolves, additional competitors
with greater resources than the Company will enter the market, or particular
segments of the market, thereby intensifying competition. Some of the
Company's current and potential competitors have longer operating histories
and greater financial, technical, sales, marketing and other resources than
the Company. There can be no assurance that the Company will be able to
compete successfully against its current and future competitors or that
competition will not have a material adverse effect on the Company's business,
results of operations and financial condition. See "Business--Competition."
Dependence on Third Party Contractors and Temporary Employees. The Company
uses third party contractors and temporary employees to perform certain
functions. The Company's success is highly dependent upon its ability to hire
contractors and temporary employees who can provide services in a cost-
effective and professional manner. The production of an event may require the
Company to recruit, hire, train and retain qualified temporary employees at an
accelerated rate and, in some circumstances, upon short notice. Certain of the
Company's events are held in locations where the Company faces competition
with respect to retaining these third party contractors and temporary
employees. The Company's inability to retain qualified third party contractors
and temporary employees in a cost effective manner may have a material adverse
effect upon the Company's business, results of operations and financial
condition. See "Business--Services."
Ongoing Bank Negotiations. The Company and The First National Bank of
Maryland (the "Bank") are currently negotiating an amendment to the Company's
financing arrangement with the Bank. The working capital and equipment lines
under the arrangement have expired and the Company is in violation of certain
covenants relating to one of the lines. As of August 31, 1996, the aggregate
outstanding balance on these lines was $6.0 million. If negotiations are not
successfully completed, the Bank could accelerate the indebtedness and pursue
remedies, including foreclosure on the assets of the Company which serve as
collateral for the financing arrangement. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and Note 5 of Notes
to Consolidated Financial Statements.
International Activities. In fiscal 1996, approximately 10.2% of the
Company's revenues were generated from events that occurred outside North
America. The Company plans to expand further its operations outside North
America where historically corporations and associations have not often used
the types of advanced services provided by the Company. In addition, the
Company intends to continue to replicate exhibitions on a worldwide basis.
There can be no assurance that the Company will be able to successfully
continue to expand this business. Risks inherent in the Company's
international activities include adverse developments in the foreign political
and economic environment, difficulties in staffing and managing foreign
operations, fluctuations in foreign exchange rates and potentially adverse tax
consequences. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations."
No Prior Public Market for Common Stock; Determination of Offering Price;
Possible Volatility of Stock Price. Prior to this offering, there has been no
public market for the Common Stock, and there can be no assurance that an
active market will develop or be sustained. The offering price of the Common
Stock will be determined by negotiations between the Company and the
Representatives of the Underwriters and may not be indicative of the market
prices at which the Common Stock will trade after the offering. See
"Underwriting" for a description of the factors to be considered in
determining the initial public offering price. The trading price of the Common
Stock could be subject to wide fluctuations in
8
<PAGE>
response to actual and anticipated variations in quarterly operating results,
announcements by the Company or its competitors, changes in estimates by
securities analysts of the Company's future financial performance, general
market conditions and other factors. In addition, the stock market has from
time to time experienced significant price and volume fluctuations that are
often unrelated to the operating performance of particular companies.
Lack of Dividends. The Company has never paid or declared any dividends on
its Common Stock and does not expect to pay such dividends in the foreseeable
future. The Company's credit facility with The First National Bank of Maryland
prohibits the Company from paying cash dividends without the Bank's consent.
See "Dividend Policy."
Dilution. Purchasers of the shares of Common Stock offered hereby will
experience immediate and substantial dilution in the net tangible book value
per share of their Common Stock. At the assumed initial public offering price
of $ per share, investors in this offering will incur dilution of $ per
share. See "Dilution."
Effective Control by Management. Immediately following this offering, the
Company's executive officers and directors, together with entities affiliated
with such individuals, will beneficially own approximately % of the
outstanding Common Stock (approximately % if the Underwriters' over-allotment
option is exercised in full). As a result of such ownership concentration,
these stockholders will be able to control most matters requiring approval by
the Company's stockholders, including the election of directors. Such
concentration of ownership could have the effect of delaying or preventing a
change in control of the Company. See "Management" and "Principal
Stockholders."
Antitakeover Considerations. Certain provisions of the Company's Certificate
of Incorporation and By-laws, certain sections of the Delaware General
Corporation Law and the ability of the Board of Directors to issue shares of
preferred stock and to establish the voting rights, preferences and other
terms of such preferred stock, may have an antitakeover effect and may
discourage takeover attempts not first approved by the Board of Directors
(including takeovers that certain stockholders may deem to be in their best
interests). These provisions could delay or frustrate the removal of incumbent
directors or the assumption of control by stockholders and could discourage or
make more difficult a merger, tender offer or proxy contest. Such provisions
include, among other things, a classified Board of Directors serving staggered
three-year terms, the elimination of stockholder voting by written consent,
the vesting of exclusive authority in the Board of Directors to determine the
size of the Board and (subject to certain limited exceptions) to fill
vacancies thereon, and the vesting of exclusive authority in the Board of
Directors (except as otherwise required by law) to call special meetings of
stockholders. See "Description of Capital Stock--Delaware Law and Certain
Charter Provisions."
Shares Eligible for Future Sale; Registration Rights. Sales of substantial
amounts of Common Stock in the public market after this offering could
adversely affect the market price of the Common Stock and could impair the
Company's ability to obtain additional capital through an offering of its
equity securities. In addition to the shares of Common Stock offered
hereby ( shares if the Underwriters' overallotment option is exercised in
full), up to approximately shares of Common Stock owned by current
stockholders of the Company will be eligible for immediate sale in the public
market without restriction unless held by affiliates of the Company. An
additional shares will be eligible for sale in accordance with Rule 144
promulgated by the Securities and Exchange Commission ("Rule 144") beginning
90 days after the date of this Prospectus. However, holders of substantially
all of these shares have agreed not to offer, sell or otherwise dispose of any
shares of Common Stock owned by them for 180 days from the date of this
Prospectus without the prior written consent of Alex. Brown & Sons
Incorporated. The holders of an aggregate of 5,231,555 shares of Common Stock
have the right in certain circumstances to require the Company to register
their shares under the Securities Act of 1933, as amended (the "Securities
Act"), for resale to the public. See "Description of Capital Stock--
Registration Rights of Certain Holders" and "Shares Eligible for Future Sale."
9
<PAGE>
The Company also intends to file within 90 days following the date of this
Prospectus a registration statement covering shares of its Common Stock
reserved for issuance under its 1995 Stock Plans. As of October 15, 1996,
there were options outstanding under the 1995 Stock Plans and outside the
plans to purchase 1,027,995 shares of Common Stock at a weighted average
purchase price of $1.19 per share. shares of Common Stock issuable upon
exercise of stock options will be subject to contractual lock-up agreements
with the Underwriters restricting sales of such shares for 180 days following
the date of this Prospectus. See "Shares Eligible for Future Sale."
HISTORICAL OVERVIEW
PGI has pursued a number of strategic acquisitions to create a vertically-
integrated business communications and event management structure to serve the
Company's clients and PGI-owned events. Prior to fiscal 1996, the Company
acquired a number of business communications and event management companies in
key regions throughout the United States. In fiscal 1996, the Company
continued to acquire business communications and event management companies
and also made several strategic acquisitions of proprietary exhibitions and
companies that own and manage exhibitions and special events. Late in fiscal
1995 and continuing through fiscal 1996, the Company began consolidating
operations and administrative functions and closed certain unprofitable and
redundant locations. In addition, the Company invested in the personnel and
began to implement the systems necessary to support a larger organization by
hiring several senior executives and completing the first phase of installing
networked finance, accounting and MIS systems.
The Company's acquisitions of business communications and event management
companies prior to 1996 were intended to add geographic coverage to the
Company's existing businesses and to broaden the Company's service offerings.
From fiscal 1993 through fiscal 1995, PGI acquired five business
communications and event management companies, many of which specialized in
the on-site logistical aspects of the business communications and event
management industry. These businesses had offices in Boston, Dallas, Las
Vegas, New York, Orlando, Phoenix, San Diego, San Francisco and Washington,
D.C., and other locations that have since been consolidated with the Company's
operations.
During fiscal 1996, the Company continued to build its business
communications and event management infrastructure. In January 1996, the
Company acquired Encore Events Inc., a Palm Springs logistical services
company. In March 1996 (effective in January 1996), the Company acquired Ray
Bloch Productions, Inc., a leading business communications company
specializing in event production with operations in New York City, San Mateo,
Washington, D.C. and sales offices in other cities. In April 1996, the Company
acquired Timberline Productions, Inc., a Phoenix-based business communications
company specializing in event production, and in July 1996, PGI acquired Epic
Enterprises of Nevada, Inc., a Las Vegas-based company specializing in event
logistics.
Also in fiscal 1996, the Company began to implement its strategy of
acquiring proprietary exhibitions and during that year acquired two exhibition
companies and two proprietary exhibitions. In September 1995, the Company
acquired Spearhead Exhibitions, Ltd., an owner of 11 international
exhibitions, located in the United Kingdom, and in July 1996 (effective in
February 1996), the Company acquired Epic Enterprises, Inc., an owner of four
exhibitions and manager of eight exhibitions with an office in San Diego. In
June 1996, the Company purchased the two Destinations Showcase exhibitions
owned by the International Association of Convention and Visitor Bureaus
("IACVB") and entered into a ten year cooperative agreement under which the
IACVB continues to sponsor the events. After this acquisition, the Company
created a third Destinations Showcase exhibition by replicating the existing
exhibitions. In connection with its expansion into the proprietary exhibition
business, the Company opened offices in Hamburg (Germany) and Baku
(Azerbaijan). See "Business--Case Studies." In addition, in June 1996, PGI
acquired Regency Productions, Inc. ("Regency") from Hyatt Corporation. Regency
is a Chicago-based special event company specializing in sports and
entertainment events. Following the acquisition of Regency, Mr. Darryl
Hartley-Leonard, formerly the Chairman of the Board of Directors of Hyatt
Hotels Corporation, joined the Company as Vice Chairman of its Board of
Directors.
10
<PAGE>
The Company paid an aggregate purchase price of approximately $27.1 million
for the businesses and exhibitions it acquired during fiscal 1996, excluding
contingent consideration. Consideration for the Company's acquisitions has
typically involved a combination of cash, promissory notes and contingent
payments. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations" and Note 4 of Notes to Consolidated Financial
Statements.
USE OF PROCEEDS
The net proceeds from the sale of the shares of Common Stock offered by
the Company hereby (at an assumed public offering price of $ per share,
after deducting underwriting discounts and commissions and estimated offering
expenses) are estimated to be approximately $ million ($ million if
the Underwriters' over-allotment option is exercised in full). A substantial
portion of the net proceeds are expected to be used to finance the expansion
of the Company's business, including primarily acquisitions, in accordance
with its acquisition strategy. To the extent that the proceeds are not used
for acquisitions, such proceeds will be used for general corporate purposes
and for working capital needs. The amount and timing of such uses will vary
depending on the availability of acquisition opportunities. Pending such uses,
the net proceeds will be invested in short-term investment grade securities.
The Company continues to evaluate potential acquisitions and negotiate with
several potential acquisition candidates. While the Company is not currently a
party to any agreements with respect to any such acquisitions, it is possible
that an agreement in principle or a definitive agreement as to one or more
acquisitions will be executed prior to the consummation of this offering.
There can be no assurance that any of these or any other acquisitions can be
consummated on terms favorable to the Company, if at all.
DIVIDEND POLICY
The Company has never paid cash dividends on its Common Stock. The Company's
credit facility with The First National Bank of Maryland prohibits the Company
from paying cash dividends without the Bank's consent. See Note 5 of Notes to
Consolidated Financial Statements. The Company does not anticipate paying cash
dividends in the foreseeable future.
11
<PAGE>
DILUTION
The pro forma net tangible book value of the Company's Common Stock as of
August 31, 1996, was $(16.9) million, or $(2.93) per share. Pro forma net
tangible book value per share represents the amount of the Company's
stockholders' equity, less intangible assets, divided by the number of shares
of Common Stock outstanding (assuming conversion of all outstanding shares of
Convertible Preferred Stock into 5,231,555 shares of Common Stock upon
completion of the offering).
Net tangible book value dilution per share represents the difference between
the amount per share paid by purchasers of the shares of Common Stock in
the offering made hereby and the pro forma net tangible book value per share
of Common Stock immediately after completion of this offering. After giving
effect to the sale of shares of Common Stock offered by the Company hereby
at an assumed initial public offering price of $ per share and application
of the estimated net proceeds therefrom as set forth in "Use of Proceeds," the
pro forma net tangible book value of the Company as of August 31, 1996 would
have been $ million, or $ per share. This represents an immediate increase
in the pro forma net tangible book value of $ per share to existing
stockholders and an immediate dilution in pro forma net tangible book value of
$ per share to purchasers of Common Stock in this offering, as illustrated
in the following table:
<TABLE>
<S> <C> <C>
Assumed public offering price per share............................ $
Pro forma net tangible book value per share at August 31, 1996... $(2.93)
Increase per share attributable to new investors.................
------
Pro forma net tangible book value per share after the offering.....
---
Pro forma net tangible book value dilution per share to new invest-
ors............................................................... $
===
</TABLE>
The following table sets forth as of August 31, 1996, the differences
between the existing stockholders and the purchasers of Common Stock in the
offering with respect to the number of shares purchased from the Company, the
total consideration paid and the average price per share paid (based upon an
assumed initial public offering price of $ per share):
<TABLE>
<CAPTION>
TOTAL
SHARES PURCHASED CONSIDERATION AVERAGE
----------------- ------------------- PRICE PER
NUMBER PERCENT AMOUNT PERCENT SHARE
--------- ------- ----------- ------- ---------
<S> <C> <C> <C> <C> <C>
Existing stockholders........... 5,628,123 $28,212,000 $5.01
New investors...................
--------- --- ----------- ---
Total......................... 100% 100%
========= === =========== ===
</TABLE>
The foregoing table assumes no exercise of any outstanding stock options or
the Underwriters' over-allotment option. As of August 31, 1996, there were
outstanding options to purchase 1,025,216 shares of Common Stock at a weighted
average exercise price of approximately $1.17 per share, of which
732,902 shares are fully vested and exercisable as of the date of this
Prospectus. See "Underwriting" for information concerning the Underwriters'
over-allotment option. To the extent that the outstanding options or any
options granted in the future are exercised, there will be further dilution to
new investors. See "Management--Employee Stock and Other Benefit Plans" and
Note 9 of Notes to Consolidated Financial Statements.
12
<PAGE>
CAPITALIZATION
The following table sets forth the capitalization of the Company as of
August 31, 1996 (i) on an actual basis and (ii) as adjusted to give effect to
the issuance of 154,432 shares of Convertible Preferred Stock in September
1996, the conversion of all of the Company's outstanding shares of Convertible
Preferred Stock into Common Stock upon the closing of this offering and the
issuance of shares of Common Stock at an assumed initial public offering
price of $ per share in this offering and the application of the net
proceeds therefrom.
<TABLE>
<CAPTION>
AUGUST 31, 1996
--------------------
ACTUAL AS ADJUSTED
------- -----------
(IN THOUSANDS)
<S> <C> <C>
Short term debt:
Current portion of notes payable ................... $11,294
Bank lines of credit................................ 3,000
------- -----------
Total short-term debt............................. $14,294
======= ===========
Notes payable, less current portion................... $ 2,641
Stockholders' equity:
Preferred Stock, $.01 par value, 5,000,000 shares
authorized; no shares issued and outstanding actual
and as adjusted....................................
Convertible Preferred Stock, $.01 par value,
5,746,407 shares authorized; 5,077,123 shares
issued and outstanding actual; no shares
outstanding as adjusted (1)........................ 51
Common Stock, $.01 par value, 30,000,000 shares
authorized; 551,000 shares issued and outstanding
actual; shares issued and outstanding as
adjusted (1)....................................... 6
Additional paid-in capital.......................... 29,608
Unearned stock compensation......................... (133)
Foreign currency translation adjustment............. 119
Accumulated deficit................................. (21,242)
------- -----------
Total stockholders' equity........................ 8,408
------- -----------
Total capitalization............................ $11,050
======= ===========
</TABLE>
- --------
(1) Excludes (i) 1,025,216 shares of Common Stock issuable upon exercise of
stock options at August 31, 1996 of which 732,902 shares are exercisable
at the date of this prospectus at a weighted average exercise price of
$1.17 per share, and (ii) 45,783 additional shares of Common Stock
reserved for future issuance at August 31, 1996 under the 1995 Stock
Plans. Subsequent to August 31, 1996, the Board of Directors increased by
250,000 the number of shares available under the 1995 Stock Plans, adopted
the Directors' Plan and issued stock options to purchase 3,000 shares of
Common Stock at an exercise price of $5.00 per share. See "Management--
Employee Stock and Other Benefit Plans" and Note 9 of Notes to
Consolidated Financial Statements.
13
<PAGE>
SELECTED CONSOLIDATED FINANCIAL AND OPERATING DATA
(IN THOUSANDS, EXCEPT PER SHARE AND OPERATING DATA)
The consolidated financial data set forth below for fiscal 1994, 1995 and
1996 (except pro forma amounts) have been derived from the consolidated
financial statements of the Company which have been audited by Ernst & Young
LLP and are included elsewhere in this Prospectus. The consolidated financial
data for fiscal 1992 and 1993 are derived from unaudited consolidated
financial statements of the Company not included herein. These statements
include all adjustments that the Company considers necessary for a fair
presentation of the information set forth herein. The selected financial data
set forth below are qualified in their entirety by, and should be read in
conjunction with, the Consolidated Financial Statements, the related Notes
thereto, the Pro Forma Statement of Operations and "Management's Discussion
and Analysis of Financial Condition and Results of Operations" included
elsewhere in this Prospectus.
<TABLE>
<CAPTION>
FISCAL YEARS ENDED AUGUST 31,
-----------------------------------------
1992 1993 1994 1995 1996
------ ------ ------- ------- --------
CONSOLIDATED STATEMENT OF
OPERATIONS DATA: (UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenues......................... $3,755 $8,724 $25,213 $41,950 $ 78,290
Cost of services................. 2,459 6,246 18,976 32,272 53,153
------ ------ ------- ------- --------
Gross profit..................... 1,296 2,478 6,237 9,678 25,137
Selling and operating expenses... 685 1,647 6,474 11,792 22,328 (1)
Corporate general and administra-
tive expenses................... 322 655 1,458 3,167 5,923 (2)
Amortization of acquisition
costs........................... -- -- 92 229 669
Reorganization and consolidation
expenses (3).................... -- -- -- 2,122 6,897
------ ------ ------- ------- --------
Operating income (loss).......... 289 176 (1,787) (7,632) (10,680)(4)
------ ------ ------- ------- --------
Interest expense (income), net... 1 -- (14) (39) 935
Other income (expense)........... -- (9) 103 24 245
------ ------ ------- ------- --------
Income (loss) before minority
interests and income taxes...... 288 167 (1,670) (7,569) (11,370)
Minority interests of consoli-
dated subsidiaries.............. -- -- 101 (117) --
Income tax expense (benefit)..... 158 47 (220) -- 716
------ ------ ------- ------- --------
Net income (loss)................ $ 130 $ 120 $(1,551) $(7,452) $(12,086)
====== ====== ======= ======= ========
Net income (loss) per share (5)..
Weighted average common shares
outstanding (5).................
OPERATING DATA:
Number of clients served during
period (6)...................... N/A N/A 156 204 648
Number of proprietary exhibitions
at end of period................ -- -- -- -- 18
Number of managed exhibitions
held during period.............. 1 5 5 10 16
Number of employees at end of pe-
riod............................ 37 60 180 180 365
Number of offices at end of peri-
od.............................. 1 3 16 18 24
CONSOLIDATED BALANCE SHEET DATA
(AT YEAR END):
Working capital (deficit)........ $ 219 $ (161) $(2,347) $ (470) $(18,588)
Total assets..................... 674 4,492 11,847 15,238 43,723
Total debt (7)................... 16 1,314 2,341 2,085 16,935
Total stockholders' equity....... 335 1,244 (1,084) 5,427 8,408
</TABLE>
- --------
(1) Includes approximately $215,000 of expenses associated with the write down
of certain fixed assets and the accelerated amortization of capitalized
video library costs.
(2) Includes a $1.3 million non-cash compensation expense related to the grant
of stock options at exercise prices below deemed fair value.
(3) Includes for fiscal 1995, a $2.1 million write-off of goodwill associated
with a fiscal 1994 acquisition. For fiscal 1996, includes the write-off of
impaired assets and goodwill associated with certain of the Company's
acquisitions completed prior to fiscal 1995, a write down related to
certain investments in proprietary events and accruals related to the
consolidation of certain operations. See Notes 2 and 4 of Notes to
Consolidated Financial Statements.
(4) In fiscal 1996, excluding the reorganization and consolidation expenses
and the expenses referred to in notes (1) and (2), the operating loss
would have been $2.2 million.
(5) For a description of the computation of the number of shares and the net
income (loss) per share, see Note 2 of Notes to Consolidated Financial
Statements.
(6) Includes only clients whose annual billings were in excess of $25,000.
(7) Includes bank debt, subordinated notes and outstanding borrowings on lines
of credit.
14
<PAGE>
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15
<PAGE>
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16
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
PGI has completed a number of strategic acquisitions to create a vertically-
integrated business communications and event management infrastructure to
serve the Company's clients and PGI-owned exhibitions and special events.
Prior to fiscal 1996, the Company acquired a number of business communications
and event management companies in key markets throughout the United States in
order to add geographic coverage and to broaden its service offerings. In
fiscal 1996, the Company continued to acquire business communications and
event management companies and began to implement its strategy of acquiring
proprietary exhibitions with its purchase of three companies that own and
manage exhibitions and special events and two proprietary exhibitions. See
"Historical Overview."
The Company's revenues have increased to $78.3 million in fiscal 1996 from
$25.2 million in fiscal 1994, a compound annual growth rate of 76.2%. The
Company's gross margins increased to 32.1% in fiscal 1996 from 24.7% in fiscal
1994. The improvement in gross margins is primarily attributable to the
increase in the percentage of the Company's revenues derived from the higher
margin exhibition business. Between fiscal 1994 and fiscal 1996, the
percentage of the Company's revenues generated by its exhibition business
increased from 4.1% to 17.0%.
Beginning in late fiscal 1995 and continuing through fiscal 1996, the
Company has been consolidating operations and administrative functions and has
closed certain unprofitable or redundant field offices. The Company has also
invested in the personnel and systems necessary to support a larger
organization by hiring a number of senior executives and by completing the
first phase of installing networked finance, accounting and MIS systems. The
Company's results of operations for fiscal 1996 reflect the expenses
associated with these activities.
In fiscal 1996, the Company recognized approximately $6.9 million in
reorganization and consolidation expenses. These expenses included the write-
off of impaired assets and goodwill associated with certain acquisitions
completed prior to fiscal 1995, a write down related to certain investments in
proprietary events and accruals related to the consolidation of certain
operations. In fiscal 1995, the Company recognized approximately $2.1 million
in reorganization and consolidation expenses for the write-off of goodwill
from an acquisition which occurred in fiscal 1994.
The Company recognizes revenues from short-term business communications and
event management projects (those under six months) on a completed contract
basis. The Company recognizes revenues from longer-term business
communications and event management projects and from the ownership and
management of exhibitions on a percentage of completion basis. Under the
completed contract method, revenues and costs are recognized when a project is
completed. Under the percentage of completion method, the Company recognizes
revenues in proportion to the ratio that costs incurred to date bear to the
total anticipated costs. Provisions for anticipated losses are made in the
period in which they first become determinable. Revenues from the Company's
significant international operations are generally denominated in U.S. dollars
or British pounds.
The Company experiences quarterly fluctuations in revenues, operating income
and net income as a result of several factors, including the timing of
exhibitions and events, the timing of business communications and event
management projects, the non-recurring nature of certain projects and changes
in the Company's revenue mix. Revenues tend to be lower in the second fiscal
quarter because traditionally fewer events are scheduled during the winter
season. The Company's quarterly results are also subject to fluctuations in
part because of the Company's use of the completed contract method to
recognize its shorter term business communication and event management
services revenues and expenses. See "Risk Factors--Fluctuations in Quarterly
Operating Results; Episodic Nature of Business."
17
<PAGE>
The Company accounts for its acquisitions under the purchase method of
accounting, with the goodwill incurred from acquisitions being amortized over
periods ranging from 15 to 40 years. The Company has often structured its
acquisitions with contingent payment provisions. These contingent payments are
generally accounted for as additional purchase price when earned. See Note 4
of Notes to Consolidated Financial Statements.
As of August 31, 1996, the Company had net operating loss carryforwards
("NOLs") of approximately $5.0 million, expiring at various dates through
2011.
RESULTS OF OPERATIONS
The following table presents for the periods indicated certain statement of
operations data as a percentage of the Company's revenues:
<TABLE>
<CAPTION>
FISCAL YEARS ENDED AUGUST 31,
---------------------------------
1994 1995 1996
-------- -------- --------
<S> <C> <C> <C>
Revenues.................................. 100.0% 100.0% 100.0%
Cost of services.......................... 75.3 76.9 67.9
------- ------- -------
Gross profit............................ 24.7 23.1 32.1
Selling and operating expenses............ 25.6 28.1 28.5
Corporate general and administrative ex-
penses................................... 5.8 7.6 7.6
Amortization of acquisition costs......... 0.4 0.5 0.9
Reorganization and consolidation expenses. -- 5.1 8.8
------- ------- -------
Operating income (loss)................. (7.1) (18.2) (13.6)
Interest expense (income), net............ (0.1) (0.1) 1.2
Other income (expense).................... 0.4 0.1 0.3
------- ------- -------
Income (loss) before minority interests
and income taxes....................... (6.6) (18.0) (14.5)
Minority interests of consolidated subsid-
iaries................................... 0.5 (0.3) --
Income tax expense (benefit).............. (0.9) 0.0 0.9
------- ------- -------
Net income (loss)....................... (6.2)% (17.8)% (15.4)%
======= ======= =======
</TABLE>
FISCAL YEAR 1996 COMPARED TO FISCAL YEAR 1995
Revenues. Revenues increased $36.3 million, or 86.6%, to $78.3 million in
fiscal 1996 from $42.0 million in fiscal 1995. This change in revenues was due
to (i) $34.6 million in revenues from businesses acquired during fiscal 1996,
(ii) approximately $3.1 million in revenues related to a full year of revenues
from acquisitions made during fiscal 1995 and (iii) a decline in revenues of
approximately $1.3 million, or 2.0%, from operations owned by the Company
prior to fiscal 1995. The decrease in revenues from operations owned by the
Company prior to fiscal 1995 was attributable to the closures of certain
unprofitable and redundant locations. Excluding revenues from these closed
offices in both fiscal 1995 and fiscal 1996, revenues from operations owned by
the Company prior to fiscal 1995 would have increased by approximately $3.8
million, or 10.5%. As a percentage of revenues, revenues from exhibitions
owned or managed by the Company increased to 17.0% in fiscal 1996 from 3.4% in
fiscal 1995.
Gross profit. Cost of services consists of direct costs related to projects
including production costs, certain labor costs and third-party subcontractor
costs. Gross profit increased $15.4 million, or 159.7%, to $25.1 million in
fiscal 1996 from $9.7 million in fiscal 1995. As a percentage of revenues,
gross profit increased to 32.1% in fiscal 1996 from 23.1% in fiscal 1995. This
increase was due primarily to the increased percentage of the Company's
revenues being generated from its higher margin exhibition business and, in
part, to increased purchasing power with vendors and contractors due to the
Company's larger scale. If the Company's strategy of increasing the percentage
of revenues generated from owned and managed exhibitions is successful, its
gross profit margins should increase accordingly.
18
<PAGE>
Selling and operating expenses. Selling and operating expenses consist
primarily of payroll, administrative, sales commissions and occupancy expenses
and equipment depreciation at the Company's field operations. Selling and
operating expenses increased $10.5 million, or 89.3%, to $22.3 million in
fiscal 1996 from $11.8 million in fiscal 1995 as a result of the Company's
expanded operations and acquisition activities. As a percentage of revenues,
these expenses increased to 28.5% in fiscal 1996 from 28.1% in fiscal 1995,
reflecting the Company's write down of certain fixed assets and the accelerated
amortization of capitalized video library costs. Excluding these expenses
(which totalled approximately $215,000), selling and operating expenses as a
percentage of total revenues would have been 28.2% in fiscal 1996.
Corporate general and administrative expenses. Corporate general and
administrative expenses are central expenses that are incurred to support the
Company's infrastructure, including corporate management, headquarters
occupancy and centralized administrative functions such as finance and
accounting, human resources, marketing and MIS. Corporate general and
administrative expenses increased by $2.7 million, or 87.0%, to $5.9 million in
fiscal 1996 from $3.2 million in fiscal 1995, primarily reflecting the increase
in the corporate staff required to manage a significantly larger organization
and a $1.3 million non-cash compensation expense related to the grant of stock
options whose exercise prices were below deemed fair value. As a percentage of
revenues, these expenses increased to 7.6% in fiscal 1996 from 7.5% in fiscal
1995. Excluding the compensation expense related to the grant of stock options,
corporate general and administrative expenses would have increased by $1.4
million in fiscal 1996 from fiscal 1995 and would have been 5.9% of revenues.
The Company anticipates that in the future corporate general and administrative
expenses should decline as a percentage of revenues as its revenue base grows.
Amortization of acquisition costs. Amortization of acquisition costs
increased $440,000, or 192.1%, to $669,000 in fiscal 1996 from $229,000 in
fiscal 1995. As a percentage of revenues, amortization of acquisition costs
increased to 0.9% in fiscal 1996 from 0.5% in fiscal 1995. This increase
resulted from higher goodwill incurred in connection with the acquisitions
consummated during fiscal 1996.
Reorganization and consolidation expenses. In fiscal 1996, the Company wrote
off goodwill associated with acquisitions that occurred during fiscal 1994
which the Company had determined were generating significant losses and were
projected to generate losses in the future. During fiscal 1996, the Company
wrote off investments in certain events that have generated losses historically
and are projected to generate losses in the future. The Company determined that
the carrying amounts of these investments were not recoverable based on an
evaluation of the future economic benefit of the investments and their
historical and future profitability measurements. Also during fiscal 1996, the
Company recorded certain accruals related to the consolidation of unprofitable
or redundant offices. These costs consist of lease cancellation charges and the
write-off of leasehold improvements. See Note 2 of Notes to Consolidated
Financial Statements.
Operating income (loss). Operating loss increased $3.1 million to $10.7
million in fiscal 1996 from a loss of $7.6 million in fiscal 1995. Excluding
(i) $6.9 million of reorganization and consolidation expenses, (ii) $215,000 of
selling and operating expenses and (iii) $1.3 million of corporate general and
administrative expenses, operating loss for fiscal 1996 would have been $2.2
million.
Interest expense (income), net. Net interest expense increased by $974,000 to
$935,000 in fiscal 1996 from interest income of $39,000 in fiscal 1995, due
primarily to increases in seller financing assumed in connection with the
acquisitions consummated in fiscal 1995 and fiscal 1996 and higher average debt
levels under the Company's working capital and acquisition lines of credit.
Other income. Other income consists primarily of management fees from
affiliates. Other income increased $221,000 to $245,000 in fiscal 1996 from
$24,000 in fiscal 1995.
19
<PAGE>
Net income (loss). Net loss of $12.1 million in fiscal 1996 compares to a
net loss of $7.5 million in fiscal 1995. The Company has NOLs of $5.0 million
expiring beginning in 2011.
FISCAL YEAR 1995 COMPARED TO FISCAL YEAR 1994
Revenues. Revenues increased $16.8 million, or 66.4%, to $42.0 million in
fiscal 1995 from $25.2 million in fiscal 1994. This increase in revenues
included (i) $1.3 million in revenues from an acquisition completed during
fiscal 1995, (ii) $14.8 million related to a full year of revenues from
acquisitions made during fiscal 1994 and (iii) $595,000, or an increase of
4.0%, of revenues from operations owned prior to fiscal 1994.
Gross profit. Gross profit increased $3.5 million, or 55.2%, to $9.7 million
in fiscal 1995 from $6.2 million in fiscal 1994. As a percentage of revenues,
gross profit decreased to 23.1% in fiscal 1995 from 24.7% in fiscal 1994, due
primarily to a decline in certain higher margin business in the business
communication and event management operations. As a percentage of revenues,
revenues from managed exhibitions accounted for 3.4% of revenues in fiscal
1995 as compared to 4.0% of revenues in fiscal 1994.
Selling and operating expenses. Selling and operating expenses increased
$5.3 million, or 82.1%, to $11.8 million in fiscal 1995 from $6.5 million in
fiscal 1994, primarily as a result of additional expenses from acquired
operations. These expenses increased as a percentage of revenues to 28.1% in
fiscal 1995 from 25.7% in fiscal 1994. This increase resulted primarily from a
full year of selling and operating expenses associated with acquisitions
completed during fiscal 1994.
Corporate general and administrative expenses. Corporate general and
administrative expenses increased by $1.7 million, or 117.3%, to $3.2 million
in fiscal 1995 from $1.5 million in fiscal 1994, due primarily to the hiring
of several management and administrative personnel and the investment in MIS
required to support a larger company. As a percentage of revenues, corporate
general and administrative expenses increased to 7.5% in fiscal 1995 from 5.8%
in fiscal 1994, because the Company built a larger corporate infrastructure in
anticipation of accelerated acquisition activity and internal growth.
Amortization of acquisition costs. Amortization of acquisition costs
increased $137,000, or 149.3%, to $229,000 in fiscal 1995 from $92,000 in
fiscal 1994, as a result of an acquisition made in fiscal 1995 and a full
period of amortization costs related to acquisitions made during fiscal 1994.
Reorganization and consolidation expenses. In fiscal 1995, the Company wrote
off goodwill associated with an acquisition made in fiscal 1993 in accordance
with the Company's goodwill impairment policy. See Note 2 of Notes to
Consolidated Financial Statements.
Operating income (loss). Operating loss increased $5.8 million to
$7.6 million in fiscal 1995 from $1.8 million in fiscal 1994. Excluding the
impact of $2.1 million of reorganization and consolidation expenses incurred
in fiscal 1995 associated with the write-off of goodwill from an acquisition
completed in fiscal 1993, operating loss in fiscal 1995 would have been $5.5
million.
Interest expense (income), net. Net interest income increased by $26,000 to
$39,000 in fiscal 1995 from $13,000 in fiscal 1994.
Other income. Other income decreased $79,000 to $24,000 in fiscal 1995 from
$103,000 in fiscal 1994.
Net income (loss). Net loss increased by $5.9 million to $7.5 million in
fiscal 1995 from $1.6 million in fiscal 1994.
20
<PAGE>
QUARTERLY RESULTS OF OPERATIONS AND SEASONALITY
The following tables set forth certain unaudited consolidated statement of
operations data for each of the four quarters in fiscal 1995 and fiscal 1996.
The unaudited consolidated financial statements have been prepared on the same
basis as the audited consolidated financial statements contained herein and
include all adjustments that the Company considers necessary for a fair
presentation of such information when read in conjunction with the Company's
Consolidated Financial Statements and Notes thereto appearing elsewhere in
this Prospectus. The Company believes that quarter-to-quarter comparisons of
its financial results are not necessarily meaningful and should not be relied
upon as an indication of future performance. See "Risk Factors--Fluctuations
in Quarterly Operating Results; Episodic Nature of Business." Amounts shown
are in thousands, except per share data.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
---------------------------------------------
NOVEMBER 30, FEBRUARY 29, MAY 31, AUGUST 31,
1995 1996 1996 1996
------------ ------------ ------- ----------
<S> <C> <C> <C> <C>
Revenues......................... $15,612 $15,275 $24,165 $23,238
Cost of services................. 11,248 10,234 16,491 15,180
------- ------- ------- -------
Gross profit.................... 4,364 5,041 7,674 8,058
Selling and operating expenses
(1)............................. 4,065 5,794 5,979 6,490
Corporate general and
administrative expenses (2)..... 1,101 1,099 1,183 2,540
Amortization of acquisition
costs........................... 108 138 197 226
Reorganization and consolidation
expenses........................ -- -- -- 6,897
------- ------- ------- -------
Operating income (loss) (3)..... (910) (1,990) 315 (8,095)
Interest expense (income), net... 91 212 251 381
Other income (expense)........... 59 120 48 18
------- ------- ------- -------
Income (loss) before minority
interests and income taxes..... (942) (2,082) 112 (8,458)
Minority interests of
consolidated subsidiaries....... -- -- -- --
Income tax expense (benefit)..... 117 182 242 175
------- ------- ------- -------
Net income (loss)............... $(1,059) $(2,264) $ (130) $(8,633)
======= ======= ======= =======
Net income (loss) per share.....
Weighted average common shares
outstanding.....................
<CAPTION>
THREE MONTHS ENDED
---------------------------------------------
NOVEMBER 30, FEBRUARY 28, MAY 31, AUGUST 31,
1994 1995 1995 1995
------------ ------------ ------- ----------
<S> <C> <C> <C> <C>
Revenues......................... $11,818 $ 7,916 $12,068 $10,148
Cost of services................. 9,520 5,905 9,275 7,572
------- ------- ------- -------
Gross profit.................... 2,298 2,011 2,793 2,576
Selling and operating expenses... 2,353 2,622 3,077 3,740
Corporate general and
administrative expenses......... 578 814 894 881
Amortization of acquisition
costs........................... 53 53 53 70
Reorganization and consolidation
expenses........................ -- -- -- 2,122
------- ------- ------- -------
Operating income (loss)......... (686) (1,478) (1,231) (4,237)
Interest expense (income), net... 16 20 (54) (21)
Other income (expense)........... 6 6 6 6
------- ------- ------- -------
Income (loss) before minority
interests and income taxes..... (696) (1,492) (1,171) (4,210)
Minority interests of
consolidated subsidiaries....... 10 (84) 5 (48)
Income tax expense (benefit)..... -- -- -- --
------- ------- ------- -------
Net income (loss)............... $ (706) $(1,408) $(1,176) $(4,162)
======= ======= ======= =======
Net income (loss) per share.....
Weighted average common shares
outstanding.....................
</TABLE>
- -------
(1) Excluding the write down of certain fixed assets and the accelerated
amortization of capitalized video library costs, selling and operating
expenses would have been $4,065, $5,579, $5,979 and $6,490 for the four
fiscal 1996 quarters, respectively.
(2) Excluding the non-cash compensation expense related to the granting of
stock options, corporate general and administrative expenses would have
been $1,101, $1,099, $1,103 and $1,221 for the four fiscal 1996 quarters,
respectively.
(3) Excluding (i) the reorganization and consolidation expenses and (ii) the
expenses described in notes (1) and (2), operating income (loss) would
have been $(910) for the three months ended November 30, 1995, $(1,775)
for the three months ended February 29, 1996, $315 for the three months
ended May 31, 1996 and $122 for the three months ended August 31, 1996.
21
<PAGE>
The Company has experienced significant quarterly fluctuations in its
operating results and anticipates such fluctuations in the future. Typically,
revenues, operating income and net income for the Company's second quarter are
lower than those of the other quarters because traditionally fewer events are
scheduled during the winter season. Accordingly, the Company believes that
period-to-period comparisons of its results of operations may not be
meaningful and should not be relied upon as an indication of future
performance.
Quarterly revenues and operating results depend on the scheduling of events
and communications services that are episodic in nature and therefore
difficult to forecast. For example, some of the events produced by the
Company, such as the introduction of a new management team or a product
launch, do not occur on an annual or recurring basis. Operating results may
also fluctuate on a quarterly basis due to factors such as the timing of
clients' projects, delays in or cancellation of clients' communications
services projects and changes in the Company's revenue mix among its offered
services. The Company produces events and provides business communications and
event management services on a project-by-project basis and has few long-term
agreements with its clients through which the services of the Company are
retained on an on-going basis. Because the Company's staffing and other
operating expenses are based on anticipated revenue levels, a substantial
portion of which is related to specific projects, delays in scheduling
projects can cause significant variations in the Company's operating results
from quarter to quarter.
LIQUIDITY AND CAPITAL RESOURCES
The Company has financed its operations and acquisitions primarily through
the issuance of Convertible Preferred Stock, supplemented by borrowings under
its acquisition, working capital and equipment lines of credit and by
subordinated notes issued to sellers of acquired businesses.
The Company has raised approximately $27.0 million through the issuance of
Convertible Preferred Stock since 1994 and $11.0 million through the issuance
of subordinated notes to sellers of acquired businesses. PGI's credit
facilities consist of a $5.0 million acquisition line of credit, which is
secured by a first lien on all of the Company's assets and matures on May 31,
1998, a $4.0 million revolving credit line used for working capital purposes
and the issuance of standby letters of credit, which matured on September 30,
1996, and a $1.0 million equipment line, which matured on September 30, 1996.
As of August 31, 1996, $3.0 million had been drawn against the acquisition
line (the notes related thereto are repayable in monthly installments through
early fiscal 1998) and $3.0 million was outstanding under the revolving credit
line. See Note 5 of Notes to Consolidated Financial Statements.
The Company and the Bank are currently negotiating an amendment to the bank
financing arrangement. The working capital and equipment lines have expired
and the Company is in violation of certain convenants relating to one of the
lines. As of August 31, 1996, the outstanding balance on the three lines was
$6.0 million. The Company believes that these negotiations will be
successfully completed. However, if the negotiations are not successfully
completed, the Bank could accelerate the indebtedness and pursue remedies,
including foreclosure on the assets of the Company which serve as collateral
for the financing arrangement. See Note 5 of Notes to Consolidated Financial
Statements.
Proceeds from these financing activities were used to pay the cash portion
of the purchase price net of the cash acquired through acquisitions during the
period from fiscal 1994 through fiscal 1996, totaling approximately $14.4
million. In addition to financing the Company's acquisition activities, the
funds generated from the sale of equity were used to fund operating activities
and capital expenditures and to repay subordinated notes and bank debt.
Cash used by operating activities in fiscal 1996 was $5.1 million. This was
the result of a net loss of $4.3 million before depreciation and amortization
and other non-cash charges including reorganization and consolidation expenses
offset by $790,000 of changes in operating assets and liabilities. Cash used
by investing activities in fiscal 1996 was $14.3 million and was used
primarily for acquisitions and the
22
<PAGE>
purchase of property and equipment. Net cash provided by financing activities
in fiscal 1996 was $18.5 million, which resulted from the issuance of
Convertible Preferred Stock, bank borrowings and subordinated notes issued to
sellers of acquired businesses.
Cash used by operating activities in fiscal 1995 was $3.6 million, which was
primarily the result of a net loss of $4.2 million before depreciation and
amortization, the write-off of goodwill associated with an acquisition
completed in fiscal 1994 and other non-cash charges. Cash used by investing
activities in fiscal 1995 was $1.5 million, which was used primarily for
acquisitions and the purchase of property and equipment. Net cash provided by
financing activities in fiscal 1995 was $8.7 million, which resulted from the
issuance of Convertible Preferred Stock partly offset by repayments of bank
borrowings and subordinated notes issued in acquisitions.
Cash used by operating activities in fiscal 1994 was approximately $1.3
million, which was primarily the result of a net loss of $546,000 before
depreciation and amortization and other non-cash charges. Cash used by
investing activities in fiscal 1994 was approximately $1.2 million, which was
primarily used for acquisitions and the purchase of property and equipment.
Net cash provided by financing activities was approximately $2.5 million in
fiscal 1994, which resulted from the issuance of Convertible Preferred Stock
and bank borrowings.
Capital expenditures were $687,000, $972,000 and $998,000 in fiscal years
1994, 1995 and 1996, respectively, primarily for video and computer equipment.
The Company expects to spend approximately $500,000 on capital expenditures in
fiscal 1997, primarily for replacement or upgrades of such equipment.
In fiscal 1997, the Company will be required to make payments of $2.2
million for noncancellable operating leases, certain long-term obligations to
lease facilities for certain exhibitions, minimum compensation obligations of
$850,000 under employment agreements and payments of contingent purchase
prices. See Notes 6 and 7 of Notes to Consolidated Financial Statements.
The Company believes that the net proceeds from the offering and cash
generated from operations, together with existing sources of liquidity, will
be sufficient to meet its needs for working capital, capital expenditures, the
repayment of debt and the payment of contingent considerations for
acquisitions, if any, for the next twelve months. If the Company makes
significant acquisitions for cash, the Company may require additional
financing. Depending on the Company's future growth and acquisitions, the
Company will consider various financing alternatives and may seek to raise
additional capital through equity or debt financing. There can be no
assurance, however, that this funding will be available on terms acceptable to
the Company, if at all. See "Risk Factor--Risks Associated with Future
Acquisitions."
RECENT PRONOUNCEMENTS
In October 1995, the Financial Accounting Standards Board issued SFAS No.
123, "Accounting for Stock-Based Compensation," which is effective for the
Company's fiscal 1997 financial statements. SFAS No. 123 allows companies to
account for stock-based compensation under either the new provisions of SFAS
No. 123 or under the provisions of APB No. 25, but requires pro forma
disclosures in the footnotes to the financial statements as if the measurement
provisions of SFAS No. 123 had been adopted. The Company intends to continue
accounting for its stock-based compensation in accordance with the provisions
of APB No. 25. As such, the adoption of SFAS No. 123 will not impact the
consolidated financial position or the results of operations of the Company.
INFLATION
The Company does not believe that inflation has had a material effect on its
results of operations in recent years. However, there can be no assurance that
the Company's business will not be affected by inflation in the future.
23
<PAGE>
BUSINESS
THE COMPANY
PGI is a leading worldwide provider of event services on an outsourced basis
for corporations, associations and other organizations as well as on a
proprietary basis for exhibitions owned and managed by the Company. In fiscal
1996, PGI planned and executed over 1,800 events attended by more than 900,000
people in approximately 50 cities in 12 countries. In order to provide its
clients with a single source solution to their event planning needs, PGI
offers a wide range of services that encompass the event planning process,
including general management, concept creation, content creation and
execution. In addition, the Company owns and manages proprietary exhibitions
that utilize these services. The Company has developed internally and through
acquisitions a vertically-integrated infrastructure capable of providing event
services on a multinational basis. The Company believes that its vertically
integrated organization, creative talent, network of 24 offices in the United
States and abroad, technological leadership and willingness to commit capital
to acquire or develop proprietary exhibitions and special events are
competitive advantages in a fragmented industry where most vendors provide a
limited set of services on a local basis. PGI's revenues have increased at a
compound annual rate of 76.2% from fiscal 1994 to fiscal 1996.
INDUSTRY OVERVIEW
The events industry consists of companies that provide business
communications and event management services and organizations that own or
manage exhibitions. Corporations, associations and other organizations hold or
sponsor events on a frequent, often recurring, basis throughout the year in
order to communicate with customers, employees, members and other
constituencies and either produce these events internally or outsource their
production to third parties. Examples of business communications and event
management services are the design, production and execution of conventions,
sales meetings, conferences, executive presentations, shareholder and investor
meetings, training sessions and product launches. Examples of exhibitions are
trade shows, consumer shows and special events that provide a forum for face-
to-face interaction and communication, typically between buyers and sellers. A
recent study by Deloitte and Touche LLP estimated that the events industry
generated approximately $80 billion in direct spending during 1994 in the U.S.
alone, exclusive of travel and internal spending by corporations and
associations.
Business Communications and Event Management. Business communications and
event management services involve the design, planning and execution of an
organization's message. These services include concept creation, content
creation, execution and general management of the entire event. Specific
services may include speech writing, staging, video and media development and
production, production of brochures, handouts and other collateral materials,
and the planning and execution of meetings and conventions. These services are
generally provided by local or regional firms offering a limited number of
services. Most work is performed on a project-oriented basis and services are
rendered on a fee basis.
Exhibitions. Associations and other organizations own or sponsor
exhibitions, typically as a means of bringing together buyers and sellers.
Exhibitions may be owned and operated by a single party or managed by third
party providers of management services on behalf of owners. Owners of
exhibitions earn revenues through the lease of exhibit space, the sale of
sponsorships and ticket sales, all payable in advance, while third-party
managers earn a management fee, typically under multi-year contracts, which
may be supplemented by an income sharing arrangement with the exhibition
owner. Exhibition owners and managers typically use a wide range of business
communications and event management services during production of an
exhibition. While the largest owner-managers of exhibitions are divisions of
several multinational publishing companies, competition in this industry
remains highly fragmented. The top ten management companies are expected to
manage approximately 9.0% of the estimated 4,400 exhibitions being held during
1996 in North America. The Company believes that there is an increasing
24
<PAGE>
trend on the part of associations, historically the largest owners and
operators of exhibitions, to outsource the operational management and often
the ownership of exhibitions as they focus on their core missions and seek to
improve efficiencies.
According to Tradeshow Week, an exhibition and trade show publication,
during 1995, the largest 200 shows attracted over 180,000 exhibiting companies
and over 4.4 million professional attendees and used 56.9 million square feet
of exhibition space. From 1991 to 1995, this group of shows produced a
compound annual revenue growth rate from the sale of exhibition space of
approximately 4.8%, a compound annual growth rate in the number of exhibiting
companies of approximately 5.2% and a compound annual growth rate in
attendance of approximately 5.9%. The Company believes that this growth has
been driven by the realization on the part of exhibitors that exhibitions are
a highly cost-effective way of communicating with a large number of customers
with relatively modest travel and marketing expense.
The Company believes that the market for event services is undergoing a
shift toward outsourced management as organizations focus on their core
competencies and seek to improve the professionalism, creativity and cost-
efficiency of their events. Most vendors of outsourced event services are
small, local companies that cannot provide the wide range of services,
international coverage, creative talent, purchasing power and technological
capabilities required by large corporations and associations. As a vertically-
integrated service provider, PGI is able to offer a comprehensive solution to
such organizations with the assurance of a high quality of service and the
opportunity to form a long-term relationship.
THE PGI BUSINESS MODEL
For client events as well as events owned or managed by the Company, PGI
offers a single source solution to event planning and execution. PGI believes
that the Company is able to differentiate itself through its consistently high
level of creativity. The key elements of the Company's business model are:
Vertical Integration. PGI offers a wide range of services to provide clients
a single source solution to their business communications and event management
requirements. These services are provided on an outsourced basis for large
corporations and associations as well as in support of exhibitions owned and
managed by the Company. PGI's services encompass the major aspects of the
event process, including general management, concept creation, content
creation and execution. The Company believes that the depth and breadth of its
service offerings are critical competitive advantages in an industry in which
most vendors offer only a limited set of services.
Exhibition Ownership. PGI seeks to leverage its vertically-integrated
infrastructure by owning and operating exhibitions. The Company believes that
its ownership and operation of exhibitions increases recurring revenues,
enhances management's control over decision-making, reduces subcontracted
costs and efficiently allocates resources. PGI owns the intellectual property
related to an exhibition allowing the Company to expand the concept for a
successful exhibition by replicating it in new geographic locations. As of the
end of fiscal 1996, the Company owned 18 exhibitions.
Long-Term Client Relationships. In an industry often characterized by short-
term, project-oriented work, PGI seeks to develop long-term relationships with
corporate clients, trade associations and other organizations that are
potential large-scale, recurring users of the Company's services. The Company
seeks to provide the high quality of service necessary to develop and maintain
long-term client relationships.
International Presence. A fundamental operating strategy of PGI is to create
a multinational presence in order to serve the needs of large corporations and
associations, both for U.S.-based organizations that have extensive operations
abroad as well as non U.S.-based organizations. PGI has expanded its
geographic coverage from two U.S. offices in 1992 to a network of 21 offices
in the United
25
<PAGE>
States and three offices abroad as of September 30, 1996. The Company planned
events in 12 countries during fiscal 1996. The Company owns or manages 12
exhibitions outside the United States.
Human Resource Excellence. A primary value PGI brings to its clients is the
creative talent, energy and commitment of its employees. PGI seeks to attract
and retain the best personnel by developing attractive compensation, benefits
and training programs and providing long-term career opportunities that its
smaller competitors cannot duplicate. The Company's full-time staff of over
350 professionals is complemented by a pool of over 750 professionals hired on
a project-by-project basis who have distinguished themselves through prior
experience with PGI. To execute PGI's expansion plans, the Company has
recruited a number of senior executives with broad and diverse experience
managing rapidly growing international businesses.
Centralized Administration and Purchasing. An important part of PGI's
business model is to rationalize its administrative and purchasing operations
to enhance cost efficiency and quality control. The Company's Arlington,
Virginia headquarters is the center for administration, MIS, finance,
accounting and human resources that are used by personnel both at headquarters
and in PGI's field offices. Because the Company often plans and executes
multiple events in a single geographic location using the same vendors, the
Company believes that it enjoys purchasing power and economies of scale
greater than that available to its local competitors.
Technological Leadership. The Company seeks to use advanced communications
technologies such as digitized presentations and multimedia applications to
provide high quality customer service. By allocating the technological
investment over its large event base, the Company believes that it can invest
more in technology than its local competitors and thereby become a leader in
utilizing advanced technologies. In addition, PGI is creating business
communication applications using new media, such as CD-ROMs, interactive video
and the Internet.
GROWTH STRATEGY
PGI's growth strategy has the following elements:
Acquire and Develop Proprietary Exhibitions and Special Events. The major
focus of the Company's growth strategy over the next several years will be the
acquisition and development of proprietary exhibitions and special events. The
Company plans to acquire exhibitions that are leaders in their markets, to
replicate successful exhibitions in new locations, to spin off portions of
exhibitions into separate exhibitions and to develop new exhibitions in
geographic and product markets that are underserved. Exhibitions and special
events will be managed and executed by various operating entities of PGI,
enhancing quality control and permitting PGI to capture a greater percentage
of the profits generated.
Extend Relationships with Existing Clients. The Company believes that
substantial opportunities exist to expand relationships with existing clients
by cross-selling the full range of the Company's services, building out its
international office network and expanding the Company's service offerings,
particularly with respect to multimedia capabilities. The Company seeks to
capitalize on the services provided to one division or operation of a client
by selling its services to other divisions or operations, including foreign
operations, of its clients. The Company recently initiated an advertising and
public relations program to enhance its brand recognition in the marketplace.
Build New Client Relationships. As organizations focus on their core
competencies and seek to improve the professionalism, creativity and cost-
efficiency of their events, the Company believes they will continue to
outsource the management of events. PGI believes that many opportunities exist
to add new clients with large-scale business communications and event
management needs. The Company seeks
26
<PAGE>
relationship-building opportunities through client referrals and its 60-person
sales force. The Company actively sponsors, manages, participates in and, in
some cases, owns, industry events attended by potential clients (such as
meeting planners) highlighting its capabilities and market presence.
Expand International Network. PGI believes that corporations, associations
and other organizations located abroad or with extensive operations abroad are
increasingly interested in building relationships with business communications
and event management firms and owners of events who can provide services on a
worldwide basis. In order to better serve these organizations, PGI plans to
expand its network of offices in Europe, and expand into Asia and Africa.
Make Selected Infrastructure Acquisitions. The Company believes that as the
event industry continues to consolidate there will be many domestic and
international acquisition opportunities. PGI may acquire or affiliate with
select additional companies to expand its client base, further build out its
infrastructure, add new service applications or provide additional operating
efficiencies and synergies, particularly in international markets. Over the
past three years, the Company has made 13 acquisitions to build a vertically-
integrated infrastructure capable of providing event services on a
multinational basis.
Expand Multimedia Services. The Company provides digital communications and
multimedia services to clients in such areas as exhibition promotion, training
programs and Internet home pages. The Company designs and develops Web sites,
CD-ROM materials, promotional videos, targeted marketing presentations and
other multimedia products. The Company believes that continued technological
advances, coupled with the growing need of organizations to more effectively
tailor their messages, will create opportunities for PGI to develop new
services for clients, particularly for business communications and event
management services.
SERVICES
In order to provide its clients with a single source solution for their
business communications and event management needs, PGI offers a wide range of
services that encompass the event planning process, including general
management, concept creation, content creation and execution. PGI provides
these services to its clients and for its own events.
General Management Services. PGI's general management services provide
clients with centralized coordination and execution of the overall event.
PGI's services for a client are coordinated by an executive producer who is
responsible for overseeing the production of an event or exhibition.
Specifically, PGI provides:
. Oversight of the project
. Oversight of the budget
. Quality assurance and control
. Project funding and sponsorship development
. Project control and accountability
. Event promotion and marketing creation
. Schedule management
. Management of fulfillment providers
Concept Creation. PGI works with a client to craft the client's message, to
identify the best means of communicating the message and to develop cost-
effective, creative solutions. Specifically, PGI provides:
. Joint determination of client needs and goals
. Market research to support message creation and communication
. Design of the elements of the message
. Selection of types of media within budget constraints
. Initial project pricing and budgeting
27
<PAGE>
Content Creation. Once the concept for an event is created, PGI
professionals then work to develop and produce the message. Specifically, PGI
provides:
. Composition of speeches
. Creation of speaker support graphics
. Video production
. Creation of digital media
. Design and distribution of collateral materials
. Entertainment and speaker scripting and booking
. Theme and staging design
Execution. PGI uses its internal resources to execute the event. As client
needs dictate, PGI can structure its role to be transparent to event
participants. Specifically, PGI provides:
. On-site quality and logistics control
. Hotel and venue coordination and buying
. Transportation management
. Security coordination
. Telemarketing services for sale of exhibition space
. Hospitality management
. Registration management
. Cash and payment management
. Entertainment booking and coordination
. Design of tour programs
. Permit and approval procurement
. Food and beverage management
The last stage in the event process is fulfillment, the actual provision of
services such as catering, registration, transportation rental, audio/visual
equipment rental, decor rental and temporary on-site labor. PGI determines on
an event-by-event basis whether to hire third party vendors to provide the
fulfillment needs for a particular event.
PGI earns fees for proprietary exhibitions through the lease of exhibit
space, the sale of sponsorships and ticket sales, all payable in advance. When
the Company manages an exhibition, it earns a management fee which may be
supplemented by an income sharing arrangement with the owner. The Company
earns revenues for business communications projects on a fee-for-service
basis.
CASE STUDIES
PGI's integrated infrastructure and operations provide support to those
professionals in the Company who have direct client contact and fulfillment
responsibility. Generally, the Company staffs a particular project with a team
of three to seven core members who are responsible for the overall project
under the direction of an executive producer. This team selectively utilizes
other PGI resources in order to create the concept and content for an event
and then to prepare and execute the event. The Company managed over 1,800
events during fiscal 1996, and the following are examples of PGI's vertically-
integrated services and creative capabilities.
Proprietary Exhibitions. During fiscal 1996, PGI acquired two exhibitions
known as Destinations Showcase from the International Association of
Convention and Visitors Bureaus (IACVB). These exhibitions serve the meeting
planning community and are typically attended by over 280 meeting planners.
Prior to the acquisition, there were two Destinations Showcase exhibitions,
one held in Washington, D.C. and one held in Chicago. Working together with
the IACVB, PGI created a third exhibition held in New York City by replicating
the existing exhibitions. PGI professionals created, designed and executed the
New York event using PGI's vertically-integrated infrastructure. PGI organized
and designed the trade show, organized panels, created multimedia
presentations shown during the event, and coordinated the third party vendors
that provided fulfillment services. PGI organized the exhibition
28
<PAGE>
so that it concluded with PGI-scheduled entertainment in an effort to expose
the attending meeting planners to PGI's staging, production and entertainment
booking expertise. The Company promoted the event through direct mailings to
potential attendees, announcements in industry publications and advertisements
at the other Destinations Showcase exhibitions.
Business Communications and Event Management. A telecommunications company
sought to create a meeting that would introduce its new executive team to its
employees, establish an environment of cooperation between management and
employees and communicate its annual objectives. PGI created an event that
would reflect these themes and allow direct participation by employees. PGI
designed and created a series of interactive kiosks in which a digitized
photograph was taken of a participant who then created his or her own message
to senior management on a key pad. These messages, as well as images of
participants and management, were displayed during the event as a "video
wall," which participants could see as they moved around the meeting facility.
PGI created a follow-up video that was sent to each of the company's offices
that included a selection of the messages and images, an introduction of the
new executives and their communication of the company's annual objectives.
Integrated Services. PGI has managed events that have both an exhibition
services component as well as a business communication services component. For
example, a Fortune 50 company holds an annual conference and trade show for
its distributors and dealers to promote and strengthen the company's brand
name. Although the client initially believed that it needed to hire a number
of service providers to implement the conference and trade show, PGI won the
competitive bidding process and was engaged by the company to be the general
manager of the entire project based on its single source capabilities. PGI
worked with the client to create the concept and content of the trade show,
general sessions, seminars and special events. PGI professionals designed
speeches, video and digital speaker support, established a rehearsal schedule
for the conference presenters and created a resource center for the presenters
that brought together graphics, teleprompting and speech coach resources. In
order to create the appropriate atmosphere for the presentations, PGI designed
and created the stages and lighting plans and hired third party vendors to
construct them. The Company also managed numerous logistical services
including registration and housing reservations, air and ground
transportation, badging and credentials, reception services and catering. PGI
negotiated hotel arrangements, coordinated rooming lists, selected
entertainment, designed program marketing and print materials and hired
vendors, all within the client's specified budget.
SALES AND MARKETING
The Company has separate sales forces that target users of business
communications and event management services and exhibition management
services. The Company's senior management team and executive producers of
events are frequently influential in establishing and expanding new client
relationships. Sales personnel are compensated through a commission plan based
on a percentage of either gross profits or gross revenues. The Company
recently initiated an advertising and public relations program to enhance its
brand recognition in the marketplace. Under this program, the Company actively
sponsors, manages, participates in and, in some cases, owns, industry events
attended by potential clients (such as meeting planners), highlighting its
capabilities and market presence.
Business Communications and Event Management. The Company's sales force
comprises approximately 60 full-time sales people who identify prospects,
respond to requests for proposals and create solutions to clients' requests.
The Company has created compensation incentives to encourage the sales force
to sell the Company's wide range of services. New business is generated by (i)
pursuing client referrals from existing clients and other business contacts,
(ii) expanding sales to existing clients by providing additional services, and
(iii) new client solicitation. An executive sales person and an executive
producer maintain the ongoing client relationship. These team leaders develop
a close working relationship with clients that require a broad range of
services for their events.
Exhibitions. The Company expands through the addition of new exhibitions and
through expansion opportunities with existing exhibitions. Approximately ten
executives focus on adding new exhibitions
29
<PAGE>
through (i) the acquisition of exhibitions, (ii) replication of an existing
exhibition, (iii) identification of a spin-off opportunity from an existing
exhibition, (iv) creation and development of a new exhibition, and (v) multi-
year management agreements with exhibition owners. These executives are also
responsible for selling corporate and association sponsorships for exhibitions
and promoting attendance at events. Once PGI has acquired an exhibition, or
has been engaged to manage an exhibition, members of the Company's 15 person
exhibition sales staff are assigned to sell floor space using targeted
promotional mailings followed by telemarketing and personal contact.
STRUCTURE AND INTEGRATION OF ACQUISITIONS
The Company has pursued a number of strategic acquisitions to create a
vertically-integrated business communications and event management structure
to serve the Company's clients and PGI-owned events. The Company's
acquisitions of business communications and event management companies were
intended to add geographic coverage to the Company's existing businesses and
to broaden the Company's service offerings. With this infrastructure in place,
the Company began to implement its strategy of acquiring proprietary
exhibitions and during fiscal 1996 acquired two exhibition companies and two
proprietary exhibitions.
The Company's acquisition strategy has been to acquire companies with
complementary assets, significant client relationships and technical
expertise. The Company also considers the ability of the candidate's
management team to contribute to the Company's operations, the synergistic
effect of the acquisition on the Company's operations and the attractiveness
of the candidate's location. The Company seeks to retain owners and managers
of the acquisition candidate. The Company has often structured its acquisition
agreements with contingent payment provisions. The Company continues to
evaluate potential acquisitions and negotiate with several potential
acquisition candidates. There can be no assurance, however, that the Company
will be able to identify and acquire desirable acquisition candidates on terms
favorable to the Company or in a timely manner. See "Risk Factors--Risks
Associated with Future Acquisitions."
Following an acquisition, the Company integrates the acquired business with
its existing operations and takes advantage of cross-selling opportunities.
The Company seeks to expand the acquired business into new markets
complementary to the Company's operations. The Company seeks to consolidate
operations and administrative functions, eliminate redundant facilities,
reduce administrative overhead and consolidate its purchasing power. In
connection with this rationalization, in fiscal 1995 and 1996, the Company has
recognized certain material reorganization and consolidation expenses related
to write-offs or write downs of acquired assets and facility closings. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and Note 2 of Notes to Consolidated Financial Statements. The
Company may find it necessary to incur substantial restructuring and
consolidation costs with respect to future acquisitions. These costs may have
an adverse impact on the financial results of the Company.
OPERATIONS
PGI provides services through its headquarters and 20 field offices in the
United States as well as three international field offices. The Company's
full-time staff of over 350 professionals is complemented by a pool of over
750 project professionals hired on a project-by-project basis who have
distinguished themselves through prior experience with PGI. The Company
centralizes many of its administrative and purchasing functions at its
headquarters, while creative, production and sales personnel service clients
from PGI's field offices. Large, national clients are served by a sales person
who introduces the client to the Company's multinational execution
capabilities and is responsible, typically together with an executive
producer, for maintaining the client relationship at the local level.
The Company's operations are generally organized to serve the two principal
areas of the events industry, with separate groups responsible for the
exhibitions and the business communications and events management components
of the Company's business. PGI professionals in the Company's exhibition
management group oversee the management and marketing of exhibitions owned by
corporations and
30
<PAGE>
associations as well as those owned by the Company. Professionals in the
Company's business communications group provide creative solutions for
organizations seeking to develop and execute conventions, meetings and other
means of communicating with their intended audiences.
PGI's event planning and destination logistics group, its entertainment
production and distribution group and its multimedia and Internet services
group provide support for the Company's two industry groups. The Company's
professionals work closely together to develop, produce and execute an event
or communication. In addition, PGI's clients seeking a particular service may
engage any of these groups independently. See "--Services."
COMPETITION
The Company competes with owners and managers of exhibitions and with
vendors of business communications and event management services.
Exhibitions. The Company competes for the ownership of exhibitions with a
wide variety of potential owners including divisions of several multinational
publishing companies. The Company competes for exhibition ownership generally
on the basis of management style, opportunities offered to owners and
employees of the acquired businesses and price. The Company competes for the
management of exhibitions with divisions of multinational publishing companies
as well as with small to mid-sized companies specializing in managing
exhibitions. PGI principally competes for the management of exhibitions on the
basis of quality of management, marketing ability and track record. Once PGI
owns or manages an exhibition, PGI competes for exhibitors and attendees with
corporations and associations that offer alternative exhibitions. PGI
principally competes for exhibitors on the basis of the timing of the
exhibition, participation by industry leaders, history of audience attendance,
location and availability of exhibition space.
Business Communications and Event Management. The Company competes for
business communications and event management projects primarily with a large
number of local and regional firms that generally provide a limited range of
services, although there are a few companies, such as Caribiner International,
Inc., with national presence and greater scope of services than those provided
by local vendors. The Company also competes with specialized vendors such as
production companies, meeting planning companies and destination logistics
companies. The Company principally competes on the basis of service breadth
and quality, creativity, responsiveness, geographic proximity to the client
and price.
FACILITIES
PGI's corporate headquarters are located in Arlington, Virginia, in
approximately 22,000 square feet of leased office space. The Company's
headquarters lease expires in April 2003, with an option to renew for an
additional period of five years. As of September 30, 1996, PGI had 20 sales
and production offices in the United States in Atlanta; Boston; Chicago;
Dallas; Irvine, California; Las Vegas (2); New York (2); Orlando; Palm
Springs; Phoenix (2); San Antonio; San Diego (2); San Francisco; San Mateo;
Washington, D.C.; Wyckoff, New Jersey; and three international offices in
Hamburg (Germany); London (England); and Baku (Azerbaijan).
EMPLOYEES
As of September 30, 1996, the Company had 359 full-time and 20 part-time
employees. The Company has no collective bargaining or similar agreements with
unions; however, from time to time the Company independently contracts or
hires part-time union personnel, particularly during the production of a
particular meeting or event. The Company considers its relations with its
employees to be good.
LEGAL PROCEEDINGS
The Company is involved in routine legal proceedings incidental to the
conduct of its business. Management believes that none of these legal
proceedings will have a material adverse effect on the financial condition or
results of operations of the Company.
31
<PAGE>
MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The executive officers and directors of the Company are:
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Mark N. Sirangelo (1)... 35 Chairman of the Board of Directors, President,
and Chief Executive Officer
Darryl Hartley-Leonard.. 51 Vice Chairman of the Board of Directors
John M. Green........... 45 Executive Vice President
Richard S. Bartell...... 43 Senior Vice President and Chief Financial Officer
Edward P. Doody......... 49 Senior Vice President and Director
Douglas L. Ducate....... 55 Senior Vice President
Mary C. King............ 35 Senior Vice President and Secretary
Robert A. Kirkland...... 54 Senior Vice President
Cyril M. Wismar......... 51 Senior Vice President
Robert C. McCormack
(1)(2)................. 56 Director
Peter C. Wendell (1)(2). 46 Director
</TABLE>
- --------
(1)Member of the Compensation Committee.
(2)Member of the Audit Committee.
Mr. Sirangelo founded the Company and has served as the Chairman of the
Board of Directors, President and Chief Executive Officer of the Company since
June 1991. He was Executive Vice President of National Trade Productions,
Inc., an exposition and trade show management company from July 1989 to May
1991. He was President and Chief Operating Officer of Rowley-Scher, Inc., a
graphics arts and communications company from February 1986 to June 1989. He
was Vice President of Repro-Tech, Inc., a publishing and printing company from
January 1983 to January 1985.
Mr. Hartley-Leonard has served as the Vice Chairman of the Board of
Directors of the Company since June 1996. He has served as the Vice Chairman
of Regency Productions/PGI, an event production and entertainment marketing
firm since June 1996. For over 30 years, he was employed by Hyatt Hotels
Corporation. From June 1994 until he joined the Company, Mr. Hartley-Leonard
was Chairman of the Board of Hyatt Hotels Corporation, and from 1983 until
June 1994, he was President of Hyatt Hotels Corporation. He is currently the
Chairman of the U.S. Department of Commerce Travel and Tourism Advisory Board
and the Travel and Tourism Government Affairs Council. He also serves on the
boards of directors of Royal Caribbean Cruise Lines and DART, Inc.
Mr. Green has served as the Company's Executive Vice President since
February 1996. He was Senior Vice President, Finance and Corporate Controller
of Marriott International Corporation from May 1995 to February 1996. He was
Senior Vice President, Chief Financial Officer and Planning with Host Marriott
Corporation from December 1991 to April 1995. Mr. Green also was Vice
President, Finance and Planning with Marriott Corporation from May 1989 to
December 1991. He was employed by PepsiCo, Inc. from July 1978 to April 1989,
most recently as Director of Corporate Planning.
Mr. Bartell has served as the Company's Chief Financial Officer since
February 1996. He was Senior Vice President of Finance for Citicorp Diners
Club, Inc. from August 1986 to January 1996. He was the Controller of Applied
Learning, a division of the National Education Corporation from January 1983
to June 1986.
32
<PAGE>
Mr. Doody has served as the Company's Senior Vice President since March 1994
and as an officer and a director since November 1993. He was Director of
International Sales and Marketing of NovAtel CARCOM, a manufacturer of
cellular phones, from February 1993 to March 1994. He was President and Chief
Operating Officer of National Cellular, Inc. from August 1992 to February
1993. From October 1984 to August 1992, he was President of Meteor-Siegen,
Inc., a subsidiary of Meteor-Siegen Apparatebau Paul Schmeck, a manufacturer
of printing, photographic and engineering support equipment.
Mr. Ducate joined the Company in January 1995 and has served as the
Company's Senior Vice President since February 1996. He was Associate
Executive Director of the Society of Petroleum Engineers from August 1968 to
December 1994. He served as Chairman of the Convention Liaison Council in
1992, President of the International Association for Exposition Management
from 1986 to 1992 and has served as a director of the American Society of
Association Executives and the Professional Convention Management Association
since 1994.
Ms. King has served as the Company's Senior Vice President since February
1996 and has been responsible for human resources management since she joined
the Company in February 1994. She was an independent consultant specializing
in human resources from August 1989 to February 1994. From December 1985 to
August 1989, she was Director of Human Resources for Rowley-Scher
Reprographics, Inc.
Mr. Kirkland joined the Company in October 1995 and has served as the
Company's Senior Vice President since February 1996. He was employed by
Maritz, Inc., an incentive travel, performance improvement and meeting
management company from October 1965 to February 1994, most recently as a
Corporate Vice President.
Mr. Wismar joined the Company in December 1990 and has served as the
Company's Senior Vice President since February 1996. He was President of
Wismar Creative Group, Inc., a communication concept, design and production
company from October 1986 to April 1991. From May 1983 to December 1986, he
was Executive Vice President and Executive Producer for Kartes Video
Communications, a video production and distribution company.
Mr. McCormack has served as a director of the Company since November 1993.
He has been the Co-Chairman of Trident Capital, Inc. since May 1993. From
January 1990 to January 1993, he was Assistant Secretary of the Navy
(Financial Management). Prior to that, he served in a variety of management
positions at the Department of Defense. Mr. McCormack also serves on the
boards of directors of DeVry, Inc., Illinois Tool Works, Inc. and MetroMail
Corporation.
Mr. Wendell has served as a director of the Company since November 1993.
Since 1982, Mr. Wendell has been a partner of Sierra Ventures, a $260 million
venture capital firm focusing on information technology, health care and
service businesses. Mr. Wendell also currently holds a faculty appointment at
Stanford University's Graduate School of Business. He currently serves on the
boards of directors of five private companies.
Messrs. McCormack and Wendell were each originally elected to the Board
pursuant to a voting agreement entered into in connection with the sale of the
Company's Series C Preferred Stock in November 1993. That voting agreement
will terminate upon the closing of this offering.
DIRECTORS; COMMITTEES
The number of directors of the Company is currently fixed at five. Following
this offering, the Company's Board of Directors will be divided into three
classes, with members of each class of directors serving for staggered three-
year terms. The Board will consist of one Class I Director (Mr. Hartley-
Leonard), two Class II Directors (Messrs. McCormack and Wendell), and two
Class III Directors (Messrs. Doody and Sirangelo), whose initial terms will
expire at the 1997, 1998 and 1999 annual meetings of stockholders,
respectively.
33
<PAGE>
The Board of Directors has established an Audit Committee and a Compensation
Committee. The Audit Committee, consisting of Messrs. McCormack and Wendell,
recommends the firm to be appointed as independent accountants to audit
financial statements and to perform services related to the audit, reviews the
scope and results of the audit with the independent accountants, reviews with
management and the independent accountants the Company's annual operating
results, considers the adequacy of the internal accounting procedures and
audit procedures of the Company and reviews the non-audit services to be
performed by the independent accountants. The Compensation Committee,
consisting of Messrs. Sirangelo, McCormack and Wendell, reviews and recommends
the compensation arrangements for officers and other senior level employees,
reviews general compensation levels for other employees as a group, and
determines the options to be granted to eligible persons under the Company's
1995 Stock Plans.
COMPENSATION OF DIRECTORS
Directors of the Company to date have received no compensation for their
services in such capacity, but are reimbursed for out-of-pocket expenses in
connection with attendance at Board and committee meetings. Under the 1997
Directors' Stock Option Plan, directors of the Company who are not employees
of the Company are eligible to receive non-statutory options to purchase
shares of Common Stock. The plan was adopted by the Board of Directors in
October 1996. See "Management--Employee Stock and Other Benefit Plan."
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Company did not have a Compensation Committee of the Board of Directors
prior to September 1996. Prior to that date, all executive officer
compensation decisions have been made by Mr. Sirangelo in consultation with
the Board of Directors.
34
<PAGE>
EXECUTIVE COMPENSATION
The following table sets forth information concerning compensation paid to
the Chief Executive Officer and the other four executive officers whose
aggregate salaries and bonuses exceed $100,000 (collectively, the "Named
Executive Officers") for all services rendered in all capacities to the
Company for the year ended August 31, 1996.
SUMMARY COMPENSATION TABLE(1)
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
AWARDS
------------
SECURITIES
1996 ANNUAL UNDERLYING
COMPENSATION OPTIONS
------------------ (NUMBER OF ALL OTHER
NAME AND POSITION SALARY BONUS (2) SHARES) COMPENSATION
----------------- -------- --------- ------------ ------------
<S> <C> <C> <C> <C>
Mark N. Sirangelo............... $250,008 $ -- 170,000 $ 877 (3)
Chairman of the Board of
Directors,
President and Chief Executive
Officer
Edward P. Doody................. 158,962 30,000 30,000 --
Senior Vice President and Di-
rector
Douglas L. Ducate............... 178,339 -- 25,000 $1,665 (4)
Senior Vice President
Robert A. Kirkland(5)........... 127,086 -- 25,000 --
Senior Vice President
Cyril M. Wismar................. 150,006 60,000 2,000 --
Senior Vice President of
Marketing and Communications
</TABLE>
- --------
(1) Two executive officers, Messrs. Green and Bartell, joined the Company in
February 1996 and would have appeared in the table above had they been
employed by the Company for a full fiscal year.
(2) Amounts shown include bonuses accrued in 1995 and paid in 1996.
(3) Represents payment by the Company of the annual premium for key man
insurance.
(4) Represents payment by the Company of the annual premium for key man
insurance.
(5) Mr. Kirkland joined the Company in October 1995 and is compensated at an
annual base salary of $150,000. See "--Employment Agreements."
35
<PAGE>
OPTION GRANTS AND HOLDINGS
The following table summarizes the options which were granted during the
fiscal year ended August 31, 1996 to the Named Executive Officers.
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
POTENTIAL
REALIZABLE
VALUE AT
INDIVIDUAL GRANTS ASSUMED ANNUAL
-------------------------------------------------- RATES OF STOCK
% OF TOTAL PRICE APPRECIATION
NUMBER OF OPTIONS FOR OPTION
SECURITIES GRANTED TO EXERCISE TERM (3)
UNDERLYING EMPLOYEES IN PRICE EXPIRATION ------------------
NAME OPTIONS (1) FISCAL YEAR (2) ($/SH) DATE 5% ($) 10% ($)
---- ----------- --------------- ----------- ---------- ------ -------
<S> <C> <C> <C> <C> <C> <C>
Mark N. Sirangelo....... 170,000 28.1% $1.40-$3.00 2006
Edward P. Doody......... 30,000 5.0 1.40 2006
Douglas L. Ducate....... 25,000 4.1 1.40 2006
Robert A. Kirkland...... 25,000 4.1 1.40 2006
Cyril M. Wismar......... 2,000 * 1.40 2006
</TABLE>
- --------
* Less than 1%.
(1) The options are immediately exercisable upon grant; however, other than
with respect to Mr. Sirangelo's options, the Company has a repurchase
option that expires with respect to one-fourth of the shares on the first
anniversary of the grant date and declines thereafter in 36 monthly
increments provided that such officer remains continuously employed by the
Company. All options terminate ten years after the grant date, subject to
earlier termination in accordance with the Company's 1995 Stock Plans.
(2) Based on options to purchase 605,300 shares of Common Stock granted in
fiscal 1996.
(3) This column shows the hypothetical gains or "option spreads" of the
options granted based on the assumed annual compound stock appreciation
rates of 5% and 10% over the terms of the options. The 5% and 10% rates do
not represent the Company's estimate or projection of future Common Stock
prices. The gains shown are net of the option exercise price, but do not
include deductions for taxes or other expenses associated with the
exercise of the option or the sale of the underlying shares, or reflect
nontransferability, vesting or termination provisions. The actual gains,
if any, on the exercises of stock options will depend on the future
performance of the Common Stock.
36
<PAGE>
The following table summarizes information on aggregate option exercises in
the fiscal year ended August 31, 1996 and information with respect to the
value of unexercised options to purchase the Company's Common Stock for the
Named Executive Officers. None of the Named Executive Officers exercised any
stock options during 1996.
AGGREGATED EXERCISES IN LAST FISCAL YEAR AND
FISCAL YEAR END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS
OPTIONS AT FISCAL YEAR END AT FISCAL YEAR END (2)
----------------------------- -------------------------
NAME EXERCISABLE (1) UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- --------------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Mark N. Sirangelo............. 270,000 0
Edward P. Doody............... 17,500 12,500
Douglas L. Ducate............. 9,895 15,105
Robert A. Kirkland............ 0 25,000
Cyril M. Wismar............... 70,000 2,000
</TABLE>
- --------
(1) The options are immediately exercisable upon grant; however, other than
with respect to Mr. Sirangelo's options, the Company has a repurchase
option that expires with respect to one-fourth of the shares on the first
anniversary of the grant date and declines thereafter in 36 monthly
increments provided that such officer remains continuously employed by the
Company. All options terminate ten years after the grant date, subject to
earlier termination in accordance with the Company's 1995 Stock Plans.
(2) There was no public trading market for the Common Stock as of August 31,
1996. Accordingly these values have been calculated on the basis of an
assumed initial public offering price of $ per share, less the
applicable exercise price.
EMPLOYEE STOCK AND OTHER BENEFIT PLANS
401(k) Plan. Effective January 1994, the Company adopted a profit sharing
plan (the "401(k) Plan") covering all of the Company's employees who have
completed one year of service and have attained the age of 21. The 401(k) Plan
is intended to be a tax-qualified plan under Section 401(a) of the Code. The
401(k) Plan enables employees to reduce their taxable compensation by electing
to defer current compensation into the 401(k) Plan, up to the statutorily
prescribed annual limit. The Company may, but is not required to, make
matching contributions to the 401(k) Plan based on the discretion of the Board
of Directors. Each participant becomes fully vested in the Company's
contributions allocated to his or her account upon completion of six years of
service. The Company has never made any matching contributions.
Stock Option and Stock Issuance Plans. On March 15, 1995, the Company's
Board of Directors adopted and on April 20, 1995, the stockholders approved
the 1995 Stock Option/Stock Issuance Plan (California) (the "California Plan")
and the 1995 Stock Option/Stock Issuance Plan (Virginia) (the "Virginia Plan")
(collectively known as the "1995 Stock Plans"). The 1995 Stock Plans are
intended to motivate and reward designated officers and other key employees of
the Company and its subsidiaries who contribute to the growth of the Company
by granting them stock options for shares of Common Stock or by granting them
stock. Under the 1995 Stock Plans options and awards may be granted to
employees and consultants of the Company and each option and award are
evidenced by written agreements between the Company and the employee. As of
September 30, 1996, the Company has not granted any direct stock awards under
the 1995 Stock Plans.
The Company has authorized 1,156,000 shares of Common Stock for issuance
under the 1995 Stock Plans, including 250,000 shares authorized by the Board
of Directors subsequent to September 30, 1996. As of September 30, 1996,
options for 1,000 shares were exercised, options for 861,995 shares were
37
<PAGE>
outstanding and 293,005 shares remained available for future grant under the
1995 Stock Plans. During fiscal 1991 and 1995, options to purchase 20,000 and
95,000 shares were granted outside of the 1995 Stock Plans, respectively, at
an exercise price of $0.01 per share. During fiscal 1996, options for 1,000
shares were granted outside of the 1995 Stock Plans, at an exercise price of
$1.40 per share, and options for 50,000 shares were granted outside of the
1995 Stock Plans to two outside directors, at an exercise price of $3.00 per
share.
The 1995 Stock Plans are administered by the Compensation Committee, which
has the authority to determine the plans' participants and the terms and
conditions of the options and awards granted under the plans including the
number of shares or the amount of other awards, the price or performance goals
and vesting and termination provisions. The Committee has the authority to
construe and interpret the provisions of the 1995 Stock Plans.
Under the California Plan, the exercise price of stock options and the
purchase price of the Common Stock must be not less than 85% of the fair
market value of a share of Common Stock on the date the option is granted or
the date the stock is issued (110% with respect to persons who own stock
possessing more than 10% of the total combined voting power of all classes of
stock of the Company ("10% Owners")). Under the Virginia Plan, the exercise
price of the stock options and the purchase price of the Common Stock may be
less than, equal to or greater than the fair market value of a share of Common
Stock on the date of the grant or the date the stock is issued.
Options intended to qualify as incentive stock options under the Code or
nonqualified stock options may be granted under the 1995 Stock Plans. The
exercise price of incentive stock options granted under the 1995 Stock Plans
must be at least equal to the fair market value of the Common Stock on the
date of the grant except that the exercise price of an incentive stock option
granted to a 10% Owner must be at least 110% of the fair market value of the
Common Stock on the date of grant. The exercise price of nonqualified stock
options granted under the 1995 Stock Plans may not be less than the fair
market value of the Common Stock on the date of the grant. Options granted
under the 1995 Stock Plans will vest at such times as are specified by the
Committee. An option granted to a participant will expire on the date
determined by the Committee, which date may not exceed 10 years from the date
of grant, except that an incentive stock option granted to a 10% Owner must be
exercised within five years of the date of grant.
If a participant with outstanding options or awards is terminated for any
reason other than death or disability, the participant may exercise any
outstanding option or award, to the extent it has vested, for a period of
three months following termination. If the participant is terminated due to
temporary disability, he may exercise any outstanding option for a period of
six months from the date of termination and for a period of twelve months in
the case of permanent disability. If a participant with outstanding options
dies, such options may be exercised by the individual or his personal
representative within the period of one year after the date of death. If an
individual with outstanding options or awards ceases to be an employee on
account of termination for cause by the Company or a voluntary termination of
employment by the employee, any outstanding option or award shall terminate as
of the date he ceases to be an employee (except as the Committee may otherwise
provide). If the Company terminates a participant for any reason other than
those previously described, any outstanding option or award, to the extent
that it was exercisable on the date of such termination, may be exercised by
the holder within thirty days (or such shorter time as may be specified by the
Committee in the participant's agreement), but in no event later than the
expiration of the option or award.
The Board may amend or terminate the 1995 Stock Plans at any time, except
that the Board cannot amend the plans to materially increase the benefits
accruing to participants under the plans, increase the aggregate number (or
individual limit) of shares of Common Stock that may be issued or transferred
under the plans, or modify the requirements as to the eligibility for
participation in the plans without the
38
<PAGE>
approval by the stockholders. In addition, the Board is prohibited from
amending the 1995 Stock Plans if such amendment would cause the plans or any
option or award, or the exercise of any right under the plans to fail to
comply with the requirements of Rule 16b-3 under the Securities Exchange Act
of 1934, as amended, or would cause the 1995 Stock Plans, the option or award
or the exercise of an incentive stock option under the plans, to fail to
comply with the requirements of Section 422 of the Internal Revenue Code of
1986, as amended. No amendment of the plans may adversely affect any
outstanding options or awards without the consent of each holder thereof.
1997 Directors' Stock Option Plan. The Director Plan was adopted by the
Board of Directors in October 1996, subject to approval by the stockholders.
Under the terms of the Director Plan, directors of the Company who are not
employees of the Company are eligible to receive non-statutory options to
purchase shares of the Common Stock. A total of 100,000 shares of Common Stock
may be issued upon exercise of options granted under the Director Plan. Unless
terminated sooner by the Board of Directors, the Director Plan will terminate
in 2006, or the date on which all shares available for issuance under the
Director Plan shall have been issued pursuant to the exercise of options
granted under the Director Plan.
Upon a member's initial election or appointment to the Board of Directors
after the date of this Prospectus, such member will be granted options to
purchase 10,000 shares of Common Stock. Annual options to purchase 2,500
shares of Common Stock will be granted to each eligible director on the date
of each annual meeting of stockholders commencing in 1998. Such annual options
will vest in full at the earliest of (i) the first anniversary of the date of
the grant or (ii) the date of the next annual meeting of stockholders. The
exercise price of options granted under the Director Plan will equal the
closing price per share of the Common Stock on the date of grant.
Options granted under the Directors Plan are not transferable by the
optionee except by will or by the laws of descent and distribution or pursuant
to a qualified domestic relations order. In the event an optionee ceases to
serve as a director, each option may be exercised by the optionee for the
portion then exercisable at any time within 60 days after the optionee ceases
to serve as a director; provided, however, that in the event that the optionee
ceases to serve as a director due to his death or disability, then the
optionee, or his or her administrator, executor or heirs, may exercise the
exercisable portion of the option for up to 180 days following the date the
optionee ceases to serve as a director. No option is exercisable after the
expiration of five years from the date of grant.
Upon a "Change in Control of the Company" as defined in the Director Plan,
any outstanding options issued pursuant to the Directors Plan prior to the
date of such Change in Control of the Company shall vest and be exercisable as
to 50% of the number of shares of Common Stock that remain unvested on the
date of such Change in Control.
EMPLOYMENT AGREEMENTS
Mr. Sirangelo has an employment agreement with the Company, which expires on
August 31, 1998. Mr. Sirangelo's agreement provides for an annual base salary
of $275,000 through August 31, 1997 and $300,000 during the following one year
period, eligibility for future stock option grants, an annual performance
bonus, and an annual car allowance. Pursuant to the agreement, in fiscal 1996,
Mr. Sirangelo was awarded an option to purchase 120,000 shares of Common
Stock.
Mr. Hartley-Leonard has an employment agreement with the Company, which
expires on May 31, 1998. Mr. Hartley-Leonard's agreement provides for an
annual base salary of $150,000. Pursuant to the agreement in fiscal 1996, Mr.
Hartley-Leonard was awarded an option to purchase 40,000 shares of Common
Stock. Such option will become fully vested six months following the offering.
If Mr. Hartley-Leonard is terminated without cause during the six months
following the offering, the option will become fully vested upon termination.
39
<PAGE>
Mr. Bartell has an employment agreement with the Company, which expires on
December 31, 1997. Mr. Bartell's agreement provides for an annual base salary
of $150,000 through December 31, 1996 and $175,000 during the following one
year period, eligibility for future stock option grants and an annual
performance bonus. Pursuant to the agreement in fiscal 1996, Mr. Bartell was
awarded an option to purchase 25,000 shares of Common Stock.
Mr. Doody has an employment agreement with the Company, which expires on
December 31, 1997. Mr. Doody's agreement provides for an annual base salary of
$170,000 through December 31, 1996 and $180,000 during the following one year
period, and eligibility for future stock option grants. Pursuant to the
agreement, Mr. Doody was awarded an option to purchase 30,000 shares of Common
Stock.
Mr. Ducate has an employment agreement with the Company, which expires on
November 11, 1998. Mr. Ducate's agreement provides for an annual base salary
of $195,000, and eligibility for future stock option grants. Pursuant to the
agreement, Mr. Ducate was awarded an option to purchase 25,000 shares of
Common Stock.
Mr. Green has an employment agreement with the Company, which expires on
August 31, 1997. Mr. Green's agreement provides for an annual base salary of
$180,000, eligibility for future stock option grants and an annual performance
bonus. Pursuant to the agreement in fiscal 1996, Mr. Green was awarded an
option to purchase 50,000 shares of Common Stock. Such option will become
fully vested six months following the offering. If Mr. Green is terminated
without cause during the six months following the offering, the option will
become fully vested upon termination.
Mr. Kirkland has an employment agreement with the Company, which expires on
August 31, 1997. Mr. Kirkland's agreement provides for an annual base salary
of $150,000 and eligibility for future stock option grants. Pursuant to the
agreement, Mr. Kirkland was awarded an option to purchase 25,000 shares of
Common Stock.
Mr. Wismar has an employment agreement with the Company, which expires on
January 1, 1997. Mr. Wismar's agreement provides for an annual base salary of
$150,000, eligibility for future stock option grants and an annual performance
bonus. Pursuant to the agreement, Mr. Wismar was awarded an option to purchase
2,000 shares of Common Stock.
The agreements are automatically renewable for additional periods and
contain confidentiality, non-compete and severance provisions.
40
<PAGE>
CERTAIN TRANSACTIONS
RELATED PARTY TRANSACTIONS
Since inception, the Company has financed its growth and acquisition
activities primarily through the sale of its Preferred Stock. In October 1992,
the Company sold 120,000 shares of Series A Convertible Preferred Stock
("Series A Preferred Stock") at a purchase price of $0.84 per share, for an
aggregate consideration of $100,000, to an affiliate of Mr. McCormack.
In November 1993, Sierra Ventures ("Sierra"), Trident Capital Partners Fund
("Trident") and other accredited investors, as such term is defined in Rule
501 of the Securities Act ("Accredited Investors"), purchased an aggregate of
1,231,151 of shares of Series C Convertible Preferred Stock ("Series C
Preferred Stock") at a purchase price of $2.60 per share, for an aggregate
consideration of approximately $3.2 million. Subsequent to the transaction,
Messrs. Wendell and McCormack were elected to the Board of Directors as
designees of Sierra and of the holders of a majority of the outstanding shares
of Series A Preferred Stock of the Company respectively, pursuant to a voting
agreement. Such voting agreement will terminate upon the closing of the
offering. In January 1994, the Company issued an additional 29,000 shares of
Series C Preferred Stock, including 10,000 shares held by Mr. Wismar.
In February 1995, Sierra, Trident, First Plaza Group Trust ("First Plaza")
and other Accredited Investors purchased an aggregate of 1,574,997 shares of
Series D Convertible Preferred Stock ("Series D Preferred Stock") at a
purchase price of $7.00 per share, for an aggregate purchase price of
approximately $11 million.
Between February and September 1996, Sierra, Trident, First Plaza,
WLD/Lamont Partners and other Accredited Investors purchased an aggregate of
1,796,407 shares of Series E Convertible Preferred Stock ("Series E Preferred
Stock") at a purchase price of $8.35 per share, for an aggregate consideration
of approximately $15 million. All outstanding Series A, C, D and E Preferred
Stock will be converted into shares of Common Stock on a one for one basis
upon the closing of this offering.
On May 31, 1996, the Company acquired Regency Productions, Inc., a
subsidiary of Hyatt Hotels Corporation. Subsequent to the transaction, Mr.
Hartley-Leonard, formerly the Chairman of the Board of Directors of Hyatt
Hotels Corporation, was elected as Vice Chairman of the Board of Directors of
the Company. See "Historical Overview" and Note 4 of Notes to Consolidated
Financial Statements.
41
<PAGE>
PRINCIPAL STOCKHOLDERS
The following table sets forth information regarding the beneficial
ownership of the Company's Common Stock as of September 30, 1996 by: (i) each
person known by the Company to own beneficially five percent or more of the
outstanding shares of Common Stock; (ii) each director of the Company; (iii)
each Named Executive Officer; and (iv) all executive officers and directors of
the Company as a group. Unless otherwise noted, each person or group
identified has sole voting and investment power with respect to the shares
shown.
<TABLE>
<CAPTION>
NUMBER OF SHARES PERCENTAGE PERCENTAGE
NAME AND ADDRESS OF BENEFICIAL OWNER BENEFICIALLY OWNED PRIOR TO OFFERING(1) AFTER OFFERING
- ------------------------------------ ------------------ -------------------- --------------
<S> <C> <C> <C>
Sierra Ventures (2).................. 1,385,403 24.0%
3000 Sand Hill Road, Bldg. 4
Menlo Park, CA 94025
First Plaza Group Trust.............. 1,336,184 23.1
c/o Mellon Bank, N.A.
One Mellon Bank Center
Pittsburgh PA 15258-0001
Trident Capital, Inc. (3)............ 1,045,742 18.0
2480 Sand Hill Road,
Suite 201
Menlo Park, CA 94025
WLD/LAMONT Partners.................. 633,474 11.0
One East Broward Blvd.
Suite 1101
Fort Lauderdale, FL 33301
Mark N. Sirangelo (4) ............... 825,000 13.6
Darryl Hartley-Leonard .............. -- --
Edward P. Doody (5) ................. 20,000 *
Douglas L. Ducate (6) ............... 11,980 *
Robert A. Kirkland (7)............... 6,770 *
Cyril M. Wismar (8).................. 80,000 1.4
Robert C. McCormack (9).............. 845,752 14.6
Peter C. Wendell (10)................ 1,404,673 24.2
All executive officers
and directors as a
group (11 persons) (11)............. 3,211,873 51.6
</TABLE>
- --------
* Less than 1%.
(1) Applicable percentage of ownership as of September 30, 1996 is based upon
5,782,555 shares of Common Stock outstanding, assuming the conversion of
all outstanding Convertible Preferred Stock into 5,231,555 shares of
Common Stock upon the closing of the offering. Beneficial ownership is
determined in accordance with the rules of the Securities and Exchange
Commission, and includes voting and investment power with respect to
shares. Shares of Common Stock subject to options currently exercisable or
exercisable within 60 days after October 25, 1996, are deemed outstanding
for computing the percentage ownership of the person holding such options,
but are not deemed outstanding for computing the percentage ownership of
any other person.
42
<PAGE>
(2) Includes 1,332,065 shares beneficially owned by Sierra Ventures IV, L.P.
and 53,338 shares beneficially owned by Sierra Ventures IV, International.
(3) Includes (i) 781,194 shares beneficially owned by Trident Capital Partners
Fund-I, L.P., (ii) 45,278 shares beneficially owned by Trident Capital
Partners Fund-I, C.V., (such funds, collectively, the "Trident Capital
Funds"), (iii) 200,000 shares which the Trident Capital Funds have the
right to acquire pursuant to options granted to them by Mr. Sirangelo in
connection with a loan made by them to Mr. Sirangelo in February 1996 and
(iv) 19,270 shares issuable upon exercise of outstanding options granted
on August 31, 1996.
(4) Includes 270,000 shares issuable upon exercise of outstanding options,
5,000 shares issuable upon exercise of outstanding options held by Mr.
Sirangelo's mother, and 200,000 shares which are subject to the option
held by Trident Capital Funds.
(5) Includes 20,000 shares issuable upon exercise of outstanding options.
(6) Includes 11,980 shares issuable upon exercise of outstanding options.
(7) Includes 6,770 shares issuable upon exercise of outstanding options.
(8) Includes 70,000 shares issuable upon exercise of outstanding options.
(9) Includes (i) 826,472 shares beneficially owned by Trident Capital Funds,
(ii) 19,270 shares issuable upon exercise of outstanding options granted
to Trident Capital, Inc., on August 31, 1996, and (iii) 200,000 shares
which the Trident Capital Funds have the right to acquire pursuant to
options granted to them by Mr. Sirangelo in connection with a loan made by
them to Mr. Sirangelo in February 1996. Mr. McCormack is a limited partner
of Trident Capital, L.P. which is the general partner of the Trident
Capital Funds and thus he may be deemed to be the beneficial owner of all
shares owned by the Trident Capital Funds. Except to the extent of his
pecuniary interest therein, Mr. McCormack disclaims his beneficial
ownership with respect to these shares.
(10) Includes (i) 1,332,065 shares beneficially owned by Sierra Ventures IV,
L.P., (iii) 53,338 shares beneficially owned by Sierra Ventures IV,
International, and (iii) 19,270 shares issuable upon exercise of
outstanding options granted on August 31, 1996. Mr. Wendell is a General
Partner of Sierra Ventures, a venture capital firm focusing on
information technology, health care and service businesses.
(11) Includes 439,998 shares issuable upon exercise of outstanding options.
43
<PAGE>
DESCRIPTION OF CAPITAL STOCK
GENERAL
The authorized capital stock of the Company upon completion of this offering
will consist of 30,000,000 shares of Common Stock, of which shares will be
issued and outstanding, and 5,000,000 shares of undesignated preferred stock
issuable in one or more series by the Board of Directors ("Preferred Stock"),
of which no shares will be issued and outstanding immediately following the
closing of the offering.
COMMON STOCK
The holders of Common Stock are entitled to one vote per share on all
matters to be voted on by stockholders and are entitled to receive such
dividends, if any, as may be declared from time to time by the Board of
Directors from funds legally available therefor. Any issuance of Preferred
Stock with a dividend preference over Common Stock could adversely affect the
dividend rights of holders of Common Stock. Holders of Common Stock are not
entitled to cumulative voting rights. Therefore, the holders of a majority of
the shares voted in the election of directors can elect all of the directors
then standing for election, subject to any voting rights of the holders of any
then outstanding Preferred Stock. The holders of Common Stock have no
preemptive or other subscription rights, and there are no conversion rights or
redemption or sinking fund provisions with respect to the Common Stock, except
for contractual repurchase arrangements relative to unvested restricted stock
held by employees and directors upon termination of their employment or
service. All outstanding shares of Common Stock, including the shares offered
hereby, are, or will be upon completion of this offering, fully paid and non-
assessable.
The Company's By-Laws provide that the number of directors shall be fixed by
the Board of Directors. The directors are divided into three classes, as
nearly equal in number as possible, with each class serving for a three-year
term. Any director of the Company may be removed from office only with cause
and by the affirmative vote of at least 66 2/3% of the total votes with which
would be eligible to be cast by stockholders in the election of such director.
UNDESIGNATED PREFERRED STOCK
The Board of Directors of the Company is authorized, without further action
of the stockholders, to issue up to 5,000,000 shares of Preferred Stock in one
or more series and to fix the designations, powers, preferences and the
relative participating, optional or other special rights of the shares of each
series and any qualifications, limitations and restrictions thereon. Any such
Preferred Stock issued by the Company may rank prior to the Common Stock as to
dividend rights, liquidation preference or both, may have full or limited
voting rights and may be convertible into shares of Common Stock.
The issuance of Preferred Stock could have the effect of making it more
difficult for a third party to acquire, or of discouraging a third party from
acquiring or seeking to acquire, a significant portion of the outstanding
Common Stock.
REGISTRATION RIGHTS OF CERTAIN HOLDERS
Holders of 5,231,555 shares of Common Stock (the "Registrable Shares") are
entitled to certain rights with respect to the registration of such shares
under the Securities Act. Subject to certain limitations, at any time after
the earlier of (i) February 10, 1999 or (ii) three months after the effective
date of the first registration statement for a public offering of securities
of the Company, the Company is required, upon request of holders of at least
40% of the Registrable Shares then outstanding, to file a registration
statement under the Securities Act covering such Registrable Shares, provided
that the anticipated aggregate offering price to the public is greater than
$10 million (a "demand registration"). The Company is obligated to effect only
one such demand registration. In addition, the Company is also required, upon
request of
44
<PAGE>
holders of at least 20% of the Registrable Shares then outstanding, to file an
unlimited number of registration statements on Form S-3 under the Securities
Act when such form is available for use by the Company, as long as the
aggregate offering price to the public is not less than $500,000. These
registration rights will expire after five years following the offering.
Such holders also are entitled to include their shares of Common Stock in a
registered offering of securities by the Company for its own account, subject
to certain conditions and restrictions. The holders have waived their right to
include their shares of Common Stock in the offering.
DELAWARE LAW AND CERTAIN CHARTER PROVISIONS
Section 203 of the Delaware General Corporation Law, as amended ("Section
203"), provides that, subject to certain exceptions specified therein, an
"interested stockholder" of a Delaware corporation shall not engage in any
business combination, including mergers or consolidations or acquisitions of
additional shares of the corporation, with the corporation for a three-year
period following the date at which the stockholder becomes an "interested
stockholder" unless (i) prior to such date, the board of directors of the
corporation approved either the business combination or the transaction which
resulted in the stockholder becoming an "interested stockholder," (ii) upon
consummation of the transaction which resulted in the stockholder becoming an
"interested stockholder," the interested stockholder owned at least 85% of the
voting stock of the corporation outstanding at the time that the transaction
commenced (excluding certain shares), or (iii) on or subsequent to such date,
the business combination is approved by the board of directors of the
corporation and authorized at an annual or special meeting of stockholders by
the affirmative vote of at least 66 2/3% of the outstanding voting stock which
is not owned by the "interested stockholder." Except as otherwise specified in
Section 203, an "interested stockholder" is defined to include (x) any person
which is the owner of 15% or more of the outstanding voting stock of the
corporation, or is an affiliate or associate of the corporation and was the
owner of 15% or more of the outstanding voting stock of the corporation at any
time within three years immediately prior to the relevant date and (y) the
affiliates and associates of any such person. The Company's stockholders, by
adopting an amendment to its Certificate of Incorporation or Bylaws, may elect
not to be governed by Section 203, effective twelve months after adoption.
Neither the Certificate of Incorporation nor the Bylaws presently excludes the
Company from the restrictions imposed by Section 203.
The Company's Certificate of Incorporation provides that, upon the closing
of the offering, any action required or permitted to be taken by the
stockholders of the Company may be taken only at a duly called annual or
special meeting of the stockholders and does not provide for cumulative voting
in the election of directors. The Certificate of Incorporation and Bylaws
restrict the right of stockholders to change the size of the Board of
Directors and to fill vacancies on the Board of Directors. The amendment of
any of these provisions would require approval by 66 2/3% of the outstanding
Common Stock.
In addition, the Company's Certificate of Incorporation contains other
provisions that may have the effect of delaying or preventing a change in
control of the Company: (i) a classified Board of Directors, (ii) undesignated
Preferred Stock and (iii) a limitation on stockholder action by written
consent. These and other provisions could have the effect of making it more
difficult for a third party to effect a change in the control of the Board of
Directors and therefore may discourage another person or entity from making a
tender offer for the Common Stock, including offers at a premium over the
market price of the Common Stock, and might result in a delay in changes in
control of management. In addition, these provisions could have the effect of
making it more difficult for proposals favored by the stockholders to be
presented for stockholder consideration.
TRANSFER AGENT AND REGISTRAR
The Company has selected Boston EquiServe L.P. as the transfer agent and
registrar for the Common Stock.
45
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of the offering, the Company will have a total of shares
of Common Stock outstanding. Of these shares, the shares of Common Stock
offered hereby and additional shares will be freely tradable without
restriction or registration under the Securities Act by persons other than
"affiliates" of the Company, as defined in the Securities Act, who would be
required to sell such shares under Rule 144 under the Securities Act. The
remaining shares of Common Stock outstanding will be "restricted
securities" as that term is defined by Rule 144 (the "Restricted Shares").
Of the Restricted Shares, Restricted Shares will be eligible for sale in
the public market pursuant to Rule 144, certain of which may be sold under
Rule 144 in accordance with Rule 701 under the Securities Act as described
below, beginning 90 days after the date of this Prospectus. Substantially all
of such shares are subject to the lock-up agreements described below. The
remaining Restricted Shares are subject to vesting provisions and will
become eligible for sale in the public market under Rule 144 at various times
as they become vested.
In general, under Rule 144 as currently in effect, a person (or persons
whose shares are aggregated) who has beneficially owned restricted securities
for at least two years (including the holding period of any prior owner except
an affiliate), including persons who may be deemed "affiliates" of the
Company, would be entitled to sell within any three-month period a number of
shares that does not exceed the greater of one percent of the number of shares
of Common Stock then outstanding (approximately shares upon completion of
the offering) or the average weekly trading volume of the Common Stock during
the four calendar weeks preceding the filing of a Form 144 with respect to
such sale. Sales under Rule 144 are also subject to certain manner of sale
provisions and notice requirements, and to the availability of current public
information about the Company. In addition, a person who is not deemed to have
been an affiliate of the Company at the time during the 90 days preceding a
sale, and who has beneficially owned the shares proposed to be sold at least
three years (including the holding period of any prior owner except an
affiliate), would be entitled to sell such shares under Rule 144(k) without
regard to the requirements described above. Rule 144 also provides that
affiliates who are selling shares that are not Restricted Shares must
nonetheless comply with the same restrictions applicable to Restricted Shares
with the exception of the holding period requirement. The Securities and
Exchange Commission has recently proposed to reduce the two- and three-year
holding periods under Rule 144 to one- and two-year holding periods. If
adopted such amendment will permit earlier resales of shares of Common Stock.
Rule 701 promulgated under the Securities Act provides that shares of Common
Stock acquired pursuant to the exercise of outstanding options or the grant of
Common Stock pursuant to written compensation plans or contracts prior to this
offering may be resold by persons other than affiliates, beginning 90 days
after the date of this Prospectus, subject only to the manner of sale
provisions of Rule 144, and by affiliates, beginning 90 days after the date of
this Prospectus, subject to all provisions of Rule 144 except its two-year
minimum holding period.
The Company's executive officers, directors and stockholders who hold
substantially all of the 5,782,555 Restricted Shares have agreed not to sell
or otherwise dispose of any shares of Common Stock currently held by them, any
right to acquire any shares of Common Stock or any securities exercisable for
or convertible into any shares of Common Stock for a period of 180 days after
the date of this Prospectus without the prior written consent of Alex. Brown &
Sons Incorporated. In addition, the Company has agreed that for a period of
180 days after the date of this Prospectus it will not, without the prior
written consent of Alex. Brown & Sons Incorporated, offer, sell or otherwise
dispose of any shares of Common Stock or options, warrants or securities
convertible into or exchangeable for shares of Common Stock except for the
shares of Common Stock offered hereby, shares issued and options granted
pursuant to the 1995 Stock Plans and shares to be issued in acquisitions,
if any.
46
<PAGE>
As of October 15, 1996, options to purchase 1,027,995 shares of Common Stock
were outstanding, of which 739,320 were exercisable. An additional 393,004
shares of Common Stock are reserved for future issuance under the 1995 Stock
Plans and the Directors' Plan. See "Management--Employee Stock and Other
Benefit Plans." The Company intends to file a registration statement on Form
S-8 under the Securities Act to register all shares of Common Stock issuable
pursuant to the 1995 Stock Plans. The Company expects to file this
registration statement approximately 90 days following the date of this
Prospectus, and such registration statement will become effective upon filing.
Shares covered by such a registration statement will thereupon be eligible for
sale in the public markets, subject to Rule 144 limitations applicable to
affiliates and the lock-up agreements described above.
The holders of an aggregate of 5,231,555 shares of Common Stock have the
right in certain circumstances to require the Company to register their shares
under the Securities Act for resale to the public. See "Description of Capital
Stock--Registration Rights of Certain Holders."
Prior to the offering, there has been no public market for the Common Stock
and no predictions can be made of the effect, if any, that the sale or
availability for sale of shares of additional Common Stock will have on the
market price of the Common Stock. Nevertheless, sales of substantial amounts
of such shares in the public market, or the perception that such sales could
occur, could materially and adversely affect the market price of the Common
Stock and could impair the Company's future ability to raise capital through
an offering of its equity securities. See "Risk Factors--Shares Eligible for
Future Sale; Registration Rights."
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<PAGE>
UNDERWRITING
Subject to the terms and conditions of the Underwriting Agreement, the
Underwriters named below (the "Underwriters"), through their Representatives,
Alex. Brown & Sons Incorporated, Montgomery Securities and Robertson, Stephens
& Company L.L.C., have severally agreed to purchase from the Company the
following respective numbers of shares of Common Stock at the initial public
offering price less the underwriting discounts and commissions set forth on
the cover page of this Prospectus:
<TABLE>
<CAPTION>
NUMBER
UNDERWRITER OF SHARES
----------- ---------
<S> <C>
Alex. Brown & Sons Incorporated...........................................
Montgomery Securities.....................................................
Robertson, Stephens & Company L.L.C.......................................
</TABLE>
<TABLE>
<S> <C>
---
Total..................................................................
===
</TABLE>
The Underwriting Agreement provides that the obligations of the Underwriters
are subject to certain conditions precedent and that the Underwriters will
purchase all of the shares of the Common Stock offered hereby if any shares
are purchased.
The Company has been advised by the Representatives of the Underwriters that
the Underwriters propose to offer the shares of Common Stock to the public at
the initial public offering price set forth on the cover page of this
Prospectus and to certain dealers 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 certain other dealers.
After the initial public offering, the offering price and other selling terms
may be changed by the Representatives of the Underwriters.
The Company has granted to the Underwriters an option, exercisable not later
than 30 days after the date of this Prospectus, to purchase up to
additional shares of Common Stock at the public offering price less the
underwriting discounts and commissions set forth on the cover page of this
Prospectus. To the extent that the Underwriters exercise such option, each of
the Underwriters will have a firm commitment to purchase approximately the
same percentage thereof that the number of shares of Common Stock to be
purchased by it shown in the above table bears to and the Company will be
obligated, pursuant to the option, to sell such shares to the Underwriters.
The Underwriters may exercise such option only to cover over-allotments made
in connection with the sale of Common Stock offered hereby. If purchased, the
Underwriters will offer such additional shares on the same terms as those on
which the shares are being offered.
The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act.
The Company has agreed not to offer, sell or otherwise dispose of any shares
of Common Stock or options, warrants or securities convertible into or
exchangeable for Common Stock for a period of 180
48
<PAGE>
days after the date of this Prospectus without the prior written consent of
Alex. Brown & Sons Incorporated, except for the shares of Common Stock offered
hereby, shares issued and options granted
pursuant to the 1995 Stock Plans and shares issued or to be issued in
acquisitions, if any. The Company's executive officers, directors and
stockholders who hold substantially all of the 5,782,555 Restricted Shares
have agreed not to sell, offer to sell or otherwise dispose of any Common
Stock for a period of 180 days after the date of this Prospectus without the
prior written consent of Alex. Brown & Sons Incorporated. See "Shares Eligible
for Future Sale."
The Representatives of the Underwriters have advised the Company that the
Underwriters do not intend to confirm sales to any account over which they
exercise discretionary authority.
Prior to this offering, there has been no public market for the Common
Stock. Consequently, the initial public offering price for the Common Stock
will be determined by negotiation between the Company and the Representatives
of the Underwriters. Among the factors considered in such negotiation will be
prevailing market conditions, the results of operations of the Company in
recent periods, the market capitalizations and stages of development of other
companies which the Company and the Representatives of the Underwriters
believe to be comparable to the Company, estimates of the business potential
of the Company, the present state of the Company's development and other
factors deemed relevant.
In June 1996, ABS Employee Venture Fund, L.P., a limited partnership of
which a subsidiary of Alex. Brown Incorporated is the general partner and
certain employees of Alex. Brown & Sons Incorporated are the limited partners,
purchased 55,151 shares of the Company's Series E Preferred Stock at a
purchase price of $8.35 per share. All outstanding shares of Series E
Preferred Stock will be converted into shares of Common Stock on a one-for-one
basis upon the closing of this offering.
LEGAL MATTERS
The validity of the shares of Common Stock offered hereby will be passed
upon for the Company by Piper & Marbury L.L.P., Washington, D.C. Certain legal
matters related to this offering will be passed upon for the Underwriters by
Hogan & Hartson L.L.P., Baltimore, Maryland.
EXPERTS
The consolidated financial statements of Production Group International,
Inc. at August 31, 1995 and 1996, and for each of the three years in the
period ended August 31, 1996, appearing in this Prospectus and Registration
Statement have been audited by Ernst & Young LLP, independent auditors, as set
forth in their report thereon appearing elsewhere herein, and are included in
reliance upon such report given upon the authority of such firm as experts in
accounting and auditing.
The consolidated financial statements of Ray Bloch Productions, Inc. at
December 31, 1994 and 1995, and for each of the three years in the period
ended December 31, 1995, appearing in this Prospectus and Registration
Statement have been audited by Ernst & Young LLP, independent auditors, as set
forth in their report thereon appearing elsewhere herein, and are included in
reliance upon such report given upon the authority of such firm as experts in
accounting and auditing.
The combined financial statements of Epic Enterprises, Inc. at January 31,
1995 and 1996, and for each of the three years in the period ended January 31,
1996, appearing in this Prospectus and Registration Statement have been
audited by Ernst & Young LLP, independent auditors, as set forth in their
report thereon appearing elsewhere herein, and are included in reliance upon
such report given upon the authority of such firm as experts in accounting and
auditing.
49
<PAGE>
The financial statements of Epic Enterprises of Nevada, Inc. at December 31,
1994 and 1995 and for the period from July 15, 1993 (inception) to December
31, 1993, for the years ended December 31, 1994 and 1995, and for the six
months ended June 30, 1996, appearing in this Prospectus and Registration
Statement have been audited by Ernst & Young LLP, independent auditors, as set
forth in their report thereon appearing elsewhere herein, and are included in
reliance upon such report given upon the authority of such firm as experts in
accounting and auditing.
The consolidated financial statements of Spearhead Exhibitions Limited for
the five month period ended August 31, 1995, appearing in this Prospectus and
Registration Statement have been audited by Ernst & Young, Chartered
Accountants, as set forth in their report thereon appearing elsewhere herein,
and are included in reliance upon such report given upon the authority of such
firm as experts in accounting and auditing.
The financial statements of Timberline Productions, Inc. at December 31,
1994 and 1995 and for each of the three years in the period ended December 31,
1995 and for the three month period ended March 31, 1996, appearing in this
Prospectus and Registration Statement have been audited by Ernst & Young LLP,
independent auditors, as set forth in their report thereon appearing elsewhere
herein, and are included in reliance upon such report given upon the authority
of such firm as experts in accounting and auditing.
The consolidated financial statements of Spearhead Exhibitions Limited at
March 31, 1994 and 1995 and for the years then ended, appearing in this
Prospectus and Registration Statement have been audited by Kingston Smith,
Chartered Accountants, as set forth in their report thereon appearing
elsewhere herein, and are included in reliance upon such report given upon the
authority of such firm as experts in accounting and auditing.
ADDITIONAL INFORMATION
The Company has filed with the Securities and Exchange Commission,
Washington, D.C., a registration statement on Form S-1 under the Securities
Act with respect to the Common Stock being offered by this Prospectus. This
Prospectus does not contain all of the information set forth in the
registration statement and the exhibits and schedules filed therewith. For
further information about the Company and the securities offered by this
Prospectus, reference is made to the registration statement and to the
financial statements, schedules and exhibits filed as a part of it. Statements
contained in this Prospectus about the contents of any contract or any other
documents are not necessarily complete, and in each instance, reference is
made to the copy of the contract or document filed as an exhibit to the
registration statement, each such statement being qualified in all respects by
such reference.
A copy of the registration statement may be inspected without charge and may
be obtained at prescribed rates from the Commission at the Public Reference
Section of the Commission, maintained by the Commission at its principal
office located at 450 Fifth Street, N.W., Washington, D.C. 20549, the New York
Regional Office located at Seven World Trade Center, New York, New York 10048,
and the Chicago Regional Office located at Northwestern Atrium Center, 500
West Madison Street, Suite 1400, Chicago, Illinois 60661. The Commission also
maintains a web site that contains reports, proxy statements and other
information regarding registrants, including the Company, that file such
information electronically with the Commission. The address of the
Commission's web site is http://www.sec.gov.
50
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<S> <C>
PRODUCTION GROUP INTERNATIONAL, INC.
Report of Ernst & Young LLP, Independent Auditors F-2
Consolidated Balance Sheets as of August 31, 1995 and 1996 F-3
Consolidated Statements of Operations for the years ended August 31,
1994, 1995 and 1996 F-4
Consolidated Statements of Stockholders' Equity (Deficit) for the years
ended August 31, 1994, 1995 and 1996 F-5
Consolidated Statements of Cash Flows for the years ended August 31,
1994, 1995 and 1996 F-6
Notes to Consolidated Financial Statements F-7
RAY BLOCH PRODUCTIONS, INC.
Report of Ernst & Young LLP, Independent Auditors F-18
Consolidated Balance Sheets as of December 31, 1994 and 1995 F-19
Consolidated Statements of Operations for the years ended December 31,
1993, 1994 and 1995 F-20
Consolidated Statements of Stockholder's Equity for the years ended
December 31, 1993, 1994 and 1995 F-21
Consolidated Statements of Cash Flows for the years ended December 31,
1993, 1994 and 1995 F-22
Notes to Consolidated Financial Statements F-23
EPIC ENTERPRISES, INC.
Report of Ernst & Young LLP, Independent Auditors F-27
Combined Balance Sheets as of January 31, 1995 and 1996 F-28
Combined Statements of Operations for the years ended January 31, 1994,
1995 and 1996 F-29
Combined Statements of Stockholders' Deficit for the years ended January
31, 1994, 1995 and 1996 F-30
Combined Statements of Cash Flows for the years ended January 31, 1994,
1995 and 1996 F-31
Notes to Combined Financial Statements F-32
EPIC ENTERPRISES OF NEVADA, INC.
Report of Ernst & Young LLP, Independent Auditors F-36
Balance Sheets as of December 31, 1994 and 1995 F-37
Statements of Operations for the period from July 5, 1993 (inception) to
December 31, 1993, for the years ended December 31, 1994 and 1995 and
for the six months ended June 30, 1996 F-38
Statements of Stockholders' Deficit for the years ended December 31,
1993, 1994 and 1995 F-39
Statements of Cash Flows for the years ended December 31, 1993, 1994 and
1995 and for the six months ended June 30, 1996 F-40
Notes to Financial Statements F-41
TIMBERLINE PRODUCTIONS, INC.
Report of Ernst & Young LLP, Independent Auditors F-43
Balance Sheets as of December 31, 1994 and 1995 F-44
Statements of Operations for the years ended December 31, 1993, 1994 and
1995 and for the three month ended March 31, 1996 F-45
Statements of Stockholders' Equity for the years ended December 31, 1993,
1994 and 1995 F-46
Statements of Cash Flows for the years ended December 31, 1993, 1994 and
1995 and for the three month ended March 31, 1996 F-47
Notes to Financial Statements F-48
SPEARHEAD EXHIBITIONS LIMITED
Report of Ernst & Young Chartered Accountants, Independent Auditors F-52
Report of Kingston Smith Chartered Accountants, Independent Auditors F-53
Consolidated Balance Sheets as of March 31, 1994 and 1995 F-54
Consolidated Statements of Operations for the years ended March 31, 1994
and 1995 and for the five months ended August 31, 1995 F-55
Consolidated Statements of Shareholders' Equity for the years ended March
31, 1994 and 1995 F-56
Consolidated Statements of Cash Flows for the years ended March 31, 1994
and 1995 and for the five months ended August 31, 1996 F-57
Notes to Consolidated Financial Statements F-58
Unaudited Pro Forma Combined Statement of Operations F-62
</TABLE>
F-1
<PAGE>
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
Board of Directors
Production Group International, Inc.
We have audited the accompanying consolidated balance sheets of Production
Group International, Inc. as of August 31, 1995 and 1996, and the related
consolidated statements of operations, stockholders' equity and cash flows for
each of the three years in the period ended August 31, 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, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of the Company
at August 31, 1995 and 1996, and the consolidated results of their operations
and their cash flows for each of the three years in the period ended August
31, 1996, in conformity with generally accepted accounting principles.
Ernst & Young LLP
Vienna, Virginia
October 24, 1996
- -------------------------------------------------------------------------------
The foregoing report is in the form that will be signed upon the completion
of the net income (loss) per share calculation once the initial public
offering price is known.
/s/ Ernst & Young LLP
Vienna, Virginia
October 25, 1996
F-2
<PAGE>
PRODUCTION GROUP INTERNATIONAL, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
PRO FORMA
AUGUST 31, AUGUST 31,
1995 1996 1996 (NOTE 11)
----------- ----------- --------------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents............ $ 4,421,115 $ 3,599,446 $ 4,888,953
Accounts receivable, less allowance
of $444,000 and $825,000 at August
31, 1995 and 1996, respectively..... 2,310,291 8,011,187 8,011,187
Deferred costs....................... 426,845 1,211,115 1,211,115
Prepaid expenses and other current
assets............................... 624,810 917,085 917,085
----------- ----------- -----------
Total current assets.................. 7,783,061 13,738,833 15,028,340
Property and equipment, net........... 1,391,043 2,741,714 2,741,714
Goodwill, net......................... 4,970,111 26,644,182 26,644,182
Other assets.......................... 1,093,787 597,784 597,784
----------- ----------- -----------
Total assets.......................... $15,238,002 $43,722,513 $45,012,020
=========== =========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued
expenses............................. $ 4,959,959 $12,541,085 $12,541,085
Income taxes payable................. 28,692 776,300 776,300
Deferred revenues.................... 2,495,230 4,715,203 4,715,203
Bank lines of credit................. -- 3,000,000 3,000,000
Current portion of notes payable..... 768,839 11,294,254 11,294,254
----------- ----------- -----------
Total current liabilities............. 8,252,720 32,326,842 32,326,842
Deferred rent and other liabilities... 242,034 346,325 346,325
Notes payable, less current portion... 1,316,231 2,640,907 2,640,907
Commitments........................... -- -- --
Stockholders' equity:
Convertible Preferred Stock, $0.01
par value:
Series A, 600,000 shares authorized,
issued and outstanding; liquidation
preference of $504,000............. 6,000 6,000 --
Series B, 400,000 shares authorized;
no shares issued and outstanding... -- -- --
Series C, 1,350,000 shares
authorized; 1,260,151 shares issued
and outstanding; liquidation
preference of $3,276,393........... 12,602 12,602 --
Series D, 1,600,000 shares
authorized; 1,574,997 shares issued
and outstanding; liquidation
preference of $11,024,979.......... 15,750 15,750 --
Series E, 1,796,407 shares
authorized; 1,641,975 shares issued
and outstanding; liquidation
preference of $13,710,491.......... -- 16,420 --
Common stock, $0.01 par value;
30,000,000 shares authorized;
550,000 and 551,000 shares issued
and outstanding at August 31, 1995
and 1996, respectively (5,782,555
pro forma shares)................... 5,500 5,510 57,826
Additional paid-in capital........... 14,543,160 29,608,357 30,896,320
Unearned stock compensation.......... -- (133,134) (133,134)
Foreign currency translation
adjustment........................... -- 118,846 118,846
Accumulated deficit.................. (9,155,995) (21,241,912) (21,241,912)
----------- ----------- -----------
Total stockholders' equity............ 5,427,017 8,408,439 9,697,946
----------- ----------- -----------
Total liabilities and stockholders'
equity................................ $15,238,002 $43,722,513 $45,012,020
=========== =========== ===========
</TABLE>
See accompanying notes.
F-3
<PAGE>
PRODUCTION GROUP INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEARS ENDED AUGUST 31,
1994 1995 1996
----------- ----------- ------------
<S> <C> <C> <C>
Revenues $25,212,845 $41,950,495 $ 78,290,083
Cost of services 18,975,369 32,272,312 53,152,958
----------- ----------- ------------
Gross profit 6,237,476 9,678,183 25,137,125
Selling and operating expenses 6,474,695 11,792,239 22,327,367
Corporate general and administrative
expenses 1,457,704 3,167,243 5,923,000
Amortization of acquisition costs 91,748 228,722 669,365
Reorganization and consolidation
expenses -- 2,122,468 6,897,397
----------- ----------- ------------
Operating income (loss) (1,786,671) (7,632,489) (10,680,004)
Other income (expense) 103,231 23,633 245,000
Interest income 33,981 203,433 181,894
Interest expense (20,811) (163,970) (1,116,807)
----------- ----------- ------------
Income (loss) before minority
interests and income taxes (1,670,270) (7,569,393) (11,369,917)
Minority interests of consolidated
subsidiaries 100,606 (117,412) --
Income tax (benefit) expense (220,000) -- 716,000
Net loss $(1,550,876) $(7,451,981) $(12,085,917)
=========== =========== ============
Net loss per share
=========== =========== ============
Weighted average shares outstanding
=========== =========== ============
Pro forma net loss per share
============
Pro forma weighted average shares
outstanding
============
</TABLE>
See accompanying notes.
F-4
<PAGE>
PRODUCTION GROUP INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
<TABLE>
<CAPTION>
SERIES A SERIES C SERIES D SERIES E ADDITIONAL
PREFERRED STOCK PREFERRED STOCK PREFERRED STOCK PREFERRED STOCK COMMON STOCK PAID-IN
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT CAPITAL
-------- ------- --------- ------- --------- ------- --------- ------- ------- ------ -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at August
31, 1993 600,000 $ 6,000 -- $ -- -- $ -- -- $ -- 550,000 $5,500 $ 1,098,225
Issuance of
Preferred Stock -- -- 1,270,151 12,702 -- -- -- -- -- -- 2,902,491
Net loss -- -- -- -- -- -- -- -- -- -- --
-------- ------- --------- ------- --------- ------- --------- ------- ------- ------ -----------
Balance at August
31, 1994 600,000 6,000 1,270,151 12,702 -- -- -- -- 550,000 5,500 4,000,716
Issuance of
Preferred Stock -- -- -- -- 1,574,997 15,750 -- -- -- -- 10,568,344
Repurchase of
Preferred Stock -- -- (10,000) (100) -- -- -- -- -- -- (25,900)
Net loss -- -- -- -- -- -- -- -- -- -- --
-------- ------- --------- ------- --------- ------- --------- ------- ------- ------ -----------
Balance at August
31, 1995 600,000 6,000 1,260,151 12,602 1,574,997 15,750 -- -- 550,000 5,500 14,543,160
Issuance of
Preferred Stock -- -- -- -- -- -- 1,641,975 16,420 -- -- 13,611,673
Exercise of
Common Stock
options -- -- -- -- -- -- -- -- 1,000 10 1,390
Stock
compensation
expenses related
to stock options -- -- -- -- -- -- -- -- -- -- 1,452,134
Foreign currency
translation
adjustment -- -- -- -- -- -- -- -- -- -- --
Net loss -- -- -- -- -- -- -- -- -- -- --
-------- ------- --------- ------- --------- ------- --------- ------- ------- ------ -----------
Balance at August
31, 1996 600,000 $ 6,000 1,260,151 $12,602 1,574,997 $15,750 1,641,975 $16,420 551,000 $5,510 $29,608,357
======== ======= ========= ======= ========= ======= ========= ======= ======= ====== ===========
<CAPTION>
FOREIGN RETAINED
UNEARNED CURRENCY EARNINGS TOTAL
STOCK TRANSLATION (ACCUMULATED STOCKHOLDERS'
COMPENSATION ADJUSTMENT DEFICIT) EQUITY (DEFICIT)
------------ ----------- ------------- ----------------
<S> <C> <C> <C> <C>
Balance at August
31, 1993 $ -- $ $ (153,138) $ 956,587
Issuance of
Preferred Stock -- -- -- 2,915,193
Net loss -- -- (1,550,876) (1,550,876)
------------ ----------- ------------- ----------------
Balance at August
31, 1994 -- -- (1,704,014) (2,320,904)
Issuance of
Preferred Stock -- -- -- 10,584,094
Repurchase of
Preferred Stock -- -- -- (26,000)
Net loss -- -- (7,451,981) (7,451,981)
------------ ----------- ------------- ----------------
Balance at August
31, 1995 -- -- (9,155,995) 5,427,017
Issuance of
Preferred Stock -- -- -- 13,628,093
Exercise of
Common Stock
options -- -- -- 1,400
Stock
compensation
expenses related
to stock options (133,134) -- -- 1,319,000
Foreign currency
translation
adjustment -- 118,846 -- 118,846
Net loss -- -- (12,085,917) (12,085,917)
------------ ----------- ------------- ----------------
Balance at August
31, 1996 $(133,134) $118,846 $(21,241,912) $ 8,408,439
============ =========== ============= ================
</TABLE>
See accompanying notes.
F-5
<PAGE>
PRODUCTION GROUP INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEARS ENDED AUGUST 31
1994 1995 1996
----------- ----------- ------------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net loss $(1,550,876) $(7,451,981) $(12,085,917)
Adjustments to reconcile net loss to
net cash used in operating
activities:
Loss on disposal of property and
equipment -- 15,667 132,272
Provision for doubtful accounts 264,400 77,939 407,095
Depreciation and amortization 640,306 1,121,049 1,672,267
Minority interests in consolidated
subsidiaries 100,606 (117,412) --
Reorganization and consolidation
expenses -- 2,122,468 4,257,859
Stock option compensation expense -- -- 1,319,000
Changes in operating assets and
liabilities:
Accounts receivable (396,406) 698,195 (1,688,906)
Prepaid expenses and other current
assets 72,210 226,721 (12,166)
Deferred costs (482,474) 24,720 (119,441)
Income taxes receivable (289,437)
Other assets (356,848) (328,457) (15,666)
Accounts payable and accrued
expenses 239,307 (6,160) (597,000)
Income taxes payable -- (49,119) (170,319)
Deferred revenues 455,558 67,635 1,919,564
Deferred rent and other liabilities 18,914 (35,270) (105,247)
----------- ----------- ------------
Net cash used in operating activities (1,284,740) (3,634,005) (5,086,605)
INVESTING ACTIVITIES
Acquisitions of businesses, net of
cash acquired (506,447) (648,928) (13,289,030)
Purchases of property and equipment (686,593) (972,408) (997,553)
Proceeds from the sale of property and
equipment -- 100,000 5,116
----------- ----------- ------------
Net cash used in investing activities (1,193,040) (1,521,336) (14,281,467)
FINANCING ACTIVITIES
Net proceeds from issuance of
convertible Preferred Stock 2,915,193 10,558,094 13,628,093
Net proceeds from issuance of Common
Stock -- -- 1,400
Proceeds from notes payable -- -- 3,300,000
Repayments of notes payable (570,047) (1,165,921) (1,383,090)
Net proceeds (repayments) of bank
lines of credit 200,000 (700,000) 3,000,000
----------- ----------- ------------
Net cash provided by financing
activities 2,545,146 8,692,173 18,546,403
----------- ----------- ------------
Net increase (decrease) in cash and
cash equivalents 67,366 3,536,832 (821,669)
Cash and cash equivalents at beginning
of year 816,917 884,283 4,421,115
----------- ----------- ------------
Cash and cash equivalents at end of
year $ 884,283 $ 4,421,115 $ 3,599,446
=========== =========== ============
</TABLE>
See accompanying notes.
F-6
<PAGE>
PRODUCTION GROUP INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. ORGANIZATION AND NATURE OF OPERATIONS
Production Group International, Inc. ("PGI" or the "Company") was
incorporated in Virginia in 1990 and reincorporated in Delaware in 1996. The
Company is a leading worldwide provider of event services on an outsourced
basis for corporations, associations and other organizations as well as on a
proprietary basis for exhibitions owned and managed by the Company. In order
to provide its clients with a single source solution to their event planning
needs, the Company offers a wide range of services that encompass the event
planning process, including general management, concept creation, content
creation and execution.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation
The consolidated financial statements include the accounts of the Company
and its wholly-owned and majority-owned subsidiaries. The Company exercises
control through a majority voting interest in the stock of its majority-owned
subsidiaries. All significant intercompany accounts and transactions eliminate
upon consolidation.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect amounts in the financial statements and accompanying
notes. Actual results could differ from those estimates.
Cash and Cash Equivalents
The Company's cash and cash equivalents, which are stated at cost, consist
of liquid securities with original maturities of three months or less.
Asset Impairment
In accordance with FAS 121, "Accounting for the Impairment of Long-Lived
Assets and Long-Lived Assets to Be Disposed Of", the Company periodically
evaluates its long-term assets for impairment to determine if events or
changes in circumstances indicate that the carrying amount of an asset may not
be recoverable. The Company bases its evaluation on the nature of the assets,
the future economic benefit of the assets, and any historical or future
profitability measurements.
Goodwill
On a quarterly basis, the Company evaluates the recoverability of its
goodwill to determine whether any events or changes in circumstances indicate
that the carrying amount may not be recoverable. The evaluation is based on
whether the acquired entity is profitable, is projecting profits, is
maintaining or increasing its revenue base or whether any other positive or
negative business factors exist. If the Company acquires a business which is
generating significant losses and is projecting losses in the future the
Company will write off the goodwill balance once an impairment has been
determined. In accordance with this policy, the Company charged $2,122,468 and
$2,526,691 to expense in fiscal year 1995 and 1996, respectively to reduce the
goodwill balances to the estimated fair value. Goodwill consists of the
following:
F-7
<PAGE>
PRODUCTION GROUP INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
<TABLE>
<CAPTION>
AUGUST 31,
1995 1996
---------- -----------
<S> <C> <C>
Goodwill $5,300,185 $27,348,623
Accumulated Amortization 330,074 704,441
---------- -----------
$4,970,111 $26,644,182
========== ===========
</TABLE>
Goodwill represents the excess of purchase price over the fair value of new
assets acquired. Goodwill is amortized on a straight-line basis over periods
ranging from 15 to 40 years. The amortization period of the goodwill is based
on number of years in business, historical profitability, the nature of the
business and any other relevant factors.
Fair Values of Financial Instruments
The Company believes that the carrying amount of its assets and liabilities
reported in the balance sheets approximates their fair value.
Concentration of Credit Risk
Financial instruments that potentially subject the Company to concentrations
of credit risk consist primarily of cash equivalents and trade accounts
receivable. The Company places its cash and cash investments with high-credit
quality financial institutions. The Company periodically performs credit
evaluations of its customers' financial condition and generally does not
require collateral. However, the Company monitors its exposure for credit
losses and maintains allowances for anticipated losses.
Revenue Recognition
The Company accounts for revenues under long-term contracts (generally
greater than six months in duration) using the percentage-of-completion
method, whereby revenues are recorded in proportion with the ratio that costs
incurred to date bear to the total anticipated costs. At August 31, 1995 and
1996, the Company had received approximately $171,230 and $2,821,850,
respectively, related to future events and has classified these amounts as
deferred revenues in the consolidated balance sheets.
The Company accounts for revenues under short-term contracts (generally less
than six months in duration), using the completed contract method, whereby
costs and revenues are deferred until the event occurs. At August 31, 1995 and
1996, the Company had billings in excess of costs of approximately $426,845
and $1,211,115, respectively, and had recorded these amounts as deferred
revenues in the consolidated balance sheets. As of August 31, 1995 and 1996,
the Company had approximately $2,324,000 and $1,893,353, respectively, of
revenue related to future events and had classified these amounts as deferred
revenues in the consolidated balance sheets.
Provisions for anticipated losses are made in the period in which they
first become determinable.
Foreign Revenues
The Company operates predominately in a single industry as a provider of
event services. The Company is a multinational company with operations in the
United Kingdom. Revenues resulting from foreign operations amounted to
approximately $7,300,000 or 9.3% of consolidated net revenues.
F-8
<PAGE>
PRODUCTION GROUP INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Significant Customer
During the year ended August 31, 1994, one customer accounted for
approximately 10% of revenues.
Reorganization and Consolidation Expenses
The Company recognized reorganization and consolidation expenses consisting
of:
<TABLE>
<CAPTION>
YEAR ENDED AUGUST 31,
--------------------------
1994 1995 1996
---- ---------- ----------
<S> <C> <C> <C>
Writeoff of goodwill $-- $2,122,468 $2,526,691
Writeoff of investments -- -- 1,731,168
Reorganization expenses -- -- 1,877,686
Other -- -- 761,852
---- ---------- ----------
$-- $2,122,468 $6,897,397
==== ========== ==========
</TABLE>
During the years ended August 31, 1995 and 1996, the Company wrote down
goodwill in the amount of $2,122,468 and $2,526,691 respectively. The write-
offs related to acquisitions which occurred during fiscal 1993 and fiscal 1994
and were in accordance with the Company's goodwill impairment policy.
During 1996, the Company expensed $1,731,168 related to certain investments
in accordance with the Company's asset impairment policy. The investments
primarily related in investments in three events that have generated losses
historically and are projected to generate losses in the future.
During 1996, the Company expensed certain reorganization costs of $1,877,636
related to the consolidation of unprofitable or redundant field offices in
accordance with a plan set forth and approved by the Company's management and
Board of Directors. The costs consist of lease cancellation charges and
leasehold improvement writeoffs. The unprofitable or redundant field offices
closed primarily resulted from acquisitions which occurred prior to fiscal
1995.
Income Taxes
The Company provides for income taxes in accordance with the liability
method. Under this method, deferred tax assets and liabilities are determined
based on differences between financial reporting and tax bases of assets and
liabilities and are measured using the enacted tax rates and laws that will be
in effect when the differences are expected to reverse.
Net Loss Per Common Share
The Company's net loss per share calculations are based upon the weighted
average number of shares of Common Stock outstanding. Pursuant to the
requirements of the Securities and Exchange Commission Staff Accounting
Bulletin No. 83, convertible preferred stock, common stock, and common stock
options issued at prices below the initial public offering price during the
twelve months immediately preceding the contemplated initial filing of the
registration statement relating to the initial public offering ("IPO") have
been included in the computation of net loss per share as if they were
outstanding for all periods presented (using the treasury method assuming
repurchase of common stock at the estimated IPO price). Other shares issuable
upon the exercise of common stock options and conversion of convertible
preferred
F-9
<PAGE>
PRODUCTION GROUP INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
stock have been excluded from the computation because the effect of their
inclusion would be antidilutive. Subsequent to the Company's IPO, common stock
options under the treasury stock method will be included to the extent they
are dilutive. Weighted average shares used to calculate pro forma net loss per
common share for the year ended August 31, 1996 differs from the weighted
average on a historical basis due to the inclusion of the shares of common
stock resulting from the assumed conversion, at the beginning of the
applicable period, of convertible preferred stock as contemplated by the IPO.
Statements of Cash Flows
The supplemental cash flow information includes:
<TABLE>
<CAPTION>
YEAR ENDED AUGUST 31,
-------------------------
<S> <C> <C> <C>
1994 1995 1996
------- -------- --------
Interest paid $20,811 $127,907 $582,623
Income taxes paid $ 0 $ 65,000 $244,250
</TABLE>
Recent Pronouncements
In October 1995, the Financial Accounting Standards Board issued SFAS No.
123, "Accounting for Stock-Based Compensation," which is effective for the
Company's August 31, 1997 financial statements. SFAS No. 123 allows companies
to account for stock-based compensation under either the new provisions of
SFAS No. 123 or under the provisions of APB No. 25, but requires pro forma
disclosures in the footnotes to the financial statements as if the measurement
provisions of SFAS No. 123 had been adopted. The Company intends to continue
accounting for its stock-based compensation in accordance with the provisions
of APB No. 25. Accordingly, the adoption of SFAS No. 123 will not impact the
consolidated financial position or the results of operations of the Company.
3. PROPERTY AND EQUIPMENT
Property and equipment consists of the following:
<TABLE>
<CAPTION>
AUGUST 31,
<S> <C> <C>
1995 1996
---------- ----------
Office furniture and fixtures $ 434,058 $1,040,970
Computer and production equipment 1,317,256 2,265,449
Leasehold improvements 49,950 422,228
Capitalized video library costs 236,663 362,356
---------- ----------
2,037,927 4,091,003
Accumulated depreciation and amortization (646,884) (1,349,289)
---------- ----------
$1,391,043 $2,741,714
========== ==========
</TABLE>
Property and equipment are recorded at cost or fair market value if acquired
through an acquisition. Depreciation and amortization is calculated on a
straight-line basis over estimated useful lives ranging from five to seven
years. Leasehold improvements are amortized over the shorter of their
estimated useful lives or lease term, using the straight-line method.
Costs incurred to produce videos that are expected to produce future
revenues are capitalized. The costs are stated at the lower of the unamortized
cost or estimated net realizable value, as periodically
F-10
<PAGE>
PRODUCTION GROUP INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
3. PROPERTY AND EQUIPMENT (CONTINUED)
determined on a video by video basis. The costs are amortized in proportion to
the ratio of current period related revenue to total estimated gross revenue
for each video. The Company periodically evaluates the value of its capitalized
video library costs to determine its net realizable value. In 1995, the Company
evaluated the expected future revenues from the sale of the video library and
as a result, accelerated the amortization of the capitalized video library
costs by approximately $1,100,000.
4. ACQUISITIONS
Since fiscal 1993, the Company has completed thirteen acquisitions accounted
for under the purchase method. These acquisitions were as follows:
Effective January 1, 1996, the Company acquired all the outstanding stock of
Ray Bloch Productions, Inc. ("Ray Bloch"). The aggregate purchase price was (i)
$3,372,000 in cash, (ii) $2,673,886 in a note payable, and (iii) additional
cash consideration in the aggregate amount of up to $1,500,000 to be paid in
the next two fiscal years contingent upon the achievement of certain target
revenue and net income levels by Ray Bloch. The transaction was accounted for
under the purchase method and resulted in an excess of purchase price over the
fair value of net assets acquired of approximately $5,542,000, which the
Company recorded as goodwill. If the additional cash consideration is earned,
the Company intends to account for the additional cash consideration as
purchase price. The results of operations of Ray Bloch have been consolidated
with those of the Company since the date of acquisition.
Effective February 1, 1996, the Company acquired all the outstanding stock of
Epic Enterprises Inc. ("Epic"), including Epic's 50% interest in a partnership,
Shelley Inc. The Company also purchased the remaining 50% interest in Shelley
Inc. from the other 50% owner (collectively the "Acquired Business"). The
aggregate purchase price was (i) $3,792,000 in cash, (ii) $1,500,000 in a note
payable, (iii) additional cash consideration of $500,000 contingent upon the
execution of a major contract, and (iv) additional cash consideration of up to
$1,000,000 payable contingent upon the achievement of certain target revenue
and net income levels by the Acquired Business. If the additional cash
consideration is earned, the Company intends to account for the additional cash
consideration as purchase price. The transaction was accounted for under the
purchase method and resulted in an excess of purchase price over the fair value
of net assets acquired of approximately $5,534,000, which the Company recorded
as goodwill. Accordingly, the results of operations of the Acquired Business
have been consolidated with those of the Company's since the date of
acquisition.
Effective July 1, 1996, the Company acquired all the outstanding stock of
Epic Enterprises of Nevada, Inc. ("Epic NV"). The purchase price was (i)
$1,085,000 in cash and (ii) additional cash consideration of up to $5,000,000
to be paid by December 31, 1998, if Epic NV achieves certain retained earnings
thresholds. If the additional cash consideration is earned, the Company intends
to account for the additional cash consideration as purchase price. The
transaction was accounted for under the purchase method and resulted in an
excess of purchase price over the fair value of net assets acquired of
approximately $1,173,979, which the Company recorded as goodwill. The results
of operations of Epic NV have been consolidated with those of the Company since
the date of acquisition.
Effective April 1, 1996, the Company acquired all the outstanding stock of
Timberline Productions, Inc. ("Timberline"). The aggregate purchase price was
(i) $1,862,000 in cash, (ii) $506,502 in notes payable, and (iii) additional
cash consideration of up to $800,000 contingent upon the achievement of certain
target revenue and net income levels for the next two subsequent years by
Timberline. If the additional cash consideration is earned, the Company intends
to account for the additional cash
F-11
<PAGE>
PRODUCTION GROUP INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
4. ACQUISITIONS (CONTINUED)
consideration as purchase price. The transaction was accounted for under the
purchase method and resulted in an excess of purchase price over the fair
value of net assets acquired of approximately $1,889,000, which the Company
recorded as goodwill. The results of operations of Timberline have been
consolidated with those of the Company since the date of acquisition.
Effective September 1, 1995, the Company acquired all the outstanding stock
of Spearhead Exhibitions Limited ("Spearhead"). The aggregate purchase price
was approximately (i) $4,500,000 in cash and (ii) $3,553,000 in a note
payable. The transaction was accounted for under the purchase method and
resulted in an excess of purchase price over the fair value of net assets
acquired of approximately $7,691,000, which the Company recorded as goodwill.
Accordingly, the results of operations of Spearhead have been consolidated
with those of the Company since the date of acquisition.
Since inception, the Company also acquired nine additional entities. The
aggregate purchase price was (i) $3,779,534 payable in cash, (ii) $4,661,664
in notes payable, and (iii) additional cash consideration contingent upon the
achievement of target revenue and net income levels by the various acquired
entities. The transactions were accounted for under the purchase method and
resulted in an excess of purchase price over the fair value of net assets
acquired of approximately $5,518,000, which the Company recorded as goodwill.
The results of operations of the acquired entities have been consolidated with
those of the Company's since the dates of acquisition.
5. BANK LINES OF CREDIT
During fiscal 1996, the Company executed a financing and security agreement
with a bank whereby the Company could borrow up to $4,000,000, $5,000,000 and
$1,000,000 under working capital, acquisition and equipment facilities,
respectively. During 1996, the Company had borrowed approximately $3,000,000
under the acquisition facility, which was subsequently converted to a note
payable, due over an 18-month period (See Note 6). There were no other
borrowings under the acquisition facility during 1996. As of August 31, 1996,
the aggregate outstanding borrowings under the working capital and equipment
facilities were $3,000,000; these facilities terminated effective September
30, 1996. At August 31, 1996 the Company is not in compliance with certain
covenants. The Company and the bank are currently negotiating an amendment to
the financing and security agreement to extend the working capital and
equipment facilities and to deal with violations of certain covenant
violations. As a result, all of the outstanding bank borrowings have been
classified as current.
The Company is charged an annual interest rate of prime + 2% on outstanding
borrowings under the credit facilities the Company made interest payments of
$107,496 in 1996. The credit facilities are secured by certain assets of the
Company. The bank had also agreed to issue standby letters of credit in an
amount not to exceed the available balance under the working capital facility;
however, such letters of credit are subject to the negotiations discussed in
the preceding paragraph. Under the terms of the agreement in connection with
the lines of credit above, the Company is subject to certain restrictions
which include, among other things, restrictions on: (i) incurrence of
additional indebtedness, (ii) working capital ratios and (iii) the prohibition
from paying cash dividends without the bank's consent.
During fiscal 1995, the Company had a bank line of credit and an equipment
line of credit for $2,000,000 and $1,000,000, respectively. The outstanding
balances on these credit facilities were repaid during 1995 fiscal and the
agreement was then terminated.
F-12
<PAGE>
PRODUCTION GROUP INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
6. NOTES PAYABLE
Notes payable balances are as follows:
<TABLE>
<CAPTION>
AUGUST 31,
<S> <C> <C>
1995 1996
----------- ------------
Subordinated notes payable related to the
acquisition of Ray Bloch, which has been
discounted at an imputed interest rate of 8.5% and
recorded net of unamortized interest of $326,671.
$1,250,000 is due on March 27, 1996 with the
balance due in four equal quarterly installments
beginning on June 27, 1997. $ -- $ 2,673,886
Subordinated notes payable related to the
acquisition of Timberline, which has been
discounted at an imputed interest rate of 8.25%
and recorded net of unamortized interest of
$93,498. Note is due and payable in full on April
12, 1998. -- 506,502
Subordinated notes payable related to the
acquisition of Epic, which bears interest at a
rate of 5% per annum. Principal and interest is
due and payable in full on June 28, 1997. -- 1,500,000
Subordinated note payable related to the
acquisition of Spearhead, which has been
discounted at an imputed interest rate of 7.5% and
recorded net of unamortized interest of $446,568.
Note is due and payable in full on April 1, 1997. -- 3,553,432
Subordinated notes payable related to certain
acquisitions since 1994, which bear interest rates
ranging from 8.5% to prime plus 1.0%. These notes
are scheduled to mature between first quarter 1997
second quarter 1999. 2,085,070 2,723,563
Notes payable to a bank, due in monthly
installments through December 1997. As a result of
the covenant violation (see Notes) the outstanding
balances have been classified as current. Interest
is charged at an annual rate of prime plus .25%.
The notes payable are secured by certain assets of
the Company (weighted average rates of 8.25% at
August 31, 1996). -- 2,977,778
----------- ------------
2,085,070 13,935,161
(768,839) (11,294,254)
----------- ------------
$ 1,316,231 $ 2,640,907
=========== ============
</TABLE>
All notes payable issued to sellers in conjunction with acquisition
agreements are subordinated to the bank's notes payable and credit facilities.
The aggregate annual maturities of notes payable outstanding at August 31,
1996 are as follows:
<TABLE>
<S> <C>
1997 $11,294,254
1998 2,569,931
1999 70,976
-----------
$13,935,161
===========
</TABLE>
F-13
<PAGE>
PRODUCTION GROUP INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
7. COMMITMENTS
The Company has entered into various operating lease agreements for office
space and equipment. The leases contain various renewal options. Future
minimum lease payments may be periodically adjusted based on changes in the
lessors' operating costs.
Future minimum lease payments under noncancelable operating leases at August
31, 1996 are approximately:
<TABLE>
<CAPTION>
1997 $ 2,196,313
<S> <C>
1998 1,985,286
1999 1,807,039
2000 1,305,112
2001 and thereafter 3,600,323
------------------------------------
$10,894,073
====================================
====================================
</TABLE>
Rent expense for fiscal years 1994, 1995, and 1996 amounted to $578,168,
$1,387,834, and $1,849,455, respectively.
Pursuant to employment agreements, the Company has obligations to pay
minimum salaries of approximately $850,000 as well as bonuses to certain key
employees.
Pursuant to an agreement, the Company is committed to host an exhibition
every two years through 2009 at a certain facility. The agreement sets forth a
minimum rental area of 10,000 per sqm in 1997 and thereafter. Rates are
indexed-linked and range from $40 to $53 per sqm (before indexation). Also,
the Company has certain non-cancelable contracts related to commitments for
rental of hotels and convention centers for its events; in 1997, the
commitments amount to approximately $445,000.
8. INCOME TAXES
The income tax (benefit) provision consists of:
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
AUGUST 31,
------------------------
1994 1995 1996
--------- ---- --------
<S> <C> <C> <C>
Current:
Federal........................................ $(176,000) $-- $ --
State.......................................... (44,000) -- 290,000
Foreign........................................ -- -- 426,000
--------- ---- --------
$(220,000) $-- $716,000
========= ==== ========
</TABLE>
Significant components of the Company's net deferred tax assets are
approximately:
<TABLE>
<CAPTION>
AUGUST 31,
<S> <C> <C>
1995 1996
----------- -----------
Deferred tax assets............................. $ 3,212,810 $ 6,578,373
Deferred tax liabilities........................ (91,111) (243,299)
Valuation allowance............................. (3,121,699) (6,335,074)
----------- -----------
Net deferred tax assets......................... $ -- $ --
=========== ===========
</TABLE>
F-14
<PAGE>
PRODUCTION GROUP INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
8. INCOME TAXES (CONTINUED)
The principal items giving rise to the Company's net deferred tax assets are
net operating loss carryforwards, the excess of tax depreciation and
amortization over book depreciation and amortization and other accrued
expenses.
At August 31, 1996, the Company has net operating loss carryforwards of
approximately 5,000,000 expiring through 2011. The Company has had ownership
for tax purposes but has no current significant net operating loss carryover
limitations.
The Company has recorded a 100% valuation allowance against the net deferred
tax assets due to the uncertainties surrounding realizability of the asset.
The valuation allowance for deferred taxes increased by approximately
$1,800,000 primarily as a result of increased net operating loss carryforwards
and expense accounts.
The reconciliation of income tax from the statutory rate of 34% is:
<TABLE>
<CAPTION>
1996
-----------
<S> <C>
Tax (benefit) at statutory rates............................ $(3,866,000)
Non-deductible expenses..................................... 1,090,000
Valuation allowance change.................................. 2,700,000
State income tax net of federal benefit..................... 192,000
Foreign Income Taxes........................................ 427,000
Other....................................................... 173,000
-----------
$ 716,000
===========
</TABLE>
For 1995 and 1994 similar items, other than foreign taxes, reconcile this
statutory rate to the actual rate.
9. STOCKHOLDERS' EQUITY
CONVERTIBLE PREFERRED STOCK
On March 24, 1996, the Company amended its articles of incorporation to
authorize 5,746,407 shares of Convertible Preferred Stock. Each respective
series of Preferred Stock has similar rights, preferences, privileges and
restrictions as set forth in the amended articles of incorporation. Holders of
Series A, Series C, Series D and Series E shares of Convertible Preferred
Stock are entitled to dividends prior and in preference to any declaration or
payment of any dividend on the Common Stock of the Company at the per share
rate of $0.08, $0.26, $0.70 and $0.835 per annum, respectively. Rights to
these dividends are not cumulative. Series A, Series C, Series D and Series E
shares of Convertible Preferred Stock have liquidation preferences as
disclosed in the balance sheet ranging from $0.84 to $8.35 per share, plus any
declared but unpaid dividends.
Shares of Convertible Preferred Stock are convertible into Common Stock at
the option of the holder thereof, at any time after the date of issuance into
shares of Common Stock at a ratio of one to one. Shares of Convertible
Preferred Stock will automatically be converted into shares of Common Stock
immediately upon the consummation of an initial purchase offering of which the
price per share is not less than $15.00 and $12,000,000 in the aggregate.
Public Holders of Convertible Preferred Stock have the right to one vote for
each share of Common Stock into which such Convertible Preferred Stock could
then be converted, and with respect to such vote, the holder has the rights
and powers equal to the voting rights of the Common Stock holders. Each share
of Convertible Preferred Stock will be automatically converted into Common
Stock upon the consummation of a qualifying underwritten public offering.
F-15
<PAGE>
PRODUCTION GROUP INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
9. STOCKHOLDERS' EQUITY (CONTINUED)
PRIVATE PLACEMENTS
In November 1993 and January 1994, the Company issued 1,270,151 shares of
Series C Convertible Preferred Stock for $2.60 per share to various employees
and new and existing investors resulting in net proceeds of approximately
$3,300,000.
In February 1995, the Company issued 1,574,997 shares of Series D
Convertible Preferred Stock for $7.00 per share to new and existing investors
resulting in net proceeds of approximately $11,000,000.
During 1996, the Company sold 1,641,975 shares of Series E Convertible
Preferred Stock for $8.35 per share to new and existing investors resulting in
net proceeds of approximately $13,700,000.
COMMON STOCK OPTIONS
During 1995, the Company adopted a stock option plan which includes two
components, an Options Grant Program ("OGP") and a Stock Issuance Program
("SIP"). The OGP provides for the granting of options to employees,
consultants and members of the Board of Directors of the Company ("eligible
persons") to purchase shares of Common Stock. The SIP allows shares of Common
Stock to be issued directly to eligible persons through immediate purchase or
as bonus for services rendered. The terms of stock options granted under the
OGP may not exceed ten years. The exercise prices for options granted under
the plan approximate fair value. At August 31, 1996, the maximum number of
shares of Common Stock which may be issued in the aggregate under this amended
Plan was 1,156,000.
Common Stock options activity is as follows:
<TABLE>
<CAPTION>
NUMBER OF OPTION PRICE
SHARES (PER SHARE)
--------- ------------
<S> <C> <C>
Balance at August 31, 1994 370,000 $ 0.01
Granted 125,000 $ 1.40
Canceled (70,000) $ 0.01
Exercised -- --
--------- ------------
Balance at August 31, 1995 425,000 $0.01--$1.40
Granted 605,300 $1.40--$3.00
Canceled (4,084) $1.40--$1.67
Exercised (1,000) $ 1.40
--------- ------------
Balance at August 31, 1996 1,025,216 $0.01--$3.00
========= ============
Exercisable at August 31, 1996 732,902
=========
</TABLE>
The options generally vest over a period of four years. The Company granted
605,300 options during 1996, whose grant prices were less than the deemed fair
value of the Company's Common Stock. Also, the Company extended the exercise
period of 280,000 options, thereby creating a new measurement date. As a
result, the Company recognized $1,319,000 of compensation expense during 1996
for the vested options and the Company plans to recognize $133,134 of
compensation expense in future periods related to the unvested options.
RESERVE FOR ISSUANCE
The Company has reserved 5,983,123 shares of common stock for issuance upon
conversion of preferred stock and exercise of outstanding and future stock
options.
10. RETIREMENT PLAN
Effective December 1, 1993, the Company established a defined contribution
plan (the "Plan") substantially all employees of the Company. Employees may
elect to contribute a percentage of their
F-16
<PAGE>
PRODUCTION GROUP INTERNATIONAL, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
10. RETIREMENT PLAN (CONTINUED)
annual compensation to the Plan up to a maximum of 15%, subject to certain IRS
regulations. The Company generally has not made contributions to the Plan.
11. MANAGEMENT PLANS
The Company intends to file a Registration Statement on Form S-1 with the
Securities and Exchange Commission on or about October 25, 1996 to offer
shares of its Common Stock to the public. Should the offering be delayed or
not occur, the Company's ability to fund operations and satisfy its debt
payments through April 1998 has been ensured through commitments from certain
preferred stock investors.
12. SUBSEQUENT EVENT AND RELATED PRO FORMA INFORMATION
In September 1996, the Company issued 154,432 shares of Series E convertible
Preferred Stock to new and existing investors resulting in net proceeds of
approximately $1,290,000 at a per share price of $8.35.
The financial statements include pro forma information as of August 31, 1996
to reflect the issuance of 154,432 shares of Series E Convertible Preferred
Stock and the conversion of all outstanding Convertible Preferred Stock to
shares of Common Stock on a one to one basis.
13. PRO FORMA STATEMENTS OF OPERATIONS
Following is a summary of selected pro forma information for the years ended
August 31, 1995 and 1996 as if the acquisitions completed during fiscal 1995
and 1996 had occurred on September 1, 1994.
<TABLE>
<CAPTION>
YEARS ENDED AUGUST 31,
1995 1996
----------- ------------
<S> <C> <C>
Revenues............................................. $78,461,000 $ 91,527,000
Net loss............................................. $(7,450,000) $(11,854,000)
=========== ============
Net loss per share...................................
=========== ============
</TABLE>
F-17
<PAGE>
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
The Board of Directors
Ray Bloch Productions, Inc.
We have audited the accompanying consolidated balance sheets of Ray Bloch
Productions, Inc. as of December 31, 1994 and 1995 and the related
consolidated statements of operations, stockholder's equity and cash flows for
each of the three years in the period ended December 31, 1995. These financial
statements are the responsibility of Ray Bloch Production, Inc.'s management.
Our responsibility is to express an opinion on these financial statements
based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position
of Ray Bloch Productions, Inc. at December 31, 1994 and 1995, and the
consolidated results of its operations and its cash flows for each of the
three years in the period ended December 31, 1995, in conformity with
generally accepted accounting principles.
/s/ Ernst & Young LLP
Vienna, Virginia
October 4, 1996
F-18
<PAGE>
RAY BLOCH PRODUCTIONS, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
1994 1995
---------- ----------
<S> <C> <C>
ASSETS
Current assets:
Cash................................................... $1,576,535 $1,626,266
Accounts receivable.................................... 192,924 969,104
Due from stockholder................................... 74,000 122,635
Deferred costs......................................... 150,548 749,055
Deferred tax assets.................................... 10,879 8,144
Prepaid expenses and other current assets.............. 75,900 38,848
---------- ----------
Total current assets..................................... 2,080,786 3,514,052
Property and equipment, net.............................. 253,749 313,054
Other assets............................................. 70,273 23,069
---------- ----------
Total assets............................................. $2,404,808 $3,850,175
========== ==========
LIABILITIES AND STOCKHOLDER'S EQUITY
Current liabilities:
Accounts payable and accrued expenses.................. $ 275,716 $ 887,562
Bank line of credit.................................... -- 350,000
Due to stockholder..................................... -- 500,000
Income taxes payable................................... 199,092 75,872
Deferred revenues...................................... 1,492,400 1,803,795
---------- ----------
Total current liabilities................................ 1,967,208 3,617,229
Stockholder's equity:
Common stock, no par value, 200 shares authorized; 82.5
shares issued and outstanding......................... 4,600 4,600
Retained earnings...................................... 433,000 228,346
---------- ----------
Total stockholder's equity............................... 437,600 232,946
---------- ----------
Total liabilities and stockholders' equity............... $2,404,808 $3,850,175
========== ==========
</TABLE>
See accompanying notes.
F-19
<PAGE>
RAY BLOCH PRODUCTIONS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
1993 1994 1995
----------- ----------- -----------
<S> <C> <C> <C>
Revenues................................ $10,198,763 $13,026,392 $16,929,067
Cost of services........................ 6,977,875 9,103,412 12,474,699
----------- ----------- -----------
Gross profit............................ 3,220,888 3,922,980 4,454,368
Selling, general and administrative..... 3,076,461 3,468,927 4,499,680
----------- ----------- -----------
Income (loss) from operations........... 144,427 454,053 (45,312)
Other income (expense):
Interest income....................... 28,350 48,425 68,424
Interest expense...................... (15,331) (11,636) (28,271)
(Loss) gain on disposal of fixed as-
sets................................. (7,890) 11,126 28,335
----------- ----------- -----------
5,129 47,915 68,488
Income before income taxes.............. 149,556 501,968 23,176
Income tax provision.................... 77,764 219,151 227,830
----------- ----------- -----------
Net income (loss)....................... $ 71,792 $ 282,817 $ (204,654)
=========== =========== ===========
</TABLE>
See accompanying notes.
F-20
<PAGE>
RAY BLOCH PRODUCTIONS, INC.
STATEMENTS OF STOCKHOLDER'S EQUITY
<TABLE>
<CAPTION>
TOTAL
COMMON RETAINED STOCKHOLDER'S
STOCK EARNINGS EQUITY
------ --------- -------------
<S> <C> <C> <C>
Balance at December 31, 1992.................... $4,600 $ 78,391 $ 82,991
Net income.................................... -- 71,792 71,792
------ --------- ---------
Balance at December 31, 1993.................... 4,600 150,183 154,783
Net income.................................... -- 282,817 282,817
------ --------- ---------
Balance at December 31, 1994.................... 4,600 433,000 437,600
Net loss...................................... -- (204,654) (204,654)
------ --------- ---------
Balance at December 31, 1995.................... $4,600 $ 228,346 $ 232,946
====== ========= =========
</TABLE>
See accompanying notes.
F-21
<PAGE>
RAY BLOCH PRODUCTIONS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
1993 1994 1995
---------- ----------- ----------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income (loss)........................ $ 71,792 $ 282,817 $ (204,654)
Adjustments to reconcile net income
(loss) to net cash provided by (used in)
operating activities:
Loss (gain) on disposal of property and
equipment............................. 7,890 (11,126) (28,335)
Depreciation and amortization.......... 143,721 94,573 92,208
Deferred income taxes.................. (34,793) (12,646) 2,735
Operating assets and liabilities:
Accounts receivable.................... (53,959) 85,403 (776,180)
Deferred costs......................... (286,497) 282,729 (598,507)
Prepaid expenses and other current
assets................................ (137,654) 78,454 37,052
Other assets........................... 12,177 (4,221) 47,204
Accounts payable and accrued expenses.. 8,285 37,486 611,846
Deferred revenues...................... 1,900,543 (1,171,012) 311,395
Income taxes payable................... 109,258 68,029 (123,220)
---------- ----------- ----------
Net cash provided by (used in) operating
activities.............................. 1,740,763 (269,514) (628,456)
INVESTING ACTIVITIES
Purchases of property and equipment...... (28,053) (75,537) (167,396)
Proceeds from stockholder................ 26,000
Advances of loans receivable............. (6,000) -- (48,635)
Proceeds from disposal of property and
equipment............................... 113,233 12,088 44,218
---------- ----------- ----------
Net cash provided by (used in) investing
activities.............................. 79,180 (37,449) (171,813)
FINANCING ACTIVITIES
Net (payments) borrowings from line of
credit.................................. (443,316) -- 350,000
Proceeds from loan from stockholder...... -- -- 500,000
Repayments to stockholder................ (100,000) -- --
---------- ----------- ----------
Net cash (used in) provided by financing
activities.............................. (543,316) -- 850,000
---------- ----------- ----------
Net increase (decrease) in cash.......... 1,276,627 (306,963) 49,731
Cash at beginning of year................ 606,871 1,883,498 1,576,535
---------- ----------- ----------
Cash at end of year...................... $1,883,498 $ 1,576,535 $1,626,266
========== =========== ==========
</TABLE>
SUPPLEMENTAL INFORMATION:
Ray Bloch paid interest of $15,331, $11,636 and $28,271 for the years ended
December 31, 1993, 1994 and 1995, respectively.
See accompanying notes.
F-22
<PAGE>
RAY BLOCH PRODUCTIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. ORGANIZATION
Ray Bloch Productions, Inc. ("Ray Bloch") was incorporated on January 4,
1960 under the laws of the state of New York. Ray Bloch specializes in
providing business communication services to serve the needs of large
corporations and associations.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts in the financial statements and
the accompanying notes. Actual results could differ from those estimates.
Basis of Presentation
The consolidated financial statements include the accounts of wholly-owned
subsidiaries. All significant intercompany balances and transactions are
eliminated upon consolidation.
Statements of Cash Flows
For purposes of the statements of cash flows, Ray Bloch considers all highly
liquid investments with an original maturity date of three months or less to
be cash equivalents.
Revenue Recognition
Ray Bloch records revenues using the completed contract method, whereby all
revenues and costs are deferred until the event occurs. Provisions for
anticipated losses are made in the period in which they first become
determinable. As of December 31, 1994 and 1995, Ray Bloch had received
$1,492,400 and $1,803,795, respectively, related to future events and
classified these amounts as deferred revenues in the balance sheets. As of
December 31, 1994 and 1995, Ray Bloch had incurred $150,548 and $749,055,
respectively, in costs related to future events and had classified these
amounts as deferred costs in the balance sheets.
One customer accounted for approximately 17% of net revenues for the year
ended December 31, 1993 and two customers accounted for approximately 30% of
net revenues for the year ended December 31, 1994.
Income Taxes
Ray Bloch accounts for income taxes under the liability method.
3. PROPERTY AND EQUIPMENT
Property and equipment consisted of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------
1994 1995
---------- ----------
<S> <C> <C>
Furniture and fixtures............................... $ 763,973 $ 739,129
Computer and production equipment.................... 175,156 291,146
Leasehold improvements............................... 91,160 59,398
---------- ----------
1,030,289 1,089,673
Accumulated depreciation and amortization............ (776,540) (776,619)
---------- ----------
$ 253,749 $ 313,054
========== ==========
</TABLE>
F-23
<PAGE>
RAY BLOCH PRODUCTIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Property and equipment are recorded at cost and are depreciated on a
straight-line basis over estimated useful lives ranging from five to seven
years. Leasehold improvements are amortized over the shorter of their
estimated useful lives or lease term, using the straight-line method.
4. BANK LINE OF CREDIT
At December 31, 1994 and 1995, Ray Bloch had a credit facility with a bank
whereby Ray Bloch could borrow up to $1,000,000. The credit facility expired
on September 30, 1996. Ray Bloch had $350,000 of outstanding borrowings under
the line of credit at December 31, 1995, which was subsequently paid in
conjunction with the stock purchase (see note 9).
5. COMMITMENTS
Ray Bloch has entered into various operating lease agreements for office
space and equipment. Future minimum lease payments may be periodically
adjusted based on changes in the lessors' operating costs.
Future minimum lease payments under non-cancelable operating leases as of
December 31, 1995 are:
<TABLE>
<S> <C>
1996........................................................... $ 262,100
1997........................................................... 272,366
1998........................................................... 276,372
1999........................................................... 218,389
Thereafter..................................................... 68,950
----------
Total minimum lease payments................................... $1,098,177
==========
</TABLE>
Rent expense amounted to approximately $272,881, $277,301 and $278,526
during the years ended December 31, 1993, 1994 and 1995, respectively.
6. INCOME TAXES
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. The principal items
giving rise to Ray Bloch's net deferred tax assets are net operating loss
carryforwards, the excess of tax depreciation and amortization over book
depreciation and amortization, and other accrued expenses. Deferred taxes are
as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------
1994 1995
------- -------
<S> <C> <C>
Deferred tax assets......................................... $10,879 $15,753
Deferred tax liabilities.................................... -- (7,609)
------- -------
Net deferred tax assets..................................... $10,879 $ 8,144
======= =======
</TABLE>
F-24
<PAGE>
RAY BLOCH PRODUCTIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Significant components of the provision for income taxes are as follows:
<TABLE>
<CAPTION>
1993 1994 1995
-------- -------- --------
<S> <C> <C> <C>
Current:
Federal....................................... $ 86,252 $178,979 $174,140
State......................................... 26,305 52,818 50,955
-------- -------- --------
112,557 231,797 225,095
Deferred:
Federal....................................... (26,662) (9,753) 2,100
State......................................... (8,131) (2,893) 635
-------- -------- --------
(34,793) (12,646) 2,735
-------- -------- --------
$ 77,764 $219,151 $227,830
======== ======== ========
</TABLE>
Ray Bloch's effective tax rate differs from the statutory federal income tax
rate as follows:
<TABLE>
<CAPTION>
1993 1994 1995
---- ---- ----
<S> <C> <C> <C>
Statutory federal income tax rate............................ 34% 34% 34%
Expenses not deductible for tax.............................. 10% 3% 802%
State income tax, net of federal............................. 8% 7% 147%
--- --- ---
52% 44% 983%
=== === ===
</TABLE>
In 1995 Ray Bloch, for book purposes, made a payment of $500,000 to an
employee, which is not deductible for tax purposes.
Ray Bloch paid approximately $6,716, $153,392 and $303,274 in income taxes
for the years ended December 31, 1993, 1994 and 1995, respectively.
7. RELATED PARTY TRANSACTIONS
Due from stockholder
As of December 31, 1994 and 1995, Ray Bloch had advanced $74,000 and
$122,635 to the stockholder. These loans were non interest-bearing. Subsequent
to December 31, 1995, these amounts were repaid by the stockholder.
Due to stockholder
At December 31, 1995, the stockholder loaned $500,000 to Ray Bloch, which
was repaid during 1996.
Interest expense associated with above loans is deemed immaterial to the
financial statements.
8. EMPLOYEE BENEFIT PLANS
Pension Plan
Ray Bloch sponsors a defined-benefit pension plan covering substantially all
employees. Plan benefits are based upon years of service and the compensation
during the last year before retirement. Ray Bloch's funding policy is to
contribute the minimum required, as determined for ERISA purposes.
Contributions are intended to provide not only for benefits attributed to
service to date but also for those expected to
F-25
<PAGE>
RAY BLOCH PRODUCTIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
be earned in the future. The assets of the pension plan are invested in money
markets and corporate debt and equity instruments. Ray Bloch contributed
approximately $73,199, $74,925, and $53,199 during the years ended December
31, 1993, 1994 and 1995, respectively.
The following table sets forth the pension plan's funded status as reported
on activity, and amounts recognized in Ray Bloch's financial statements:
<TABLE>
<CAPTION>
DECEMBER 31,
1994 1995
--------- ---------
<S> <C> <C>
Actuarial present value of benefit obligations:
Accumulated benefit obligation, including vested
benefits of $491,827 in 1994, $550,658 in 1995....... $(545,352) $(622,029)
========= =========
Projected benefit obligation.......................... (718,449) (826,459)
Plan assets at fair value............................. 367,903 405,006
--------- ---------
Funded status--projected benefit obligation in excess
of fair value of plan assets......................... $(350,546) $(421,453)
========= =========
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
1993 1994 1995
------- ------- -------
<S> <C> <C> <C>
Net periodic pension cost:
Service cost......................................... $31,273 $72,508 $76,503
Interest cost........................................ 2,086 2,417 2,756
------- ------- -------
Total net periodic pension cost...................... $33,359 $74,925 $79,259
======= ======= =======
</TABLE>
Key assumption used in the actuarial valuation were:
<TABLE>
<CAPTION>
DECEMBER 31,
1994 1995
------ ------
<S> <C> <C>
Weighted average discount note............................. 6.7% 6.5%
Rate of return on assets:
Pre-retirement........................................... 6.5% 6.5%
Post-retirement.......................................... 5.0% 5.0%
</TABLE>
401(k) Plan
Ray Bloch has adopted a 401(k) plan (the 401(k) Plan) covering substantially
all employees of Ray Bloch. Under the 401(k) Plan, employees may elect to
reduce their current compensation by up to 15%, subject to annual limitations,
and have the amount of such reduction contributed to the 401(k) Plan. The
401(k) Plan requires additional matching contributions by Ray Bloch equaling
one-half of the first six percent of each employee's contributions. Matching
contributions by Ray Bloch to the 401(k) Plan amounted to $3,174 and $3,599
for the years ended December 31, 1994, and 1995, respectively.
9. SUBSEQUENT EVENT
Effective January 1, 1996, the stockholder of Ray Bloch Productions, Inc.
entered into a stock purchase agreement with Production Group International,
Inc. (PGI) whereby all of the issued and outstanding shares of common stock of
Ray Bloch were sold to PGI for $3,392,000 in cash and $3,000,000 in notes
payable. The agreement also stipulates additional payments of up to
$1,500,000.
F-26
<PAGE>
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
The Board of Directors
Epic Enterprises, Inc.
We have audited the accompanying combined balance sheets of Epic
Enterprises, Inc. ("Epic") as of January 31, 1995 and 1996, and the related
combined statements of operations, stockholders' deficit and cash flows for
each of the three years in the period ended January 31, 1996. These financial
statements are the responsibility of Epic's management. Our responsibility is
to express an opinion on these combined financial statements based on our
audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the combined financial statements referred to above present
fairly, in all material respects, the financial position of Epic Enterprises,
Inc. at January 31, 1995 and 1996, and the results of their operations and
their cash flows for each of the three years in the period ended January 31,
1996, in conformity with generally accepted accounting principles.
/s/ Ernst & Young LLP
Vienna, Virginia
October 4, 1996
F-27
<PAGE>
EPIC ENTERPRISES, INC.
COMBINED BALANCE SHEETS
<TABLE>
<CAPTION>
JANUARY 31,
1995 1996
---------- ----------
<S> <C> <C>
ASSETS
Current assets:
Cash................................................. $ 988,557 $1,231,312
Accounts receivable.................................. 39,993 1,059,681
Prepaid expenses and other current assets............ 20,795 23,947
Deferred costs....................................... 893,729 890,515
---------- ----------
Total current assets................................... 1,943,074 3,205,455
Property and equipment, net............................ 29,632 26,608
Due from officers...................................... 333,681 317,292
Note receivable from a customer, less allowance of
$47,000 at January 31, 1995 and 1996.................. 56,284 24,406
---------- ----------
Total assets........................................... $2,362,671 $3,573,761
========== ==========
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
Accounts payable and accrued expenses................ $ 274,641 $ 210,465
Income taxes payable................................. 56,575 44,650
Deferred revenues.................................... 2,032,917 3,370,212
---------- ----------
Total current liabilities.............................. 2,364,133 3,625,327
Commitments............................................ -- --
Stockholders' deficit:
Common stock; no par value; 6,000 shares authorized,
3,974 shares issued and outstanding................. 3,974 3,974
Accumulated deficit.................................. (5,436) (55,540)
---------- ----------
Total stockholders' deficit............................ (1,462) (51,566)
---------- ----------
Total liabilities and stockholders' deficit............ $2,362,671 $3,573,761
========== ==========
</TABLE>
See accompanying notes.
F-28
<PAGE>
EPIC ENTERPRISES, INC.
COMBINED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED JANUARY 31,
1994 1995 1996
---------- ---------- ----------
<S> <C> <C> <C>
Revenues................................... $3,523,338 $4,001,556 $4,621,291
Cost of services........................... 1,508,952 1,643,506 2,345,200
---------- ---------- ----------
Gross profit............................... 2,014,386 2,358,050 2,276,091
Selling, general and administrative........ 2,031,439 2,426,916 2,432,911
---------- ---------- ----------
Loss from operations....................... (17,053) (68,866) (156,820)
Other income:
Interest income.......................... 21,771 28,178 75,876
Other income............................. 39,026 46,512 20,115
---------- ---------- ----------
60,797 74,690 95,991
---------- ---------- ----------
Income (loss) before income taxes.......... 43,744 5,824 (60,829)
Income tax provision (benefit)............. 51,740 4,835 (11,925)
---------- ---------- ----------
Net income (loss).......................... $ (7,996) $ 989 $ (48,904)
========== ========== ==========
</TABLE>
See accompanying notes.
F-29
<PAGE>
EPIC ENTERPRISES, INC.
COMBINED STATEMENTS OF STOCKHOLDERS' DEFICIT
<TABLE>
<CAPTION>
TOTAL
COMMON ACCUMULATED STOCKHOLDERS'
STOCK DEFICIT DEFICIT
------ ----------- -------------
<S> <C> <C> <C>
Balance at January 31, 1993.................... $3,974 $ 3,971 $ 7,945
Net income................................... -- (7,996) (7,996)
Dividends.................................... -- (1,200) (1,200)
------ -------- --------
Balance at January 31, 1994.................... 3,974 (5,225) (1,251)
Net loss..................................... -- 989 989
Dividends.................................... -- (1,200) (1,200)
------ -------- --------
Balance at January 31, 1995.................... 3,974 (5,436) (1,462)
Net loss..................................... -- (48,904) (48,904)
Dividends.................................... -- (1,200) (1,200)
------ -------- --------
Balance at January 31, 1996.................... $3,974 $(55,540) $(51,566)
====== ======== ========
</TABLE>
See accompanying notes.
F-30
<PAGE>
EPIC ENTERPRISES, INC.
COMBINED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED JANUARY 31,
1994 1995 1996
---------- ---------- -----------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net (loss) income........................ $ (7,996) $ 989 $ (48,904)
Adjustments to reconcile net (loss)
income to net cash provided by operating
activities:
Depreciation........................... 4,835 6,714 9,018
Allowance for note receivable.......... -- 47,000 --
Changes in operating assets and
liabilities:
Accounts receivable.................... (156,916) 676,868 (1,019,688)
Prepaid expenses and other current
assets................................ 25,976 (10,302) (3,152)
Deferred costs......................... (61,305) (351,685) 3,214
Accounts payable and accrued expenses.. 15,173 65,221 (64,176)
Income taxes payable................... 51,740 4,835 (11,925)
Deferred revenues...................... 409,129 (270,226) 1,337,295
---------- ---------- -----------
Net cash provided by operating
activities.............................. 280,636 169,414 201,682
INVESTING ACTIVITIES
Purchases of property and equipment...... (13,568) (11,301) (5,994)
---------- ---------- -----------
Net cash used in investing activities.... (13,568) (11,301) (5,994)
FINANCING ACTIVITIES
Loans to officers........................ (173,500) (106,181) 16,389
Loans related to note receivable from a
customer................................ -- (103,284) --
Proceeds related to note receivable from
a customer.............................. -- -- 31,878
Dividends................................ (1,200) (1,200) (1,200)
---------- ---------- -----------
Net cash (used in) provided by financing
activities.............................. (174,700) (210,665) 47,067
Net increase (decrease) in cash.......... 92,368 (52,552) 242,755
Cash at beginning of year................ 948,741 1,041,109 988,557
---------- ---------- -----------
Cash at end of year...................... $1,041,109 $ 988,557 $ 1,231,312
========== ========== ===========
</TABLE>
See accompanying notes.
F-31
<PAGE>
EPIC ENTERPRISES, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS
1. ORGANIZATION
Epic Enterprises, Inc. ("Epic") was incorporated on January 23, 1980 in the
state of California. Epic specializes in managing exhibitions and conventions
to serve the needs of individual, corporate and governmental clients.
Basis of Presentation
The combined financial statements include the accounts of Epic and Goren
Epic, a partnership formed in 1984, in which Epic owned a fifty percent
interest. As of February 1, 1996, Production Group International, Inc.
acquired 100% of Epic and Goren Epic pursuant to a stock purchase agreement
(see Note 8). As a result, the combined financial statements of the two
entities (collectively the "acquired business") have been presented and
include both entities as if they had been combined since January 31, 1993. The
provision for income taxes for Epic and Goren Epic has been calculated on a
combined basis.
Goren Epic is engaged in the business of organizing and owning two trade
shows. Under the partnership agreement, Epic received annual management fees,
for each of the two trade shows, and profits and losses of the partnership
were distributed equally.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts in the financial statements and
accompanying notes. Actual results could differ from those estimates.
Revenue Recognition
Epic accounts for revenues using the completed contract method and records
revenues and costs of revenues upon completion of the event. As of January 31,
1995 and 1996, Epic had made payments of approximately $893,729 and $890,515,
respectively, related to future events and had classified these payments as
deferred costs in the balance sheets. As of January 31, 1995 and 1996, Epic
had received advance non-refundable payments of approximately $2,032,917 and
$3,370,212, respectively, related to future events and had recorded these
amounts as deferred revenues in the balance sheets.
One customer accounted for approximately 15%, 15%, and 14% of total revenues
during the years ended January 31, 1994, 1995, and 1996, respectively.
Income Taxes
Epic provides for income taxes in accordance with the liability method. The
provision for income taxes for Epic and Goren Epic has been calculated on a
combined basis.
F-32
<PAGE>
EPIC ENTERPRISES, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
3. PROPERTY AND EQUIPMENT
Property and equipment consists of the following:
<TABLE>
<CAPTION>
JANUARY 31,
1995 1996
-------- --------
<S> <C> <C>
Furniture and fixtures................................... $ 22,990 $ 23,363
Computer equipment....................................... 34,758 40,379
-------- --------
57,748 63,742
Less accumulated depreciation............................ (28,116) (37,134)
-------- --------
$ 29,632 $ 26,608
======== ========
</TABLE>
Property and equipment is recorded at cost. Depreciation is provided on a
straight-line basis over estimated useful lives ranging from five to seven
years.
4. DUE FROM OFFICERS
Epic loaned $317,292 to certain officers in exchange for promissory notes
which bear interest at 5%. All accrued and unpaid interest and remaining
principal on the promissory notes are due and payable upon demand from April
25, 1999 through February 1, 2001.
Subsequent to year-end and in connection with the stock purchase agreement
(see Note 8), the note receivable balance at January 31, 1996 of $317,292 was
forgiven in exchange for 46 shares of common stock held by the officers.
5. COMMITMENTS
Epic has entered into various operating lease agreements for office space
and equipment. Future minimum lease payments for its office space may be
periodically adjusted based on changes in the lessors' operating costs.
Future minimum lease payments under non-cancelable operating leases as of
January 31, 1996 are:
<TABLE>
<S> <C>
1997............................................................. $132,354
1998............................................................. 132,354
1999............................................................. 132,354
2000............................................................. 132,354
Thereafter....................................................... 11,030
--------
Total minimum lease payments..................................... $540,446
========
</TABLE>
Rent expense was $89,202, $122,107 and $163,877 for the years ended January
31, 1994, 1995 and 1996, respectively.
Epic has certain non-cancelable contracts related to commitments for rental
of hotels and convention centers for its events. As of January 31, 1996, Epic
had commitments of approximately $270,000 related to these contracts.
6. INCOME TAXES
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. Significant components
of Epic's net deferred tax assets and liabilities are:
F-33
<PAGE>
EPIC ENTERPRISES, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
<TABLE>
<CAPTION>
JANUARY 31,
1995 1996
-------- --------
<S> <C> <C>
Deferred tax assets:
Accrued vacation....................................... $ 8,563 $ 9,507
Reserve for note receivable............................ 18,865 18,865
Other.................................................. 877 659
-------- --------
Deferred tax assets...................................... 28,305 29,031
Deferred tax liabilities................................. -- --
Valuation allowance...................................... (28,305) (29,031)
-------- --------
Net deferred tax assets.................................. $ -- $ --
======== ========
</TABLE>
Significant components of the provision for (benefit from) income taxes are
as follows:
<TABLE>
<CAPTION>
YEAR ENDED JANUARY 31,
1994 1995 1996
-------- ------- --------
<S> <C> <C> <C>
Current:
Federal....................................... $ 39,752 $ 3,715 $(12,841)
State......................................... 11,988 1,120 916
-------- ------- --------
51,740 4,835 (11,925)
Deferred:
Federal....................................... (22,576) 4,548 (558)
State......................................... (6,808) 1,372 (168)
Valuation allowance........................... 29,384 (5,920) 726
-------- ------- --------
-- -- --
-------- ------- --------
$ 51,740 $ 4,835 $(11,925)
======== ======= ========
</TABLE>
Epic's effective tax rate differs from the statutory federal income tax rate
as follows:
<TABLE>
<CAPTION>
YEAR ENDED JANUARY 31,
1994 1995 1996
------- ------- -------
<S> <C> <C> <C>
Statutory federal income tax rate.................. 34.0% 34.0% (34.0)%
Non-deductible expenses............................ 9.3 122.0 12.3
State taxes........................................ 7.8 28.0 .8
Valuation allowance................................ 67.2 (101.6) 1.3
------ ------- -------
118.3% 82.4% (19.6)%
====== ======= =======
</TABLE>
Epic paid approximately $9,480, $19,654, and $15,585 in income taxes for the
years ended January 31, 1994, 1995, and 1996, respectively.
7. PROFIT SHARING PLAN
Effective February 1, 1991, Epic established the Epic Enterprises, Inc.
Profit Sharing Plan (the "Plan") covering eligible employees. Contributions by
Epic are discretionary and employees are not permitted to make contributions
to the Plan. Employer contributions are allocated to participants' accounts in
the ratio that the sum of each participant's total compensation bears to all
participants' total compensation. Contributions to the Plan were $105,000,
$80,000, and $50,000 for the years ended January 31, 1994, 1995, and 1996,
respectively.
F-34
<PAGE>
EPIC ENTERPRISES, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
8. SUBSEQUENT EVENT
On February 1, 1996, the stockholders of Epic and the partners of Goren Epic
completed a stock purchase agreement with Production Group International, Inc.
("PGI") whereby PGI purchased all the outstanding shares of Epic and
outstanding partnership interests of Goren Epic for $3,792,000 in cash and
$1,500,000 in notes payable. The stock purchase agreement also provides for
additional cash consideration of up to $1,500,000.
F-35
<PAGE>
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
The Board of Directors
Epic Enterprises of Nevada, Inc.
We have audited the accompanying balance sheets of Epic Enterprises of
Nevada, Inc. as of December 31, 1994 and 1995, and the related statements of
operations, stockholders' deficit and cash flows for the period from July 15,
1993 (inception) to December 31, 1993, for the years ended December 31, 1994
and 1995, and for the six months ended June 30, 1996. These financial
statements are the responsibility of Epic Enterprises of Nevada, Inc.'s
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Epic Enterprises of
Nevada, Inc. at December 31, 1994 and 1995, and the results of its operations
and its cash flows for the period from July 15, 1993 (inception) to December
31, 1993, for the years ended December 31, 1994 and 1995, and for the six
months ended June 30, 1996, in conformity with generally accepted accounting
principles.
/s/ Ernst & Young LLP
Vienna, Virginia
October 4, 1996
F-36
<PAGE>
EPIC ENTERPRISES OF NEVADA, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
1994 1995
--------- ---------
<S> <C> <C>
ASSETS
Current assets:
Cash................................................... $ 15,792 $ 54,057
Accounts receivable.................................... 17,841 77,857
--------- ---------
Total current assets..................................... 33,633 131,914
Property and equipment, net.............................. 17,753 29,694
Other assets............................................. 8,712 10,326
--------- ---------
Total assets............................................. $ 60,098 $ 171,934
========= =========
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
Accounts payable and accrued expenses.................. $ 40,228 $ 90,640
Deferred revenues...................................... -- 338,044
--------- ---------
Total current liabilities................................ 40,228 428,684
Loans from officers...................................... 226,000 226,000
Commitments.............................................. -- --
Stockholders' deficit:
Common stock; no par value; 1,000 shares authorized,
issued and outstanding................................ 1,000 1,000
Accumulated deficit.................................... (207,130) (483,750)
--------- ---------
Total stockholders' deficit.............................. (206,130) (482,750)
--------- ---------
Total liabilities and stockholders' deficit.............. $ 60,098 $ 171,934
========= =========
</TABLE>
See accompanying notes.
F-37
<PAGE>
EPIC ENTERPRISES OF NEVADA, INC.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
JULY 15, 1993
(INCEPTION) TO SIX MONTHS
DECEMBER 31, YEAR ENDED DECEMBER 31, ENDED JUNE 30,
1993 1994 1995 1996
-------------- ----------- ----------- --------------
<S> <C> <C> <C> <C>
Revenues................ $ 77,628 $ 440,103 $ 611,015 $1,599,881
Cost of services........ 31,814 195,223 325,817 905,960
-------- ----------- ----------- ----------
Gross profit............ 45,814 244,880 285,198 693,921
Selling, general and ad-
ministrative........... 87,476 410,348 569,339 778,340
-------- ----------- ----------- ----------
Loss from operations.... (41,662) (165,468) (284,141) (84,419)
Other income............ -- -- 7,521 22,189
-------- ----------- ----------- ----------
Net loss................ $(41,662) $(165,468) $(276,620) $ (62,230)
======== =========== =========== ==========
</TABLE>
See accompanying notes.
F-38
<PAGE>
EPIC ENTERPRISES OF NEVADA, INC.
STATEMENTS OF STOCKHOLDERS' DEFICIT
<TABLE>
<CAPTION>
TOTAL
COMMON ACCUMULATED STOCKHOLDER'S
STOCK DEFICIT EQUITY
------ ----------- -------------
<S> <C> <C> <C>
Balance at July 15, 1993 (inception)........... $1,000 $ -- $ 1,000
Net loss..................................... -- (41,662) (41,662)
------ --------- ---------
Balance at December 31, 1993................... 1,000 (41,662) (40,662)
Net loss..................................... -- (165,468) (165,468)
------ --------- ---------
Balance at December 31, 1994................... 1,000 (207,130) (206,130)
Net loss..................................... -- (276,620) (276,620)
------ --------- ---------
Balance at December 31, 1995................... $1,000 $(483,750) $(482,750)
====== ========= =========
</TABLE>
See accompanying notes.
F-39
<PAGE>
EPIC ENTERPRISES OF NEVADA, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
JULY 15, 1993
(INCEPTION) TO SIX MONTHS
DECEMBER 31, YEAR ENDED DECEMBER 31, ENDED JUNE 30,
1993 1994 1995 1996
-------------- ----------- ----------- --------------
<S> <C> <C> <C> <C>
OPERATING ACTIVITIES
Net loss................ $(41,662) $(165,468) $(276,620) $(62,230)
Adjustments to reconcile
net loss to net cash
provided by (used in)
operating activities:
Depreciation and amor-
tization............. 952 6,501 1,911 3,162
Allowance for doubtful
accounts............. -- -- -- 40,000
Changes in operating as-
sets and liabilities:
Accounts receivable... (3,892) (13,949) (60,016) (18,021)
Other assets.......... (7,528) (1,184) (1,614) (42,147)
Accounts payable and
accrued expenses..... 6,652 33,576 50,412 86,423
Deferred revenues..... -- -- 338,044 (257,496)
-------- ----------- ----------- --------
Net cash (used in) pro-
vided by operating ac-
tivities............... (45,478) (140,524) 52,117 (250,309)
INVESTING ACTIVITIES
Purchases of property
and equipment.......... (21,236) (3,970) (13,852) (59,870)
-------- ----------- ----------- --------
Net cash used in invest-
ing activities......... (21,236) (3,970) (13,852) (59,870)
FINANCING ACTIVITIES
Proceeds from sale of
common stock........... 1,000 -- -- --
Proceeds from loans from
officers............... 81,000 145,000 -- 145,000
Proceeds from loan from
affiliate.............. -- -- -- 135,000
-------- ----------- ----------- --------
Net cash provided by fi-
nancing activities..... 82,000 145,000 -- 280,000
Net increase (decrease)
in cash................ 15,286 506 38,265 (30,179)
Cash at beginning of pe-
riod................... -- 15,286 15,792 54,057
-------- ----------- ----------- --------
Cash at end of period... $ 15,286 $ 15,792 $ 54,057 $ 23,878
======== =========== =========== ========
</TABLE>
See accompanying notes.
F-40
<PAGE>
EPIC ENTERPRISES OF NEVADA, INC.
NOTES TO FINANCIAL STATEMENTS
1. ORGANIZATION
Epic Enterprises of Nevada, Inc. ("Epic NV") was incorporated on July 15,
1993 in Nevada. Epic NV specializes in providing leisure and convention
housing services, destination management services and, business center
services through a franchise agreement with Mail Boxes Etc., USA, Inc.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts in the financial statements and
accompanying notes. Actual results could differ from those estimates.
Revenue Recognition
Epic NV accounts for revenues under short-term contracts using the completed
contract method whereby revenues and costs of revenues are deferred until the
event occurs. As of December 31, 1995, Epic NV had received advanced non
referable payments of $338,044 related to future events, and has recorded this
amount as deferred revenues in the balance sheets.
One customer accounted for approximately 14% of total revenues for the six
months ended June 30, 1996.
Income Taxes
Epic NV accounts for income taxes under the liability method.
3. PROPERTY AND EQUIPMENT
Property and equipment consisted of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
1994 1995
------- -------
<S> <C> <C>
Furniture and fixtures..................................... $ 6,667 $ 8,318
Computer equipment......................................... 6,065 17,234
Leasehold improvements..................................... 12,474 13,506
------- -------
25,206 39,058
Less accumulated depreciation and amortization............. (7,453) (9,364)
------- -------
$17,753 $29,694
======= =======
</TABLE>
Property and equipment are recorded at cost. Depreciation is computed using
straight-line methods over the estimated useful lives of the related assets
ranging from five to seven years. Leasehold improvements are amortized on a
straight-line method over the lesser of the term of the lease or the life of
the improvements.
4. DUE TO OFFICERS
Epic NV executed promissory notes in the aggregate amount of $371,000 with
certain officers. The notes bear interest at 6%. All accrued and unpaid
interest and remaining principal on notes are due and payable upon demand from
August 19, 1998 through May 30, 2001.
Subsequent to June 30, 1996, the outstanding loans from officers balance was
forgiven by the officers and reclassified to equity.
F-41
<PAGE>
EPIC ENTERPRISES OF NEVADA, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
5. COMMITMENTS
Leases
Epic NV has entered into various operating lease agreements for office
space. Future minimum lease payments may be periodically adjusted based on
changes in the lessors' operating costs.
Future minimum lease payments under non-cancelable operating leases as of
December 31, 1995 are:
<TABLE>
<S> <C>
1996............................................................. $ 70,908
1997............................................................. 106,362
1998............................................................. 106,362
1999............................................................. 106,362
Thereafter....................................................... 141,816
--------
Total minimum lease payments................................... $531,810
========
</TABLE>
Rent expense amounted to approximately $11,000, $39,000, $51,000 and $42,000
for the period from July 15, 1993 (inception) to December 31, 1993, for the
years ended December 31, 1994 and 1995, and for the six months ended June 30,
1996, respectively.
Franchise Agreements
During 1996, Epic NV entered into a franchise agreement with Mail Boxes Etc.
USA, Inc., whereby Epic NV will operate Mail Box Etc. business centers in four
hotels/convention centers. The term of the agreements is ten years with
renewal options. The aggregate franchise fees amounted to approximately
$25,000. Epic NV is required to pay royalties to Mail Boxes Etc. USA, Inc.
equivalent to 5% of gross revenues of each business center and is required to
pay marketing fees equivalent to 3.5% of gross revenues of each business
center.
6. INCOME TAXES
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. Significant components
of Epic NV's net deferred tax assets are approximately:
<TABLE>
<CAPTION>
DECEMBER 31,
1994 1995
-------- --------
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforwards....................... $ 23,461 $ 55,696
-------- --------
Total deferred tax assets................................ 23,461 55,696
Valuation allowance...................................... (23,461) (55,696)
-------- --------
Net deferred tax assets.................................. $ -- $ --
======== ========
</TABLE>
Epic NV made no federal or state income tax payments for the period from
July 15, 1993 (inception) to December 31, 1993, for the years ended December
31, 1994 and 1995, and for the six months ended June 30, 1996.
7. SUBSEQUENT EVENT
On July 1, 1996, the stockholders of Epic NV completed a stock purchase
agreement with Production Group International, Inc. ("PGI") whereby PGI
acquired all of the outstanding common stock of Epic NV. The aggregate
purchase price was $1,000,000 in cash and additional cash consideration of up
to $5,000,000.
F-42
<PAGE>
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
The Board of Directors
Timberline Productions, Inc.
We have audited the accompanying balance sheets of Timberline Productions,
Inc. as of December 31, 1994 and 1995, and the related statements of
operations, stockholders' equity and cash flows for each of the three years in
the period ended December 31, 1995 and for the three months ended March 31,
1996. These financial statements are the responsibility of Timberline
Productions Inc.'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, the financial statements referred to above present fairly,
in all material respects, the financial position of Timberline Productions,
Inc. at December 31, 1994 and 1995, and the results of its operations and its
cash flows for each of the three years in the period ended December 31, 1995
and for the three months ended March 31, 1996, in conformity with generally
accepted accounting principles.
/s/ Ernst & Young LLP
Vienna, Virginia
October 7, 1996
F-43
<PAGE>
TIMBERLINE PRODUCTIONS, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
1994 1995
-------- ----------
<S> <C> <C>
ASSETS
Current assets:
Cash..................................................... $ 48,839 $ 55,908
Accounts receivable...................................... 403,236 545,869
Prepaid expenses and other current assets................ 18,084 25,131
-------- ----------
Total current assets....................................... 470,159 626,908
Property and equipment, net................................ 451,583 603,448
-------- ----------
Total assets............................................... $921,742 $1,230,356
======== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses.................... $117,730 $ 267,491
Deferred revenues........................................ 81,236 91,112
Note payable to bank--current portion.................... 62,500 62,500
Bank lines of credit..................................... 59,753 281,793
Capital lease obligations--current portion............... -- 26,904
Income taxes payable..................................... 61,128 78,869
Deferred tax liabilities................................. 9,844 354
-------- ----------
Total current liabilities.................................. 392,191 809,023
Capital lease obligations, net of current portion.......... -- 40,072
Note payable to bank, net of current portion............... 187,500 125,000
Commitments................................................ -- --
Stockholders' equity:
Common stock; $100 par value; 10,000 shares authorized,
681 shares issued and outstanding....................... 68,100 68,100
Retained earnings........................................ 273,951 188,161
-------- ----------
Total stockholders' equity................................. 342,051 256,261
-------- ----------
Total liabilities and stockholders' equity................. $921,742 $1,230,356
======== ==========
</TABLE>
See accompanying notes.
F-44
<PAGE>
TIMBERLINE PRODUCTIONS, INC.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
THREE
MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
1993 1994 1995 1996
---------- ---------- ---------- ------------
<S> <C> <C> <C> <C>
Revenues...................... $5,262,440 $4,237,824 $4,345,563 $1,020,388
Cost of services.............. 3,020,943 2,550,873 2,723,817 707,821
---------- ---------- ---------- ----------
Gross profit.................. 2,241,497 1,686,951 1,621,746 312,567
Selling, general and adminis-
trative...................... 1,941,053 1,744,506 1,625,257 519,953
---------- ---------- ---------- ----------
Income (loss) from operations. 300,444 (57,555) (3,511) (207,386)
Interest expense.............. (11,823) (24,094) (32,828) (5,403)
---------- ---------- ---------- ----------
Income (loss) before provision
for (benefit from) income
taxes........................ 288,621 (81,649) (36,339) (212,789)
Provision for (benefit from)
income taxes................. 117,250 (27,707) 8,251 (81,443)
---------- ---------- ---------- ----------
Net income (loss)............. $ 171,371 $ (53,942) $ (44,590) $ (131,346)
========== ========== ========== ==========
</TABLE>
See accompanying notes.
F-45
<PAGE>
TIMBERLINE PRODUCTIONS, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
TOTAL
COMMON RETAINED STOCKHOLDERS'
STOCK EARNINGS EQUITY
------- --------- -------------
<S> <C> <C> <C>
Balance at December 31, 1992................... $68,100 $ 386,362 $ 454,462
Distributions................................ -- (182,840) (182,840)
Net income................................... -- 171,371 171,371
------- --------- ---------
Balance at December 31, 1993................... 68,100 374,893 442,993
Distributions................................ -- (47,000) (47,000)
Net loss..................................... -- (53,942) (53,942)
------- --------- ---------
Balance at December 31, 1994................... 68,100 273,951 342,051
Distributions................................ -- (41,200) (41,200)
Net loss..................................... -- (44,590) (44,590)
------- --------- ---------
Balance at December 31, 1995................... $68,100 $ 188,161 $ 256,261
======= ========= =========
</TABLE>
See accompanying notes.
F-46
<PAGE>
TIMBERLINE PRODUCTIONS, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
THREE
MONTHS
ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
1993 1994 1995 1996
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
OPERATING ACTIVITIES
Net income (loss)................. $ 171,371 $ (53,942) $ (44,590) $(131,346)
Adjustments to reconcile net in-
come (loss) to net cash provided
by (used in) operating activi-
ties:
Depreciation and amortization... 190,048 192,447 189,867 55,634
Deferred income taxes........... 23,125 5,294 (9,490) (8,510)
Changes in operating assets and
liabilities:
Accounts receivable............. (147,297) 56,419 (142,633) 255,659
Prepaid expenses and other cur-
rent assets.................... (10,931) (6,703) (7,047) (4,003)
Accounts payable and accrued ex-
penses......................... (52,333) 79,937 149,761 129,200
Deferred revenues............... (91,331) 57,567 9,876 (27,837)
Income taxes payable............ 94,125 (33,000) 17,741 (72,933)
--------- --------- --------- ---------
Net cash provided by operating ac-
tivities......................... 176,777 298,019 163,485 195,864
INVESTING ACTIVITIES
Purchases of property and equip-
ment............................. (150,400) (218,260) (258,184) (10,444)
--------- --------- --------- ---------
Net cash used in investing activi-
ties............................. (150,400) (218,260) (258,184) (10,444)
FINANCING ACTIVITIES
Distributions to stockholders..... (182,840) (47,000) (41,200) --
Net proceeds (payments) on bank
lines of credit.................. 105,000 (110,247) 222,040 (150,000)
Proceeds from note payable to
bank............................. -- 250,000 -- --
Payments on note payable to bank.. (63,365) (123,673) (62,500) (15,625)
Payments on capital lease obliga-
tions............................ -- -- (16,572) (8,687)
--------- --------- --------- ---------
Net cash (used in) provided by fi-
nancing activities............... (141,205) (30,920) 101,768 (174,312)
Net (decrease) increase in cash... (114,828) 48,839 7,069 11,108
Cash at beginning of period....... 114,828 -- 48,839 55,908
--------- --------- --------- ---------
Cash at end of period............. $ -- $ 48,839 $ 55,908 $ 67,016
========= ========= ========= =========
Supplemental information:
Interest paid................... $ 11,823 $ 24,094 $ 32,828 $ 5,403
========= ========= ========= =========
</TABLE>
See accompanying notes.
F-47
<PAGE>
TIMBERLINE PRODUCTIONS, INC.
NOTES TO FINANCIAL STATEMENTS
1. ORGANIZATION
Timberline Productions, Inc. ("Timberline") was incorporated on April 8,
1983 under the laws of the state of Arizona. Timberline produces business
communication services for clients at locations throughout the United States
and Canada.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
As of April 1, 1996, Timberline was acquired by Production Group
International, Inc. (see note 9). Prior to the acquisition, Timberline was an
S-Corporation and therefore the income tax liability was borne by the
stockholders. However, the financial statements have been presented to reflect
income taxes, as if Timberline had been taxed as a C-Corporation. The income
taxes have been calculated using the liability method.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts in the financial statements and
accompanying notes. Actual results could differ from those estimates.
Revenue Recognition
Timberline accounts for revenues using the percentage-of-completion method
whereby revenues are recognized in proportion with the ratio that expenses
incurred to date bear to total anticipated expenses. Provisions for
anticipated losses are made in the period in which they first become
determinable. As of December 31, 1994, and 1995, Timberline had received
advance non-refundable payments related to future events of approximately
$81,236 and $91,112, respectively, and had recorded these amounts as deferred
revenues in the balance sheets.
One customer accounted for approximately 13%, 16%, and 14% of net revenues
during the years December 31, 1993, 1994, and 1995, respectively, and two
customers accounted for approximately 47% of net revenues for the three months
ended March 31, 1996.
Distributions
Distributions were made to stockholders pursuant to authorization of the
stockholders.
3. PROPERTY AND EQUIPMENT
Property and equipment consisted of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
1994 1995
----------- -----------
<S> <C> <C>
Furniture and fixtures............................. $ 98,866 $ 101,366
Computer and video equipment....................... 2,060,049 2,399,281
Leasehold improvements............................. 107,900 107,900
----------- -----------
2,266,815 2,608,547
Less accumulated depreciation and amortization..... (1,815,232) (2,005,099)
----------- -----------
$ 451,583 $ 603,448
=========== ===========
</TABLE>
F-48
<PAGE>
TIMBERLINE PRODUCTIONS, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
Property and equipment are recorded at cost. Depreciation and amortization
is computed using the straight-line method over five years. Leasehold
improvements are amortized on a straight-line method over the lesser of the
term of the lease or the life of the improvements.
4. DEBT
Bank Lines of Credit
Timberline had two line of credit facilities with a bank, whereby Timberline
could borrow up to an aggregate $425,000. Timberline was charged an interest
rate equivalent to the bank's prime rate plus .75% on outstanding borrowings.
These credit facilities were collateralized by certain of Timberline's assets
and were personally guaranteed by the stockholders. The outstanding balances
on these credit facilities were repaid during April 1996 in conjunction with
the stock purchase (see note 9), and the facilities were then terminated.
Note Payable
Timberline had a term loan with a bank for $250,000, which charged interest
at an annual rate .5% over the bank's prime rate. The term loan was
collateralized by certain assets of Timberline and is personally guaranteed by
the stockholders. The outstanding balance on this line of credit was repaid
during April 1996 in conjunction with the stock purchase (see note 9), and the
agreement was then terminated.
5. COMMITMENTS
Timberline has entered into various non-cancelable operating lease
agreements for office space and equipment. Future minimum lease payments may
be periodically adjusted based on changes in the lessors' operating costs.
Timberline leases certain equipment under agreements which are classified as
capital leases. As of December 31, 1995, the cost of assets under capital
leases was $83,248 and the accumulated depreciation of assets under capital
leases was $11,099. Amortization expense of capital leases is included in
depreciation and amortization on the statements of cashflows. The outstanding
capital lease obligations were repaid subsequent to March 31, 1996, in
connection with the stock purchase agreement. (See Note 9).
Future minimum lease payments under non-cancelable capital and operating
leases as of December 31, 1995 are:
<TABLE>
<CAPTION>
CAPITAL OPERATING
LEASES LEASES
-------- ---------
<S> <C> <C>
1996................................................... $ 32,112 $ 77,523
1997................................................... 32,112 110,698
1998................................................... 10,704 119,250
1999................................................... -- 10,004
-------- --------
Total minimum lease payments........................... 74,928 $317,475
========
Less amounts representing interest..................... (7,952)
--------
Present value of minimum capital lease obligations..... 66,976
Less current portion................................... (26,904)
--------
Capital lease obligations, net of current portion...... $ 40,072
========
</TABLE>
Rent expense amounted to approximately $91,442, $86,924, $90,995, and
$16,407 for the years ended December 31, 1993, 1994 and 1995, and for the
three months ended March 31, 1996, respectively.
F-49
<PAGE>
TIMBERLINE PRODUCTIONS, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
6. EMPLOYEE CONTRIBUTION PLAN
Effective October 1, 1993, Timberline adopted a qualified 401(k) employee
savings plan for the benefit of all eligible employees. Under the plan,
employees can defer a portion of their compensation and contribute it to the
plan. Matching contributions are made at the discretion of the Board of
Directors. Contributions for the years ended December 31, 1993, 1994, and
1995, and for the three months ended March 31, 1996 were approximately $2,300,
$5,200, $3,000, and $1,900, respectively.
7. INCOME TAXES
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. Significant components
of Timberline's net deferred tax liabilities are:
<TABLE>
<CAPTION>
DECEMBER 31,
1994 1995
------- -------
<S> <C> <C>
Deferred tax assets:
Accounts receivable................................... $ -- $ 4,858
------- -------
Deferred tax assets..................................... -- 4,858
Deferred tax liabilities:
Property and equipment................................ (9,844) (5,212)
------- -------
Net deferred tax liabilities............................ $(9,844) $ (354)
======= =======
</TABLE>
Significant components of the provision for (benefit from) income taxes are
as follows:
<TABLE>
<CAPTION>
THREE
MONTHS
ENDED
MARCH 31,
YEAR ENDED DECEMBER 31, ---------
1993 1994 1995 1996
-------- -------- ------- --------
<S> <C> <C> <C> <C>
Current:
Federal.................... $72,915 $(25,565) $13,742 $(56,499)
State...................... 21,210 (7,436) 3,999 (16,434)
-------- -------- ------- --------
94,125 (33,001) 17,741 (72,933)
Deferred:
Federal.................... 17,914 4,099 (7,351) (6,592)
State...................... 5,211 1,195 (2,139) (1,918)
-------- -------- ------- --------
23,125 5,294 (9,490) (8,510)
-------- -------- ------- --------
$117,250 $(27,707) $ 8,251 $(81,443)
======== ======== ======= ========
</TABLE>
Timberline's effective tax rate differs from the statutory federal income
tax rate as follows:
<TABLE>
<CAPTION>
THREE
MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
1993 1994 1995 1996
------- -------- -------- ------------
<S> <C> <C> <C> <C>
Statutory federal income tax
rate.......................... 34.0% (34.0)% (34.0)% (34.0)%
Non-deductible expenses........ .6 5.1 53.3 1.4
State taxes.................... 6.0 (5.0) 3.4 (5.7)
------- -------- -------- -----
40.6% (33.9)% 22.7 % (38.3)%
======= ======== ======== =====
</TABLE>
F-50
<PAGE>
TIMBERLINE PRODUCTIONS, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
Timberline made no federal or state income tax payments for the years ended
December 31, 1993, 1994, and 1995 and for the three months ended March 31,
1996.
9. SUBSEQUENT EVENT
On April 1, 1996, the stockholders of Timberline entered into a stock
purchase agreement with Production Group International, Inc. (PGI) whereby all
of the issued and outstanding shares of common stock of Timberline were
acquired by PGI. The purchase price consisted of cash of $1,862,000 due at
closing and notes payable of $600,000 due two years after closing. The stock
purchase agreement also stipulates additional cash payments to the sellers.
F-51
<PAGE>
REPORT OF ERNST & YOUNG INDEPENDENT AUDITORS
The Board of Directors and Shareholders
Spearhead Exhibitions Limited
We have audited the accompanying consolidated statements of operations and
cash flows of Spearhead Exhibitions Limited for the five month period ended
August 31, 1995. These financial statements are the responsibility of the
Spearhead Exhibitions Limited's management. Our responsibility is to express
an opinion on these financial statements based on our audit.
We conducted our audits in accordance with United Kingdom auditing standards
which do not differ in any significant respect from United States generally
accepted auditing standards. Those standards require that we plan and perform
the audit to obtain reasonable assurances 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 the management, as well as evaluating the
overall financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated results of their operations and
their cash flows of Spearhead Exhibitions Limited for the five month period
ended August 31, 1995 in conformity with accounting principles generally
accepted in the United States.
/s/ Ernst & Young
Chartered
Accountants
London, England
September 26, 1996
F-52
<PAGE>
REPORT OF KINGSTON SMITH INDEPENDENT AUDITORS
The Board of Directors and Shareholders of
Spearhead Exhibitions Limited
We have audited the accompanying consolidated balance sheets of Spearhead
Exhibitions Limited as at March 31, 1994 and 1995 and the related consolidated
statements of operations, cash flows and changes in shareholders' equity for
the years then ended. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with United Kingdom auditing standards
which do not differ in any significant respect from United States generally
accepted auditing standards. Those standards require that we plan and perform
an audit to obtain reasonable assurance about whether the financial statements
are free from 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 the management, as well as evaluating the
overall financial statements presentation. We believe that our audits provide
a reasonable basis for our opinion.
As explained in note 8 to the financial statements, the consolidated
financial statements have been prepared in accordance with UK generally
accepted accounting principles and differ in one significant aspect from US
generally accepted accounting principles in that the group's investment in
Offshore Europe Partnership has been shown at valuation of (Pounds)600,000.
The historical cost of the investment was (Pounds)Nil. Under US generally
accepted accounting principles such a valuation is not permitted.
Except for the failure to comply with US generally accepted accounting
principles referred to above in our opinion, the financial statements referred
to above present fairly, in all material respects, the consolidated financial
position of Spearhead Exhibitions Limited at March 31, 1994 and 1995 and the
consolidated results of its operations and cash flows for the years then ended
in conformity with accounting principles generally accepted in the United
States.
Our audits for the years ended March 31, 1994 and 1995 were completed on
January 30, 1995 and October 16, 1995 respectively. We have not conducted any
audit work on Spearhead Exhibitions Limited for any periods subsequent to
March 31, 1995 and we express no opinion on the Company's accounting policies,
financial position, consolidated results, cash flow and changes in shareholder
equity beyond that date.
/s/ Kingston Smith
Chartered
Accountants and
Registered Auditors
London, England
October 25, 1996
F-53
<PAGE>
SPEARHEAD EXHIBITIONS LIMITED
CONSOLIDATED BALANCE SHEETS
(POUNDS STERLING)
<TABLE>
<CAPTION>
MARCH 31,
1994 1995
--------- ---------
(Pounds) (Pounds)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents............................... 738,015 470,047
Accounts receivable..................................... 556,129 892,162
Other receivables....................................... 28,482 16,563
Work in progress........................................ 219,681 239,635
Prepaid expenses........................................ -- 123,850
--------- ---------
Total current assets...................................... 1,542,307 1,742,257
Property and equipment, net............................... 45,117 140,364
Other assets.............................................. 15,150 14,841
Investment in Offshore Europe Partnership................. 600,000 600,000
Due from Spearhead Communications Limited................. 170,197 169,120
--------- ---------
Total assets.............................................. 2,372,771 2,666,582
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable........................................ 258,957 407,681
Accrued liabilities and deferred income................. 849,743 1,085,196
Current portion of lease obligations.................... 13,793 33,642
Income taxes payable.................................... 104,475 25,111
Other taxes............................................. 15,227 105,147
Other current liabilities............................... 20,792 11,625
--------- ---------
Total current liabilities................................. 1,262,987 1,668,402
--------- ---------
Non-current liabilities
Long-term portion of lease obligations.................. 7,131 29,144
--------- ---------
Total non-current liabilities......................... 7,131 29,144
--------- ---------
Total liabilities......................................... 1,270,118 1,697,546
--------- ---------
Shareholders equity:
Ordinary shares, (Pounds)1 par value
10,000 shares authorised, issued and outstanding at
March 31, 1994......................................... 10,000 --
10,526 shares authorised, issued and outstanding at
March 31, 1995......................................... -- 10,526
Subscription receivable................................. -- (263)
Additional paid in capital.............................. -- 9,736
Revaluation reserve..................................... 600,000 600,000
Retained earnings....................................... 492,653 349,037
--------- ---------
Total shareholders' equity................................ 1,102,653 969,036
--------- ---------
Total liabilities and shareholders' equity................ 2,372,771 2,666,582
========= =========
</TABLE>
The accompanying notes are an integral part of these statements
F-54
<PAGE>
SPEARHEAD EXHIBITIONS LIMITED
CONSOLIDATED STATEMENTS OF OPERATIONS
(POUNDS STERLING)
<TABLE>
<CAPTION>
FIVE
MONTHS
YEAR ENDED ENDED
MARCH 31, MARCH 31, AUGUST 31,
1994 1995 1995
--------- --------- ----------
(Pounds) (Pounds) (Pounds)
<S> <C> <C> <C>
Revenues...................................... 1,711,318 2,194,050 695,017
Cost of services.............................. 1,061,696 1,339,933 565,745
--------- --------- --------
Gross profit.................................. 649,622 854,117 129,272
Selling, general and administrative........... 1,133,261 1,077,033 460,645
--------- --------- --------
Loss from operations.......................... (483,639) (222,916) (331,373)
Other income.................................. 854,353 7,472 292,223
Net interest receivable....................... 11,626 5,563 2,672
--------- --------- --------
(Loss)/profit on ordinary activities before
taxation..................................... 382,340 (209,881) (36,478)
Provision for income taxes.................... (97,700) 66,265 13,045
--------- --------- --------
Net (loss)/income............................. 284,640 (143,616) (23,433)
========= ========= ========
</TABLE>
There were no recognised gains or losses in each of the periods above, other
than the retained income/(loss) for the period.
The accompanying notes are an integral part of these statements.
F-55
<PAGE>
SPEARHEAD EXHIBITIONS LIMITED
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY (POUNDS STERLING)
<TABLE>
<CAPTION>
ADDITIONAL TOTAL
SHARE CAPITAL SUBSCRIPTION PAID-IN REVALUATION RETAINED SHAREHOLDERS'
SHARES AMOUNT RECEIVABLE CAPITAL RESERVE EARNINGS EQUITY
-------- -------- ------------ ---------- ----------- -------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
(Pounds) (Pounds) (Pounds) (Pounds) (Pounds) (Pounds) (Pounds)
Balance at March 31,
1993................... 10,000 10,000 -- -- 600,000 208,013 818,013
Net income............ 284,640 284,640
-------- -------- -------- -------- -------- -------- ---------
Balance at March 31,
1994................... 10,000 10,000 -- -- 600,000 492,653 1,102,653
Issuance of shares.... 526 526 (263) 9,736 9,999
Net loss.............. (143,616) (143,616)
-------- -------- -------- -------- -------- -------- ---------
Balance at March 31,
1995................... 10,526 10,526 (263) 9,736 600,000 349,037 969,036
======== ======== ======== ======== ======== ======== =========
</TABLE>
The accompanying notes are an integral part of these statements.
F-56
<PAGE>
SPEARHEAD EXHIBITIONS LIMITED
CONSOLIDATED STATEMENT OF CASH FLOWS (POUNDS STERLING)
<TABLE>
<CAPTION>
FIVE
MONTHS
YEAR ENDED MARCH ENDED
31, AUGUST 31,
1994 1995 1995
-------- -------- ----------
(Pounds) (Pounds) (Pounds)
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss).............................. 284,640 (143,616) (23,433)
Adjustments to reconcile net income (loss) to
net cash provided by (used in) operating
activities:
Depreciation and amortization................ 29,030 54,561 24,366
Changes in operating assets and liabilities:
Accounts receivable.......................... (303,736) (336,033) 675,910
Prepaid expenses and other assets............ (147,960) (130,808) (33,545)
Accounts payable............................. 115,483 148,724 (230,910)
Accrued payroll and related expenses and
other accrued liabilities................... 688,704 236,842 (280,919)
-------- -------- --------
Net cash provided by (used in) operating
activities.................................... 666,161 (170,330) 131,469
-------- -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from disposal of property and
assets...................................... 21,213 12,687 14,841
Purchases of property and equipment.......... (63,201) (99,393) (13,237)
-------- -------- --------
Net cash (used in) provided by investing
activities.................................... (41,988) (86,706) 1,604
-------- -------- --------
CASH FLOWS FROM FINANCING ACTIVITIES
Repayment of capital lease obligations....... (6,410) (20,931) (13,756)
Proceeds from issuance of shares............. -- 9,999 --
-------- -------- --------
Net cash (used in) financing activities........ (6,410) (10,932) (13,756)
-------- -------- --------
Net increase (decrease) in cash................ 617,763 (267,968) 119,317
Cash at beginning of period.................... 120,252 738,015 470,047
-------- -------- --------
Cash at end of period.......................... 738,015 470,047 589,364
======== ======== ========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION
Interest paid................................ 10,194 10,495 2,100
======== ======== ========
Taxes paid................................... -- 13,099 --
======== ======== ========
NON-CASH INVESTING AND FINANCING ACTIVITIES
Acquisition of property and equipment through
capital leases.............................. -- 62,793 --
======== ======== ========
</TABLE>
The accompanying notes are an integral part of these statements
F-57
<PAGE>
SPEARHEAD EXHIBITIONS LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF FINANCIAL STATEMENTS
(a) Principles of consolidation
The consolidated financial statements include the financial statements of
the Company and its wholly owned subsidiaries.
All material intercompany balances and transactions have been eliminated in
consolidation.
(b) Use of estimates
The preparation of financial statements in conformity with United States
generally accepted accounting principles ("U.S. GAAP") requires management to
make estimates and assumptions that affect the amounts reported in the
financial statements and accompanying notes. Actual results could differ from
these estimates.
(c) Companies Act 1985
These financial statements do not comprise statutory accounts within the
meaning of section 240 of the Companies Act 1985 of Great Britain (the
"Companies Act"). The Company's statutory accounts, which are its primary
financial statements, are prepared in accordance with accounting principles
generally accepted in the United Kingdom ("U.K. GAAP") in compliance with the
Companies Act and are presented in pounds sterling. Statutory accounts for the
years ended March 31, 1995 and 1994 have been prepared and the auditors have
given unqualified audit reports thereon. Such accounts have been delivered to
the Registrar of Companies for England and Wales. The accounts for the five-
month period ended August 31, 1995 are non statutory accounts.
2. SIGNIFICANT ACCOUNTING POLICIES
Depreciation
Depreciation is provided on all tangible fixed assets at rates calculated to
write off the cost, less estimated residual value, of each asset evenly over
its expected useful life as follows:
<TABLE>
<S> <C> <C>
Motor vehicles -- over 4 years
Office equipment -- over 4 years
Office furniture -- over 5 years
Leasehold improvements -- over 5 years
</TABLE>
Deferred taxation
Deferred taxation is provided using the liability method on all timing
differences to the extent that they are expected to reverse in the future
without being replaced, calculated at the rate at which it is anticipated the
timing differences will reverse.
Leasing and hire purchase commitments
Assets held under finance leases, which are leases where substantially all
the risks and reward of ownership of the assets have passed to the group, and
hire purchase contracts are capitalised in the balance sheet and are
depreciated over their useful lives. The capital elements of future
obligations under leases and hire purchase contracts are included as
liabilities in the balance sheet. The interest elements of
F-58
<PAGE>
SPEARHEAD EXHIBITIONS LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Leasing and hire purchase commitments (continued)
the rental obligations are charged in the profit and loss account over the
periods of the leases and hire purchase contracts and represent a constant
proportion of the balance of capital repayments outstanding.
Rentals payable under operating leases are charged in the profit and loss
account on a straight line basis over the lease term.
Work in progress
Work in progress is stated at the lower of cost and net realisable value.
Cost includes all direct costs incurred which relate to exhibitions held
subsequent to the balance sheet date.
Revenues
Revenues represents the invoiced value of services provided net of value
added tax in respect of exhibitions and conferences held in the period.
3. PROPERTY AND EQUIPMENT
Property and equipment comprises:
<TABLE>
<CAPTION>
MARCH 31,
1994 1995
-------- --------
(Pounds) (Pounds)
<S> <C> <C>
Furniture and equipment.................................. 119,488 79,324
Motor vehicles........................................... 81,259 106,125
Leasehold improvements................................... -- 43,736
------- -------
200,747 229,185
Less: accumulated depreciation........................... 155,630 88,821
------- -------
45,117 140,364
======= =======
</TABLE>
4. EMPLOYEE PENSION PLANS
The group operates a non-contributory, discretionary pension scheme for
certain employees. The assets of the scheme are held separately from the
assets of the group. Contributions have been expensed as they become payable.
The amount of contributions expensed were (Pounds)57,069 for the year ended
March 31, 1994, (Pounds)100,000 for the year ended March 31, 1995 and
(Pounds) nil for the five month period ended August 31, 1995.
5. INCOME TAXES
For the years ended March 31, 1994 and 1995, and the five month period ended
August 31, 1995, the company and all of its subsidiaries were subject to U.K.
taxation only. Accordingly, income taxes have been provided based on
applicable U.K. tax rates.
F-59
<PAGE>
SPEARHEAD EXHIBITIONS LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
5. INCOME TAXES (CONTINUED)
The following table analyses the difference between the U.K. tax rate and the
effective tax rate:
<TABLE>
<CAPTION>
YEAR ENDED FIVE MONTHS
MARCH 31, ENDED
--------------- AUGUST 31,
1994(EST) 1995 1995
--------- ----- -----------
<S> <C> <C> <C>
U.K. statutory rate............................... 33.0 (33.0) (33.0)
Permanent disallowables for U.K. tax.............. 0.9 0.9 .7
Utilisation of net operating losses............... (8.6) (2.9) --
Deferred tax adjustments.......................... 0.3 1.2 .8
Other net--prior year adjustment.................. -- 2.2 (4.2)
---- ----- -----
Effective tax rate................................ 25.6% (31.6)% (35.7)%
==== ===== =====
</TABLE>
6. COMMITMENTS
The company leases its facilities under non-cancelable operating lease
agreements which expire at various dates through 2014. In addition, the
company leases certain equipment under long-term lease agreements that are
classified as capital leases. These capital leases terminate at various dates
through 1999. Total equipment acquired under these capitalised leases, which
collateralise such borrowings, are as follows:
<TABLE>
<CAPTION>
MARCH 31, MARCH 31, AUGUST 31,
1994 1995 1995
--------- --------- ----------
(Pounds) (Pounds) (Pounds)
<S> <C> <C> <C>
Motor vehicles................................... 58,430 79,325 88,225
Office equipment................................. -- 25,662 --
------ ------- ------
58,430 104,987 88,225
Less: accumulated depreciation................... 37,413 33,979 44,726
------ ------- ------
21,017 71,008 43,499
====== ======= ======
</TABLE>
Future minimum annual lease payments under all non-cancelable operating and
capital leases are as follows:
<TABLE>
<CAPTION>
OPERATING CAPITAL
YEAR ENDED AUGUST 31, LEASES LEASES
--------------------- --------- -------
<S> <C> <C>
1996.................................................... 65,022 33,489
1997.................................................... 63,702 16,481
1998.................................................... 60,770 4,925
1999.................................................... 58,727 --
2000.................................................... 55,790 --
2001.................................................... 55,330 --
2002-2014............................................... 701,350 --
--------- -------
Total minimum payments.................................. 1,060,691 54,895
=========
Less: amounts representing interest..................... (5,311)
-------
Present value of capital lease obligations.............. 49,584
Less: current portion................................... (29,690)
-------
Lease obligations, long-term............................ 19,894
=======
</TABLE>
Rental expenses under operating leases totalled (Pounds)54,555 and
(Pounds)50,083 for the years ended March 31, 1994 and 1995, respectively, and
(Pounds)25,973 for the five month period ended August 31, 1995.
F-60
<PAGE>
SPEARHEAD EXHIBITIONS LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
7. CONCENTRATIONS OF CREDIT RISK AND SIGNIFICANT CUSTOMERS
Potential concentrations of credit risk to the company consist principally
of cash, cash equivalents and trade receivables. The Company only deposits
short-term cash surpluses with high credit quality banks.
8. UNITED STATES GENERALLY ACCEPTED ACCOUNTING PRINCIPLES
The consolidated financial statements have been prepared in accordance with
U.K. generally accepted accounting principles (U.K. GAAP), which differs in
certain significant respects from U.S. generally accepted accounting
principles (U.S. GAAP). A description of the significant difference between
U.K. GAAP and U.S. GAAP that are applicable to the company is set out below:
Revaluation Reserve
Under U.K. GAAP the group's investment in the Offshore Europe Partnership
has been shown at valuation of (Pounds)600,000. The historical cost of this
item was (Pounds) nil. Under U.S. GAAP such a valuation is not permitted.
9. SUBSEQUENT EVENT
Effective September 1, 1995, the stockholders of Spearhead Exhibitions
Limited entered into a stock purchase agreement with Production Group
International, Inc. ("PGI") whereby PGI purchased all of the outstanding
shares of Spearhead for $2,532,000 in cash and $4,000,000 in notes payable.
F-61
<PAGE>
UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS
The unaudited pro forma combined statement of operations for the year ended
August 31, 1996 gives effect to the acquisition of (i) Ray Bloch Productions,
Inc., (ii) Timberline Productions, Inc., (iii) Epic Enterprises, Inc., (iv)
Epic Enterprises of Nevada, Inc., and (v) other acquisitions completed during
fiscal year 1996 as if they had occurred on September 1, 1995.
The pro forma combined statement of operations is based on available
information and on certain assumptions and adjustments described in the
accompanying notes which the Company believes are reasonable. The pro forma
combined statement of operations is provided for informational purposes only
and does not purport to present the results of operations of the Company had
the transactions assumed therein occurred on or as of the dates indicated, nor
are they necessarily indicative of the results of operations which may be
achieved in the future. The unaudited pro forma combined statement of
operations should be read in conjunction with Management's Discussion and
Analysis of Financial Conditions and Results of Operations and the financial
statements of the Company, including the notes thereto, included elsewhere in
this Prospectus.
UNAUDITED PRO FORMA STATEMENT OF OPERATIONS
YEAR ENDED AUGUST 31, 1996
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
HISTORICAL HISTORICAL PRO
HISTORICAL HISTORICAL HISTORICAL EPIC EPIC OTHER ACQUISITION FORMA
PGI(A) RAY BLOCH(B) TIMBERLINE(C) SAN DIEGO(D) NEVADA(E) ACQUISITIONS(F) ADJUSTMENTS COMBINED
---------- ------------ ------------- ------------ ---------- --------------- ----------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues............. 78,290 4,571 2,620 2,884 2,095 1,066 -- 91,526
Cost of services..... 53,153 3,442 1,559 1,521 1,061 697 -- 61,433
------- ----- ----- ----- ----- ----- ---- -------
Gross profit........ 25,137 1,129 1,061 1,363 1,034 369 -- 30,093
Selling and operating
expenses............. 22,327 1,090 1,203 798 1,072 476 -- 26,966
Corporate general and
administrative
expenses............. 5,923 -- -- -- -- -- -- 5,923
Reorganization and
consolidation
expenses............. 6,898 -- -- -- -- -- -- 6,898
Amortization of
acquisition costs.... 669 -- -- -- -- -- 247(g) 916
------- ----- ----- ----- ----- ----- ---- -------
Operating income
(loss).............. (10,680) 39 (142) 565 (38) (107) (247) (10,610)
Interest income
(expense), net....... (935) 39 (11) 46 (4) -- (69)(h) (934)
Other income......... 245 4 22 12 28 11 322
------- ----- ----- ----- ----- ----- ---- -------
Income (loss) before
taxes................ (11,370) 82 (131) 623 (14) (96) (316) (11,222)
Income tax provision
(benefit)............ (716) 31 -- -- -- -- 53(i) (632)
------- ----- ----- ----- ----- ----- ---- -------
Net income (loss)... (12,086) 113 (131) 623 (14) (96) (263) (11,854)
Net income (loss)
per common share(j).
======= ===== ===== ===== ===== ===== ==== =======
Weighted average
common shares
outstanding(j)......
=======
</TABLE>
F-62
<PAGE>
- --------
(a) Statement of Operations for the year ended August 31, 1996 for PGI.
(b) Statement of Operations for the period from September 1, 1995 through
December 31, 1995 for Ray Bloch Productions, Inc.
(c) Statement of Operations for the period from September 1, 1995 through
March 31, 1996 for Timberline Productions, Inc.
(d) Statement of Operations for the period from September 1, 1995 through
January 31, 1996 for Epic Enterprises, Inc.
(e) Statement of Operations for the period from September 1, 1995 through June
30, 1996 for Epic Enterprises of Nevada, Inc.
(f) Statement of operations for other acquisitions for the period from
September 1, 1995 through the acquisition date.
(g) Adjustments to reflect $247,000 of amortization expense related to
goodwill based on amortization periods ranging from 15 to 40 years.
(h) Adjustments to reflect $69,000 of interest expense related to subordinated
notes payable for the 1996 acquisitions.
(i) Adjustments to reflect income tax benefit of $53,000 for Timberline as if
Timberline had been taxed as a C corporation, prior to acquisition,
Timberline was an S-Corp and accordingly, did not record any corporate
income taxes.
(j) See Note 2 of Notes to Consolidated Financial Statements for a description
of the determination of weighted average of common shares outstanding.
F-63
<PAGE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
NO PERSON HAS BEEN AUTHORIZED IN CONNECTION WITH THE OFFERING TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATION NOT CONTAINED IN THIS PROSPECTUS
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 PRO-
SPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF ANY OFFER TO
BUY ANY OF THE SECURITIES OFFERED HEREBY TO ANY PERSON OR BY ANYONE IN ANY JU-
RISDICTION IN WHICH IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION. NEITHER
THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY
CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THE INFORMATION CONTAINED HEREIN IS
CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE HEREOF.
------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary........................................................ 3
Risk Factors.............................................................. 6
Historical Overview....................................................... 10
Use of Proceeds........................................................... 11
Dividend Policy........................................................... 11
Dilution.................................................................. 12
Capitalization............................................................ 13
Selected Consolidated Financial and Operating Data........................ 14
Management's Discussion and Analysis of Financial Condition and Results of
Operations............................................................... 17
Business.................................................................. 24
Management................................................................ 32
Certain Transactions...................................................... 41
Principal Stockholders.................................................... 42
Description of Capital Stock.............................................. 44
Shares Eligible for Future Sale........................................... 46
Underwriting.............................................................. 48
Legal Matters............................................................. 49
Experts................................................................... 49
Additional Information.................................................... 50
Index to Consolidated Financial Statements................................ F-1
</TABLE>
------------
UNTIL , 1996 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL DEALERS EF-
FECTING TRANSACTIONS IN THE COMMON STOCK OFFERED HEREBY, WHETHER OR NOT PAR-
TICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS
DELIVERY REQUIREMENT IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A
PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOT-
MENTS OR SUBSCRIPTIONS.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
Shares
[LOGO OF PGI APPEARS HERE]
Common Stock
------------
PROSPECTUS
------------
Alex. Brown & Sons
INCORPORATED
Montgomery Securities
Robertson, Stephens & Company
, 1996
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the various expenses in connection with the
sale and distribution of the securities offered hereby, other than
underwriting discounts and commissions. All of the amounts shown are estimated
except the Securities and Exchange Commission registration fee, the NASD
filing fee and the Nasdaq listing fee.
<TABLE>
<S> <C>
Securities and Exchange Commission filing fee......................... $
National Association of Securities Dealers, Inc. filing fee...........
Nasdaq listing fee....................................................
Transfer agent's and registrar's fees.................................
Printing expenses.....................................................
Legal fees and expenses...............................................
Accounting fees and expenses..........................................
Blue Sky filing fees and expenses..................................... 5,000
Miscellaneous expenses................................................
-----
Total............................................................... $
=====
</TABLE>
14. INDEMNIFICATION OF OFFICERS AND DIRECTORS
Section 145 of the Delaware General Corporation Law ("Section 145") permits
indemnification of directors, officers, agents and controlling persons of a
corporation under certain conditions and subject to certain limitations. The
Registrant's Bylaws include provisions to require the Registrant to indemnify
its directors and officers to the fullest extent permitted by Section 145,
including circumstances in which indemnification is otherwise discretionary.
Section 145 also empowers the Registrant to purchase and maintain insurance
that protects its officers, directors, employees and agents against any
liabilities incurred in connection with their service in such positions.
At present, there is no pending litigation or proceeding involving a
director or officer of the Registrant as to which indemnification is being
sought nor is the Registrant aware of any threatened litigation that may
result in claims for indemnification by any officer or director.
The Underwriting Agreement filed as Exhibit 1 to this Registration Statement
provides for indemnification by the Underwriters of the Registrant and its
directors and officers, and by the Registrant of the Underwriters, for certain
liabilities arising under the Securities Act of 1933, as amended (the "Act")
or otherwise.
15. RECENT SALES OF UNREGISTERED SECURITIES
A. The Registrant was reincorporated in Delaware in October 1996. During the
past three years, the Registrant's predecessor has issued unregistered
securities in the transactions described below. Securities issued in such
transactions were offered and sold in reliance upon the exemption from
registration under Section 4(2) of the Act, relating to sales by an issuer not
involving any public offering, or under Rule 701 under the Act. The sales of
securities were made without the use of an underwriter and the certificates
evidencing the shares bear a restrictive legend permitting the transfer
thereof only upon registration of the shares or an exemption under the Act.
(1) In November 1993, the Company issued and sold an aggregate of 1,231,151
shares of Series C Preferred Stock to six accredited investors, as such term
is defined in Rule 501 of the Act ("Accredited Investors") at a purchase price
of $2.60 per share. In January 1994, the Company issued and sold
II-1
<PAGE>
additional 29,000 shares of Series C Preferred Stock to four employees at a
purchase price of $2.60 per share. The Company received an aggregate
consideration of approximately $3.3 million for such sales.
(2) In February 1995, the Company issued and sold an aggregate of 1,574,997
shares of Series D Preferred Stock to eight Accredited Investors at a purchase
price of $7.00 per share. The Company received an aggregate consideration of
approximately $11 million.
(3) In February 1996, the Company issued and sold an aggregate of 646,707
shares of Series E Preferred Stock to ten Accredited Investors at a purchase
price of $8.35 per share. In April 1996, the Company issued and sold
additional 718,563 shares of Series E Preferred Stock to 11 Accredited
Investors at a purchase of $8.35 per share. In June 1996, the Company issued
and sold additional 276,705 shares of Series E Preferred Stock to five
Accredited Investors at a purchase price of $8.35 per share. In September
1996, the Company issued and sold additional 154,432 shares of Series E
Preferred Stock to an Accredited Investor at a purchase price of $8.35 per
share. The Company received an aggregate consideration of approximately $15
million for sales of an aggregate of 1,796,407 shares of Series E Preferred
Stock.
(4) From January 1991 through September 1996, the Company granted to various
employees and consultants stock options under the Company's 1995 stock plans
and other stock option agreements to purchase an aggregate of 1,033,300 shares
of Common Stock which are exercisable at prices ranging from $0.01 to $5.00
per share, of which stock options for 1,000 shares have been exercised.
II-2
<PAGE>
16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits
<TABLE>
<C> <S>
1.1 Form of Underwriting Agreement.
3.1 Certificate of Incorporation of the Registrant, as amended.
3.2 By-Laws of the Registrant.
4.1* Specimen stock certificate for shares of Common Stock of the
Registrant.
5.1* Opinion of Piper & Marbury L.L.P. regarding legality of securities
being registered.
10.1* Registrant's 1995 Stock Option/Stock Issuance Plan (Virginia).
10.2* Registrant's 1995 Stock Option/Stock Issuance Plan (California).
10.3 Registrant's 1997 Directors' Stock Option Plan.
10.4 Registrant's Financing and Security Agreement with The First National
Bank of Maryland, dated as of October 18, 1995.
10.5 Contract for Employment for Executive Management by and between Douglas
L. Ducate, dated as of November 22, 1994.
10.6 Contract for Employment for Executive Management by and between the
Registrant and Cyril M. Wismar, dated as of December 28, 1994.
10.7 Contract for Employment for Executive Management by and between Robert
A. Kirkland, dated as of October 11, 1995.
10.8 Contract for Employment for Executive Management by and between John M.
Green, dated as of November 21, 1995.
10.9 Contract for Employment for Executive Management by and between Richard
S. Bartell, dated as of January 19, 1996.
10.10 Contract for Employment for Executive Management by and between the
Registrant and Edward P. Doody, dated as of March 21, 1996.
10.11 Contract for Employment for Executive Management by and between the
Registrant and Mark N. Sirangelo, dated as of September 1, 1996.
10.12 Share Acquisition Agreement by and between the Registrant and the
parties named therein, dated as of September 5, 1995.
10.13* Stock Purchase Agreement by and between the Registrant and the parties
named therein, dated as of January 1, 1996.
10.14* Stock Purchase Agreement by and between the Registrant and the parties
named therein, dated as of February 1, 1996, as amended.
10.15* Stock Purchase Agreement by and between the Registrant and the parties
named therein, dated as of April 1, 1996
10.16* Stock Purchase Agreement by and between the Registrant and the parties
named therein, dated as of July 1, 1996, as amended.
10.17 Series D Convertible Preferred Stock Purchase Agreement by and between
the Registrant and the parties named therein, dated as of February 10,
1995.
10.18 Series E Convertible Preferred Stock Purchase Agreement by and between
the Registrant and the parties named therein, dated as of February 22,
1996.
10.19 Amendment No. 1 to Series E Convertible Preferred Stock Purchase
Agreement by and between the Registrant and the parties named therein,
dated as of June 19, 1996.
10.20 Amendment No. 2 to Series E Convertible Preferred Stock Purchase
Agreement by and between the Registrant and the parties named therein,
dated as of September 26, 1996.
</TABLE>
II-3
<PAGE>
<TABLE>
<CAPTION>
SCHEDULE DESCRIPTION
- -------- -----------
<S> <C>
10.21 Second Restated Investors' Rights Agreement, dated as of February 22,
1996.
11.1* Statement of computation of loss per share.
21.1 Subsidiaries of the Registrant.
23.1 Consent of Ernst & Young LLP
23.2 Consent of Kingston Smith, Chartered Accountants
23.3 Consent of Ernst & Young, Chartered Accountants
23.4* Consent of Piper & Marbury L.L.P. (to be included as part of Exhibit 5.1
hereto).
24.1 Power of Attorney (included in signature pages).
27.1 Financial Data Schedule.
</TABLE>
(b) Financial Statement Schedules
- --------
*To be filed by Amendment.
17. UNDERTAKINGS
A. The undersigned Registrant hereby undertakes to provide to the
Underwriter at the closing specified in the Underwriting Agreement
certificates in such denominations and registered in such names as required by
the Underwriter to permit prompt delivery to each purchaser.
B. Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the Registrant pursuant to the Delaware General Corporate Law, the Certificate
of Incorporation and the Bylaws, or otherwise, the Registrant has been advised
that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the registrant of expenses
incurred or paid by a director, officer or controlling person of the
Registrant in the successful defense of any action, suit, or proceeding) is
asserted by such director, officer or controlling person in connection with
the securities being registered, the Registrant will, unless in the opinion of
its counsel the matter has been settled by controlling precedent, submit to a
court of appropriate jurisdiction the question 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.
C. (1) For purposes of determining any liability under the Securities Act of
1933, the information omitted from the form of prospectus filed as part of
this registration statement in reliance upon Rule 430A and contained in a form
of prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4) or
497(h) under the Securities Act shall be deemed to be a part of this
registration statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities Act of
1933, each post-effective amendment that contains a form of prospectus shall
be deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
II-4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Company has duly caused this Registration Statement to be signed on its behalf
by the undersigned, thereunto duly authorized, in the County of Arlington,
Commonwealth of Virginia, on the 25th day of October, 1996.
Production Group International, Inc.
By: /s/ Mark N. Sirangelo
-----------------------------------
MARK N. SIRANGELO
CHAIRMAN OF THE BOARD, PRESIDENT
AND
CHIEF EXECUTIVE OFFICER
POWER OF ATTORNEY
Pursuant to the requirements of the Securities Act of 1933, as amended, this
Registration Statement has been signed below by the following persons in the
capacities and on the date indicated.
Each person whose signature appears below in so signing also makes,
constitutes and appoints Mark N. Sirangelo, Richard S. Bartell and Edwin M.
Martin, Jr. and each of them acting alone, his true and lawful attorney-in-
fact, with full power of substitution, for him in any and all capacities, to
execute and cause to be filed with the Securities and Exchange Commission any
and all amendments and post-effective amendments to this Registration
Statement, and any Registration Statement filed pursuant to Rule 424(b), with
exhibits thereto and other documents in connection therewith, and hereby
ratifies and confirms all that said attorney-in-fact or his substitute or
substitutes may do or cause to be done by virtue hereof.
SIGNATURE TITLE DATE
--------- ----- ----
/s/ Mark N. Sirangelo Chairman of the Board, October 25, 1996
- ------------------------------- President and Chief
MARK N. SIRANGELO Executive Officer
(Principal Executive
Officer)
/s/ Richard S. Bartell Senior Vice President and October 25, 1996
- ------------------------------- Chief Financial Officer
RICHARD S. BARTELL (Principal Financial
Accounting Officer)
/s/ Darryl Hartley-Leonard Director and Vice Chairman October 25, 1996
- ------------------------------- of the Board
DARRYL HARTLEY-LEONARD
/s/ Edward P. Doody Senior Vice President and October 25, 1996
- ------------------------------- Director
EDWARD P. DOODY
/s/ Robert C. McCormack Director October 25, 1996
- -------------------------------
ROBERT C. MCCORMACK
/s/ Peter C. Wendell Director October 25, 1996
- -------------------------------
PETER C. WENDELL
II-5
<PAGE>
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
The Board of Directors Production Group International, Inc.
We have audited the consolidated financial statements of Production Group
International, Inc. as of August 31, 1995 and 1996, and for each of the three
years in the period ended August 31, 1996 and have issued our report thereon
dated October 24, 1996 (included elsewhere in this Registration Statement).
Our audits also included the financial statement schedule listed in Item 16(b)
of this Registration Statement. The schedule is the responsibility of the
Company's management. Our responsibility is to express an opinion based on our
audit.
In our opinion, the financial statement schedule referred to above, when
considered in relation to the basic financial statements taken as a whole,
presents fairly in all material respects the information set forth therein.
Ernst & Young LLP
Vienna, Virginia
October 24, 1996
- -------------------------------------------------------------------------------
The foregoing report is in the form that will be signed upon the completion
of the net income (loss) per share calculation once the initial public
offering price is known.
/s/ Ernst & Young LLP
Vienna, Virginia
October 25, 1996
<PAGE>
SCHEDULE 1--VALUATION AND QUALIFYING ACCOUNT AND RESERVE
PRODUCTION GROUP INTERNATIONAL, INC.
<TABLE>
<CAPTION>
BALANCE AT
BEGINNING OF BALANCE AT
CLASSIFICATION PERIOD ADDITIONS DEDUCTIONS END OF PERIOD
-------------- ------------ --------- ---------- -------------
<S> <C> <C> <C> <C>
Allowance for doubtful ac-
counts:
Year ended August 31,
1994..................... $100,000 264,400 (14,400) $350,000
Year ended August 31,
1995..................... $350,000 694,500 (600,500)(1) $444,000
Year ended August 31,
1996..................... $444,000 708,484 (327,484)(1) $825,000
</TABLE>
- --------
(1) Write off of accounts receivable.
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION OF EXHIBIT
----------- ------------------------------------------------------------------
<C> <S>
1.1 Form of Underwriting Agreement.
3.1 Certificate of Incorporation of the Registrant, as amended.
3.2 By-Laws of the Registrant.
4.1* Specimen stock certificate for shares of Common Stock of the
Registrant.
5.1* Opinion of Piper & Marbury L.L.P. regarding legality of securities
being registered.
10.1* Registrant's 1995 Stock Option/Stock Issuance Plan (Virginia).
10.2* Registrant's 1995 Stock Option/Stock Issuance Plan (California).
10.3 Registrant's 1997 Directors' Stock Option Plan.
10.4 Registrant's Financing and Security Agreement with The First
National Bank of Maryland, dated as of October 18, 1995.
10.5 Contract for Employment for Executive Management by and between
Douglas L. Ducate, dated as of November 22, 1994.
10.6 Contract for Employment for Executive Management by and between
the Registrant and Cyril B. Wismar, dated as of December 28, 1994.
10.7 Contract for Employment for Executive Management by and between
Robert A. Kirkland, dated as of October 11, 1995.
10.8 Contract for Employment for Executive Management by and between
John M. Green, dated as of November 21, 1995.
10.9 Contract for Employment for Executive Management by and between
Richard S. Bartell, dated as of January 19, 1996.
10.10 Contract for Employment for Executive Management by and between
the Registrant and Edward P. Doody, dated as of March 21, 1996.
10.11 Contract for Employment for Executive Management by and between
the Registrant and Mark N. Sirangelo, dated as of September 1,
1996.
10.12 Share Acquisition Agreement by and between the Registrant and the
parties named therein, dated as of September 5, 1995.
10.13* Stock Purchase Agreement by and between the Registrant and the
parties named therein, dated as of January 1, 1996.
10.14* Stock Purchase Agreement by and between the Registrant and the
parties named therein, dated as of February 1, 1996, as amended.
10.15* Stock Purchase Agreement by and between the Registrant and the
parties named therein, dated as of April 1, 1996
10.16* Stock Purchase Agreement by and between the Registrant and the
parties named therein, dated as of July 1, 1996, as amended.
10.17 Series D Convertible Preferred Stock Purchase Agreement by and
between the Registrant and the parties named therein, dated as of
February 10, 1995.
10.18 Series E Convertible Preferred Stock Purchase Agreement by and
between the Registrant and the parties named therein, dated as of
February 22, 1996.
10.19 Amendment No. 1 to Series E Convertible Preferred Stock Purchase
Agreement by and between the Registrant and the parties named
therein, dated as of June 19, 1996.
10.20 Amendment No. 2 to Series E Convertible Preferred Stock Purchase
Agreement by and between the Registrant and the parties named
therein, dated as of September 26, 1996.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION OF EXHIBIT
----------- -----------------------------------------------------------------
<C> <S>
10.21 Second Restated Investors' Rights Agreement, dated as of February
22, 1996.
11.1* Statement of computation of loss per share.
21.1 Subsidiaries of the Registrant.
23.1 Consent of Ernst & Young LLP
23.2 Consent of Kingston Smith, Chartered Accountants
23.3 Consent of Ernst & Young, Chartered Accountants
23.4* Consent of Piper & Marbury L.L.P. (to be included as part of
Exhibit 5.1 hereto).
24.1 Power of Attorney (included in signature pages).
27.1 Financial Data Schedule.
</TABLE>
- --------
* To be filed by Amendment.
<PAGE>
Exhibit 1.1
_______________ Shares
PRODUCTION GROUP INTERNATIONAL, INC.
Common Stock
($.01 Par Value)
UNDERWRITING AGREEMENT
----------------------
_______________, 1996
Alex. Brown & Sons Incorporated
Montgomery Securities
Robertson, Stephens & Company
As Representatives of the
Several Underwriters
c/o Alex. Brown & Sons Incorporated
135 East Baltimore Street
Baltimore, Maryland 21202
Gentlemen:
Production Group International, Inc., a Delaware corporation (the
"Company"), proposes to sell to the several underwriters (the "Underwriters")
named in Schedule I hereto for whom you are acting as Representatives (the
"Representatives") an aggregate of __________ shares of the Company's Common
Stock, $.01 par value (the "Firm Shares"). The respective amounts of the Firm
Shares to be so purchased by the several Underwriters are set forth opposite
their names in Schedule I hereto. The Company also proposes to sell at the
Underwriters' option an aggregate of up to __________ additional shares of the
Company's Common Stock (the "Option Shares") as set forth below.
As the Representatives, you have advised the Company (a) that you
are authorized to enter into this Agreement on behalf of the several
Underwriters,
<PAGE>
and (b) that the several Underwriters are willing, acting severally and not
jointly, to purchase the numbers of Firm Shares set forth opposite their
respective names in Schedule I, plus their pro rata portion of the Option Shares
if you elect to exercise the over-allotment option in whole or in part for the
accounts of the several Underwriters. The Firm Shares and the Option Shares (to
the extent the aforementioned option is exercised) are herein collectively
called the "Shares."
In consideration of the mutual agreements contained herein and of the
interests of the parties in the transactions contemplated hereby, the parties
hereto agree as follows:
1. Representations and Warranties of the Company
----------------------------------------------
The Company represents and warrants to each of the Underwriters as follows:
(a) A registration statement on Form S-1 (File No. 333-______) with
respect to the Shares has been carefully prepared by the Company in
conformity with the requirements of the Securities Act of 1933, as amended
(the "Act"), and the Rules and Regulations (the "Rules and Regulations") of
the Securities and Exchange Commission (the "Commission") thereunder and
has been filed with the Commission. Copies of such registration statement,
including any amendments thereto, the preliminary prospectuses (meeting the
requirements of the Rules and Regulations) contained therein and the
exhibits, financial statements and schedules, as finally amended and
revised, have heretofore been delivered by the Company to you. Such
registration statement, together with any registration statement filed by
the Company pursuant to Rule 462 (b) of the Act, herein referred to as the
"Registration Statement," which shall be deemed to include all information
omitted therefrom in reliance upon Rule 430A and contained in the
Prospectus referred to below, has come effective under the Act and no post-
effective amendment to the Registration Statement has been filed as of the
date of this Agreement. "Prospectus" means (a) the form of prospectus
first filed with the Commission pursuant to Rule 424(b) or (b) the last
preliminary prospectus included in the Registration Statement filed prior
to the time it becomes effective or filed pursuant to Rule 424(a) under the
Act that is delivered by the Company to the Underwriters for delivery to
purchasers of the Shares, together with any term sheet or abbreviated term
sheet filed with the Commission pursuant to Rule 424(b)(7) under the Act.
Each preliminary prospectus included in the Registration Statement prior to
the time it becomes effective is herein referred to as a "Preliminary
Prospectus."
2
<PAGE>
(b) The Company has been duly organized and is validly existing as a
corporation in good standing under the laws of the State of Delaware, with
corporate power and authority to own or lease its properties and conduct
its business as described in the Registration Statement. Each of the
subsidiaries of the Company as listed in Exhibit 21 to Item 16(a) of the
Registration Statement (collectively, the "Subsidiaries") has been duly
organized and is validly existing as a corporation in good standing under
the laws of the jurisdiction of its incorporation, with corporate power and
authority to own or lease its properties and conduct its business as
described in the Registration Statement. The Subsidiaries are the only
subsidiaries, direct or indirect, of the Company. The Company and each of
the Subsidiaries are duly qualified to transact business in all
jurisdictions in which the conduct of their business requires such
qualification. The outstanding shares of capital stock of each of the
Subsidiaries have been duly authorized and validly issued, are fully paid
and non-assessable and are owned by the Company or another Subsidiary free
and clear of all liens, encumbrances and equities and claims; and no
options, warrants or other rights to purchase, agreements or other
obligations to issue or other rights to convert any obligations into shares
of capital stock or ownership interests in the Subsidiaries are
outstanding.
(c) The outstanding shares of Common Stock and Preferred Stock of the
Company have been duly authorized and validly issued and are fully paid and
non-assessable; all of the outstanding shares of the Preferred Stock of the
Company will be converted into an equivalent number of shares of Common
Stock automatically effective immediately prior to the closing referred to
below, and all of such shares so issued upon conversion will be duly
authorized validly received, fully paid and nontransferrable; the Shares to
be issued and sold by the Company have been duly authorized and when issued
and paid for as contemplated herein will be validly issued, fully paid and
non-assessable; and no preemptive rights of stockholders exist with respect
to any of the Shares or the issue and sale thereof. Neither the filing of
the Registration Statement nor the offering or sale of the Shares as
contemplated by this Agreement gives rise to any rights, other than those
which have been waived or satisfied, for or relating to the registration of
any shares of Common Stock.
(d) The information set forth under the caption "Capitalization" in the
Prospectus is true and correct. All of the Shares conform to the
description thereof contained in the Registration Statement. The form of
certificates for the Shares conforms to the requirements of the Delaware
General Corporation Law.
3
<PAGE>
(e) The Commission has not issued an order preventing or suspending the
use of any Prospectus relating to the proposed offering of the Shares nor
instituted proceedings for that purpose. The Registration Statement
contains, and the Prospectus and any amendments or supplements thereto will
contain, all statements which are required to be stated therein by, and
will conform, to the requirements of the Act and the Rules and Regulations.
The Registration Statement and any amendment thereto do not contain, and
will not contain, any untrue statement of a material fact and do not omit,
and will not omit, to state any material fact required to be stated therein
or necessary to make the statements therein not misleading. The Prospectus
and any amendments and supplements thereto do not contain, and will not
contain, any untrue statement of material fact; and do not omit, and will
not omit, to state any material fact required to be stated therein or
necessary to make the statements therein, in the light of the circumstances
under which they were made, not misleading; provided, however, that the
Company makes no representations or warranties as to information contained
in or omitted from the Registration Statement or the Prospectus, or any
such amendment or supplement, in reliance upon, and in conformity with,
written information furnished to the Company by or on behalf of any
Underwriter through the Representatives, specifically for use in the
preparation thereof.
(f) The consolidated financial statements of the Company and the
Subsidiaries, together with related notes and schedules as set forth in the
Registration Statement, present fairly the financial position and the
results of operations and cash flows of the Company and the consolidated
Subsidiaries, at the indicated dates and for the indicated periods. Such
financial statements and related schedules have been prepared in accordance
with generally accepted principles of accounting, consistently applied
throughout the periods involved, except as disclosed herein, and all
adjustments necessary for a fair presentation of results for such periods
have been made. The summary financial and statistical data included in the
Registration Statement presents fairly the information shown therein and
such data has been compiled on a basis consistent with the financial
statements presented therein and the books and records of the Company.
[The pro forma financial statements and other pro forma financial
information included in the Registration Statement and the Prospectus
present fairly the information shown therein, have been prepared in
accordance with the Commission's rules and guidelines with respect to pro
forma financial statements, have been properly compiled on the pro forma
bases described therein, and, in the opinion of the Company, the
assumptions used in the preparation thereof are reasonable and the
adjustments used
4
<PAGE>
therein are appropriate to give effect to the transactions or circumstances
referred to therein.]
(g) Ernst & Young L.L.P.and [OTHER ACCOUNTANTS], who have certified
certain of the financial statements filed with the Commission as part of
the Registration Statement, are independent public accountants as required
by the Act and the Rules and Regulations.
(h) There is no action, suit, claim or proceeding pending or, to the
knowledge of the Company, threatened against the Company or any of the
Subsidiaries before any court or administrative agency or otherwise which
if determined adversely to the Company or any of its Subsidiaries might
result in any material adverse change in the earnings, business,
management, properties, assets, rights, operations, condition (financial or
otherwise) or prospects of the Company and of the Subsidiaries taken as a
whole or to prevent the consummation of the transactions contemplated
hereby, except as set forth in the Registration Statement.
(i) The Company and the Subsidiaries have good and marketable title to all
of the properties and assets reflected in the financial statements (or as
described in the Registration Statement) hereinabove described, subject to
no lien, mortgage, pledge, charge or encumbrance of any kind except those
reflected in such financial statements (or as described in the Registration
Statement) or which are not material in amount. The Company and the
Subsidiaries occupy their leased properties under valid and binding leases
conforming in all material respects to the descriptions thereof, if any,
set forth in the Registration Statement.
(j) The Company and the Subsidiaries have filed all Federal, State, local
and foreign income tax returns which have been required to be filed and
have paid all taxes indicated by said returns and all assessments received
by them or any of them to the extent that such taxes have become due. All
tax liabilities have been adequately provided for in the financial
statements of the Company.
(k) Since the respective dates as of which information is given in the
Registration Statement, as it may be amended or supplemented, there has not
been any material adverse change or any development involving a prospective
material adverse change in or affecting the earnings, business,
management, properties, assets, rights, operations, condition (financial or
otherwise), or prospects of the Company and its Subsidiaries taken as a
whole, whether or not occurring in the ordinary course of business, and
there
5
<PAGE>
has not been any material transaction entered into or any material
transaction that is probable of being entered into by the Company or the
Subsidiaries, other than transactions in the ordinary course of business
and changes and transactions described in the Registration Statement, as it
may be amended or supplemented. The Company and the Subsidiaries have no
material contingent obligations which are not disclosed in the Company's
financial statements which are included in the Registration Statement.
(l) Neither the Company nor any of the Subsidiaries is or with the giving
of notice or lapse of time or both, will be, in violation of or in default
under its Certificate of Incorporation or By-Laws or under any agreement,
lease, contract, indenture or other instrument or obligation to which it is
a party or by which it, or any of its properties, is bound and which
default is of material significance in respect of the condition, financial
or otherwise of the Company and its Subsidiaries taken as a whole or the
business, management, properties, assets, rights, operations, condition
(financial or otherwise) or prospects of the Company and the Subsidiaries
taken as a whole. The execution and delivery of this Agreement and the
consummation of the transactions herein contemplated and the fulfillment of
the terms hereof will not conflict with or result in a breach of any of the
terms or provisions of, or constitute a default under, any indenture,
mortgage, deed of trust or other agreement or instrument to which the
Company or any Subsidiary is a party, or of the Certificate of
Incorporation or By-Laws of the Company or any order, rule or regulation
applicable to the Company or any Subsidiary of any court or of any
regulatory body or administrative agency or other governmental body having
jurisdiction.
(m) Each approval, consent, order, authorization, designation, declaration
or filing by or with any regulatory, administrative or other governmental
body necessary in connection with the execution and delivery by the Company
of this Agreement and the consummation of the transactions herein
contemplated (except such additional steps as may be required by the
Commission, the National Association of Securities Dealers, Inc. (the
"NASD") or such additional steps as may be necessary to qualify the Shares
for public offering by the Underwriters under state securities or Blue Sky
laws) has been obtained or made and is in full force and effect.
(n) The Company and each of the Subsidiaries holds all material licenses,
certificates and permits from governmental authorities which are necessary
to the conduct of their businesses; and neither the Company nor any of the
Subsidiaries has infringed any patents, patent rights, trade names,
trademarks or copyrights, which infringement is material to the business of
6
<PAGE>
the Company and the Subsidiaries taken as a whole. The Company knows of no
material infringement by others of patents, patent rights, trade names,
trademarks or copyrights owned by or licensed to the Company.
(o) Neither the Company, nor to the Company's best knowledge, any of its
affiliates, has taken or may take, directly or indirectly, any action
designed to cause or result in, or which has constituted or which might
reasonably be expected to constitute, the stabilization or manipulation of
the price of the shares of Common Stock to facilitate the sale or resale of
the Shares.
(p) Neither the Company nor any Subsidiary is or will become as a result
of the sale of the Shares, an "investment company" within the meaning of
such term under the Investment Company Act of 1940, as amended, (the "1940
Act") and the rules and regulations of the Commission thereunder.
(q) The Company maintains a system of internal accounting controls
sufficient to provide reasonable assurances that (i) transactions are
executed in accordance with management's general or specific authorization;
(ii) transactions are recorded as necessary to permit preparation of
financial statements in conformity with generally accepted accounting
principles and to maintain accountability for assets; (iii) access to
assets is permitted only in accordance with management's general or
specific authorization; and (iv) the recorded accountability for assets is
compared with existing assets at reasonable intervals and appropriate
action is taken with respect to any differences.
(r) The Company and each of its Subsidiaries carry, or are covered by,
insurance in such amounts and covering such risks as is adequate for the
conduct of their respective businesses and the value of their respective
properties and as is customary for companies engaged in similar industries.
(s) The Company is in compliance in all material respects with all
presently applicable provisions of the Employee Retirement Income Security
Act of 1974, as amended, including the regulations and published
interpretations thereunder ("ERISA"); no "reportable event" (as defined in
ERISA) has occurred with respect to any "pension plan" (as defined in
ERISA) for which the Company would have any liability; the Company has not
incurred and does not expect to incur liability under (i) Title IV of ERISA
with respect to termination of, or withdrawal from, any "pension plan" or
(ii) Sections 412 or 4971 of the Internal Revenue Code of 1986, as amended,
including the regulations and published interpretations thereunder (the
"Code"); and each "pension plan" for which the Company would have any
liability that is
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intended to be qualified under Section 401(a) of the Code is so qualified
in all material respects and nothing has occurred, whether by action or by
failure to act, which would cause the loss of such qualification.
(t) The Company confirms as of the date hereof that it is in compliance
with all provisions of Section 1 of Laws of Florida, Chapter 92-198,
An Act Relating to Disclosure of doing Business with Cuba, and the Company
---------------------------------------------------------
further agrees that if it commences engaging in business with the
government of Cuba or with any person or affiliate located in Cuba after
the date the Registration Statement becomes or has become effective with
the Commission or with the Florida Department of Banking and Finance (the
"Department"), whichever date is later, or if the information reported or
incorporated by reference in the Prospectus, if any, concerning the
Company's business with Cuba or with any person or affiliate located in
Cuba changes in any material way, the Company will provide the Department
notice of such business or change, as appropriate, in a form acceptable to
the Department.
2. Purchase, Sale and Delivery of the Firm Shares.
----------------------------------------------
(a) On the basis of the representations, warranties and covenants herein
contained, and subject to the conditions herein set forth, the Company
agrees to sell to the Underwriters and each Underwriter agrees, severally
and not jointly, to purchase, at a price of $_____ per share, the number of
Firm Shares set forth opposite the name of each Underwriter in Schedule I
hereof, subject to adjustments in accordance with Section 9 hereof.
(b) Payment for the Firm Shares to be sold hereunder is to be made in same
day funds by certified or bank cashier's checks drawn to the order of the
Company against delivery of certificates therefor to the Representatives
for the several accounts of the Underwriters. Such payment and delivery
are to be made at the offices of Alex. Brown & Sons Incorporated, 135 East
Baltimore Street, Baltimore, Maryland, at 10:00 a.m., Baltimore time, on
the third business day after the date of this Agreement or at such other
time and date not later than five business days thereafter as you and the
Company shall agree upon, such time and date being herein referred to as
the "Closing Date." (As used herein, "business day" means a day on which
the New York Stock Exchange is open for trading and on which banks in New
York are open for business and are not permitted by law or executive order
to be closed.) The certificates for the Firm Shares will be delivered in
such denominations and in such registrations as the Representatives request
in writing not later than the second full business day prior to the Closing
Date, and will be made
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available for inspection by the Representatives at least one business day
prior to the Closing Date.
(c) In addition, on the basis of the representations and warranties herein
contained and subject to the terms and conditions herein set forth, the
Company hereby grants an option to the several Underwriters to purchase the
Option Shares at the price per share as set forth in the first paragraph of
this Section 2. The option granted hereby may be exercised in whole or in
part by giving written notice (i) at any time before the Closing Date and
(ii) only once thereafter within 30 days after the date of this Agreement,
by you, as Representatives of the several Underwriters, to the Company
setting forth the number of Option Shares as to which the several
Underwriters are exercising the option, the names and denominations in
which the Option Shares are to be registered and the time and date at which
such certificates are to be delivered. The time and date at which
certificates for Option Shares are to be delivered shall be determined by
the Representatives but shall not be earlier than three nor later than 10
full business days after the exercise of such option, nor in any event
prior to the Closing Date (such time and date being herein referred to as
the "Option Closing Date"). If the date of exercise of the option is three
or more days before the Closing Date, the notice of exercise shall set the
Closing Date as the Option Closing Date. The number of Option Shares to be
purchased by each Underwriter shall be in the same proportion to the total
number of Option Shares being purchased as the number of Firm Shares being
purchased by such Underwriter bears to __________, adjusted by you in such
manner as to avoid fractional shares. The option with respect to the
Option Shares granted hereunder may be exercised only to cover over-
allotments in the sale of the Firm Shares by the Underwriters. You, as
Representatives of the several Underwriters, may cancel such option at any
time prior to its expiration by giving written notice of such cancellation
to the Company. To the extent, if any, that the option is exercised,
payment for the Option Shares shall be made on the Option Closing Date in
same day funds by certified or bank cashier's check drawn to the order of
the Company against delivery of certificates therefor at the offices of
Alex. Brown & Sons Incorporated, 135 East Baltimore Street, Baltimore,
Maryland.
3. Offering by the Underwriters.
----------------------------
It is understood that the several Underwriters are to make a public
offering of the Firm Shares as soon as the Representatives deem it
advisable to do so. The Firm Shares are to be initially offered to the
public at the initial public offering price set forth in the Prospectus.
The Representatives
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may from time to time thereafter change the public offering price and other
selling terms. To the extent, if at all, that any Option Shares are
purchased pursuant to Section 2 hereof, the Underwriters will offer them to
the public on the foregoing terms.
It is further understood that you will act as the Representatives for
the Underwriters in the offering and sale of the Shares in accordance with
a Master Agreement Among Underwriters entered into by you and the several
other Underwriters.
4. Covenants of the Company.
------------------------
The Company covenants and agrees with the several Underwriters that:
(a) The Company will (A) use its best efforts to cause the Registration
Statement to become effective or, if the procedure in Rule 430A of the
Rules and Regulations is followed, to prepare and timely file with the
Commission under Rule 424(b) of the Rules and Regulations a Prospectus in a
form approved by the Representatives containing information previously
omitted at the time of effectiveness of the Registration Statement in
reliance on Rule 430A of the Rules and Regulations and (B) not file any
amendment to the Registration Statement or supplement to the Prospectus of
which the Representatives shall not previously have been advised and
furnished with a copy or to which the Representatives shall have reasonably
objected in writing or which is not in compliance with the Rules and
Regulations.
(b) The Company will advise the Representatives promptly (A) when the
Registration Statement or any post-effective amendment thereto shall have
become effective, (B) of receipt of any comments from the Commission,
(C) of any request of the Commission for amendment of the Registration
Statement or for supplement to the Prospectus or for any additional
information, and (D) of the issuance by the Commission of any stop order
suspending the effectiveness of the Registration Statement or the use of
the Prospectus or of the institution of any proceedings for that purpose.
The Company will use its best efforts to prevent the issuance of any such
stop order preventing or suspending the use of the Prospectus and to obtain
as soon as possible the lifting thereof, if issued.
(c) The Company will cooperate with the Representatives in endeavoring to
qualify the Shares for sale under the securities laws of such jurisdictions
as the Representatives may reasonably have designated in writing and will
make such applications, file such documents, and furnish such information
as
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<PAGE>
may be reasonably required for that purpose, provided the Company shall
not be required to qualify as a foreign corporation or to file a general
consent to service of process in any jurisdiction where it is not now so
qualified or required to file such a consent. The Company will, from time
to time, prepare and file such statements, reports, and other documents, as
are or may be required to continue such qualifications in effect for so
long a period as the Representatives may reasonably request for
distribution of the Shares.
(d) The Company will deliver to, or upon the order of, the
Representatives, from time to time, as many copies of any Preliminary
Prospectus as the Representatives may reasonably request. The Company will
deliver to, or upon the order of, the Representatives during the period
when delivery of a Prospectus is required under the Act, as many copies of
the Prospectus in final form, or as thereafter amended or supplemented, as
the Representatives may reasonably request. The Company will deliver to
the Representatives at or before the Closing Date, four signed copies of
the Registration Statement and all amendments thereto including all
exhibits filed therewith, and will deliver to the Representatives such
number of copies of the Registration Statement (including such number of
copies of the exhibits filed therewith that may reasonably be requested)
and of all amendments thereto, as the Representatives may reasonably
request.
(e) The Company will comply with the Act and the Rules and Regulations,
and the Securities Exchange Act of 1934 (the "Exchange Act"), and the rules
and regulations of the Commission thereunder, so as to permit the
completion of the distribution of the Shares as contemplated in this
Agreement and the Prospectus. If during the period in which a prospectus
is required by law to be delivered by an Underwriter or dealer, any event
shall occur as a result of which, in the judgment of the Company or in the
reasonable opinion of the Underwriters, it becomes necessary to amend or
supplement the Prospectus in order to make the statements therein, in the
light of the circumstances existing at the time the Prospectus is delivered
to a purchaser, not misleading, or, if it is necessary at any time to amend
or supplement the Prospectus to comply with any law, the Company promptly
will prepare and file with the Commission an appropriate amendment to the
Registration Statement or supplement to the Prospectus so that the
Prospectus as so amended or supplemented will not, in the light of the
circumstances when it is so delivered, be misleading, or so that the
Prospectus will comply with the law.
(f) The Company will make generally available to its security holders, as
soon as it is practicable to do so, but in any event not later than
15 months
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<PAGE>
after the effective date of the Registration Statement, an earning
statement (which need not be audited) in reasonable detail, covering a
period of at least 12 consecutive months beginning after the effective date
of the Registration Statement, which earning statement shall satisfy the
requirements of Section 11(a) of the Act and Rule 158 of the Rules and
Regulations and will advise you in writing when such statement has been so
made available.
(g) The Company will, for a period of five years from the Closing Date,
deliver to the Representatives copies of annual reports and copies of all
other documents, reports and information furnished by the Company to its
stockholders or filed with any securities exchange pursuant to the
requirements of such exchange or with the Commission pursuant to the Act or
the Securities Exchange Act of 1934, as amended. The Company will deliver
to the Representatives similar reports with respect to significant
subsidiaries, as that term is defined in the Rules and Regulations, which
are not consolidated in the Company's financial statements.
(h) No offering, sale, short sale or other disposition of any shares of
Common Stock of the Company or other securities convertible into or
exchangeable or exercisable for shares of Common Stock or derivative of
Common Stock (or agreement for such) will be made for a period of 180 days
after the date of this Agreement, directly or indirectly, by the Company
otherwise than hereunder or with the prior written consent of Alex. Brown
& Sons Incorporated.
(i) The Company will use its best efforts to list, subject to notice of
issuance, the Shares on The NASDAQ Stock Market.
(j) The Company has caused each officer, director, stockholder and holder
of options exercisable within 185 days of the date here ("Option Holder")
of the Company to furnish to you, on or prior to the date of this
agreement, a letter or letters, in form and substance satisfactory to the
Underwriters, pursuant to which each such person shall agree not to offer,
sell, sell short or otherwise dispose of any shares of Common Stock of the
Company or other capital stock of the Company, or any other securities
convertible, exchangeable or exercisable for Common Shares or derivative of
Common Shares owned by such person or request the registration for the
offer or sale of any of the foregoing (or as to which such person has the
right to direct the disposition of) for a period of 180 days after the date
of this Agreement, directly or indirectly, except with the prior written
consent of Alex. Brown & Sons Incorporated ("Lockup Agreements").
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<PAGE>
(k) The Company shall apply the net proceeds of its sale of the Shares as
set forth in the Prospectus and shall file such reports with the Commission
with respect to the sale of the Shares and the application of the proceeds
therefrom as may be required in accordance with Rule 463 under the Act.
(l) The Company shall not invest, or otherwise use the proceeds received
by the Company from its sale of the Shares in such a manner as would
require the Company or any of the Subsidiaries to register as an investment
company under the the 1940 Act.
(m) The Company will maintain a transfer agent and, if necessary under the
jurisdiction of incorporation of the Company, a registrar for the Common
Stock.
(n) The Company will not take, directly or indirectly, any action designed
to cause or result in, or that has constituted or might reasonably be
expected to constitute, the stabilization or manipulation of the price of
any securities of the Company.
5. Costs and Expenses.
------------------
The Company will pay all costs, expenses and fees incident to the
performance of the obligations of the Company under this Agreement,
including, without limiting the generality of the foregoing, the following:
accounting fees of the Company; the fees and disbursements of counsel for
the Company; the cost of printing and delivering to, or as requested by,
the Underwriters copies of the Registration Statement, Preliminary
Prospectuses, the Prospectus, this Agreement, the Underwriters' Selling
Memorandum, the Underwriters' Invitation Letter, the Listing Application,
the Blue Sky Survey and any supplements or amendments thereto; the filing
fees of the Commission; the filing fees and expenses (including legal fees
and disbursements) incident to securing any required review by the National
Association of Securities Dealers, Inc. (the "NASD") of the terms of the
sale of the Shares; the listing fees of the NASDAQ Stock Market; and the
expenses, including the fees and disbursements of counsel for the
Underwriters, incurred in connection with the qualification of the Shares
under State securities or Blue Sky laws. The Company agrees to pay all
costs and expenses of the Underwriters, including the fees and
disbursements of counsel for the Underwriters, incident to the offer and
sale of directed shares of the Common Stock by the Underwriters to
employees and persons having business relationships with the Company and
its Subsidiaries. The Company
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<PAGE>
shall not, however, be required to pay for any of the Underwriters'
expenses (other than those related to qualification under NASD regulation
and State securities or Blue Sky laws and as set forth in the preceding
sentence) except that, if this Agreement shall not be consummated because
the conditions in Section 6 hereof are not satisfied, or because this
Agreement is terminated by the Representatives pursuant to Section 11
hereof, or by reason of any failure, refusal or inability on the part of
the Company to perform any undertaking or satisfy any condition of this
Agreement or to comply with any of the terms hereof on its part to be
performed, unless such failure to satisfy said condition or to comply with
said terms be due to the default or omission of any Underwriter, then the
Company shall reimburse the several Underwriters for reasonable
out-of-pocket expenses, including fees and disbursements of counsel,
reasonably incurred in connection with investigating, marketing and
proposing to market the Shares or in contemplation of performing their
obligations hereunder; but the Company shall not in any event be liable to
any of the several Underwriters for damages on account of loss of
anticipated profits from the sale by them of the Shares.
6. Conditions of Obligations of the Underwriters.
---------------------------------------------
The several obligations of the Underwriters to purchase the Firm
Shares on the Closing Date and the Option Shares, if any, on the Option
Closing Date are subject to the accuracy, as of the Closing Date or the
Option Closing Date, as the case may be, of the representations and
warranties of the Company contained herein, and to the performance by the
Company of its covenants and obligations hereunder and to the following
additional conditions:
(a) The Registration Statement and all post-effective amendments thereto
shall have become effective and any and all filings required by Rule 424
and Rule 430A of the Rules and Regulations shall have been made, and any
request of the Commission for additional information (to be included in the
Registration Statement or otherwise) shall have been disclosed to the
Representatives and complied with to their reasonable satisfaction. No
stop order suspending the effectiveness of the Registration Statement, as
amended from time to time, shall have been issued and no proceedings for
that purpose shall have been taken or, to the knowledge of the Company,
shall be contemplated by the Commission and no injunction, restraining
order, or order of any nature by a Federal or state court of competent
jurisdiction shall have been issued as of the Closing Date which would
prevent the issuance of the Shares.
14
<PAGE>
(b) The Representatives shall have received on the Closing Date or the
Option Closing Date, as the case may be, the opinion of Piper & Marbury
L.L.P., counsel for the Company, dated the Closing Date or the Option
Closing Date, as the case may be, addressed to the Underwriters (and
stating that it may be relied upon by counsel to the Underwriters) to the
effect that:
(i) The Company has been duly organized and is validly existing
as a corporation in good standing under the laws of the State of
Delaware, with corporate power and authority to own or lease its
properties and conduct its business as described in the Registration
Statement; each of the Subsidiaries has been duly organized and is
validly existing as a corporation in good standing under the laws of
the jurisdiction of its incorporation, with corporate power and
authority to own or lease its properties and conduct its business as
described in the Registration Statement; the Company and each of the
Subsidiaries are duly qualified to transact business in all
jurisdictions in which the conduct of their business requires such
qualification, or in which the failure to qualify would have a
materially adverse effect upon the business of the Company and the
Subsidiaries taken as a whole; and the outstanding shares of capital
stock of each of the Subsidiaries have been duly authorized and
validly issued and are fully paid and non-assessable and are owned by
the Company or a Subsidiary; and, to the best of such counsel's
knowledge, the outstanding shares of capital stock of each of the
Subsidiaries is owned free and clear of all liens, encumbrances and
equities and claims, and no options, warrants or other rights to
purchase, agreements or other obligations to issue or other rights to
convert any obligations into any shares of capital stock or of
ownership interests in the Subsidiaries are outstanding.
(ii) The Company has authorized and outstanding capital stock as
set forth under the caption "Capitalization" in the Prospectus; the
authorized shares of the Company's Common Stock have been duly
authorized; the outstanding shares of the Company's Common Stock have
been duly authorized and validly issued and are fully paid and non-
assessable; all of the Shares conform to the description thereof
contained in the Prospectus; the certificates for the Shares, assuming
they are in the form filed with the Commission, are in due and proper
form; the shares of Common Stock, including the Option Shares, if any,
to be sold by the Company pursuant to this Agreement have been duly
authorized and will be validly issued, fully paid and non-assessable
when issued and paid for as contemplated by this Agreement; and no
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<PAGE>
preemptive rights of stockholders exist with respect to any of the
Shares or the issue or sale thereof.
(iii) Except as described in or contemplated by the Prospectus,
to the knowledge of such counsel, there are no outstanding securities
of the Company convertible or exchangeable into or evidencing the
right to purchase or subscribe for any shares of capital stock of the
Company and there are no outstanding or authorized options, warrants
or rights of any character obligating the Company to issue any shares
of its capital stock or any securities convertible or exchangeable
into or evidencing the right to purchase or subscribe for any shares
of such stock; and except as described in the Prospectus, to the
knowledge of such counsel, no holder of any securities of the Company
or any other person has the right, contractual or otherwise, which has
not been satisfied or effectively waived, to cause the Company to
sell or otherwise issue to them, or to permit them to underwrite the
sale of, any of the Shares or the right to have any Common Shares or
other securities of the Company included in the Registration Statement
or the right, as a result of the filing of the Registration Statement,
to require registration under the Act of any shares of Common Stock or
other securities of the Company.
(iv) The Registration Statement has become effective under the
Act and, to the best of the knowledge of such counsel, no stop order
proceedings with respect thereto have been instituted or are pending
or threatened under the Act.
(v) The Registration Statement, the Prospectus and each
amendment or supplement thereto comply as to form in all material
respects with the requirements of the Act and the applicable rules and
regulations thereunder (except that such counsel need express no
opinion as to the financial statements and related schedules therein).
(vi) The statements under the captions "Business-Facilities,"
"Management-Employee Stock and Other Benefit Plans," "Description of
Capital Stock," "Shares Eligible for Future Sale" and Management-
Employment Agreements in the Prospectus, insofar as such statements
constitute a summary of documents referred to therein or matters of
law, fairly summarize in all material respects the information called
for with respect to such documents and matters.
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<PAGE>
(vii) Such counsel does not know of any contracts or documents
required to be filed as exhibits to the Registration Statement or
described in the Registration Statement or the Prospectus which are
not so filed or described as required, and such contracts and
documents as are summarized in the Registration Statement or the
Prospectus are fairly summarized in all material respects.
(viii) Such counsel knows of no material legal or governmental
proceedings pending or threatened against the Company or any of the
Subsidiaries except as set forth in the Prospectus.
(ix) The execution and delivery of this Agreement and the
consummation of the transactions herein contemplated do not and will
not conflict with or result in a breach of any of the terms or
provisions of, or constitute a default under, the Certificate of
Incorporation or By-Laws of the Company, or any agreement or
instrument known to such counsel to which the Company or any of the
Subsidiaries is a party or by which the Company or any of the
Subsidiaries may be bound.
(x) This Agreement has been duly authorized, executed and
delivered by the Company.
(xi) No approval, consent, order, authorization, designation,
declaration or filing by or with any regulatory, administrative or
other governmental body is necessary in connection with the execution
and delivery of this Agreement and the consummation of the
transactions herein contemplated (other than as may be required by the
NASD or as required by State securities and Blue Sky laws as to which
such counsel need express no opinion) except such as have been
obtained or made, specifying the same.
(xii) The Company is not, and will not become, as a result of
the consummation of the transactions contemplated by this Agreement,
and application of the net proceeds therefrom as described in the
Prospectus, required to register as an investment company under the
1940 Act.
(xiii) To such counsel's knowledge, the Shares have been
approved for listing on The NASDAQ Stock Market.
In rendering such opinion Piper & Marbury L.L.P. may rely as to
matters governed by the laws of jurisdictions other than Delaware,
17
<PAGE>
Maryland, New York, Pennsylvania or the District of Columbia or Federal
laws on local counsel in such jurisdictions, provided that in each case
Piper & Marbury L.L.P. shall state that they believe that they and the
Underwriters are justified in relying on such other counsel. In addition
to the matters set forth above, such opinion shall also include a statement
to the effect that nothing has come to the attention of such counsel which
leads them to believe that (i) the Registration Statement, at the time it
became effective under the Act (but after giving effect to any
modifications incorporated therein pursuant to Rule 430A under the Act) and
as of the Closing Date or the Option Closing Date, as the case may be,
contained an untrue statement of a material fact or omitted to state a
material fact required to be stated therein or necessary to make the
statements therein not misleading, and (ii) the Prospectus, or any
supplement thereto, on the date it was filed pursuant to the Rules and
Regulations and as of the Closing Date or the Option Closing Date, as the
case may be, contained an untrue statement of a material fact or omitted to
state a material fact necessary in order to make the statements, in the
light of the circumstances under which they are made, not misleading
(except that such counsel need express no view as to financial statements,
schedules and statistical information therein or omitted therefrom). With
respect to such statement,Piper & Marbury L.L.P. may state that their
belief is based upon the procedures set forth therein, but is without
independent check and verification.
(c) The Representatives shall have received from Hogan & Hartson L.L.P.,
counsel for the Underwriters, an opinion dated the Closing Date or the
Option Closing Date, as the case may be, with respect to the matters
specified in subparagraphs (ii), (iii), (iv), and (x) of Paragraph (b) of
this Section 6, and that the Company was incorporated and is a validly
existing corporation under the laws of the State of Delaware. In rendering
such opinion Hogan & Hartson L.L.P. may rely as to all matters governed
other than by the laws of the District of Columbia, the State of Maryland
and the DelawareGeneral Corporation Law or Federal laws on the opinion of
counsel referred to in Paragraph (b) of this Section 6. In addition to the
matters set forth above, such opinion shall also include a statement to the
effect that no facts have come to the attention of such counsel which lead
them to believe that (i) the Registration Statement, at the time it became
effective under the Act (but after giving effect to any modifications
incorporated therein pursuant to Rule 430A under the Act) contained an
untrue statement of a material fact or omitted to state a material fact
required to be stated therein or necessary to make the statements therein
not misleading, and (ii) the Prospectus, or any supplement thereto, on the
date it was filed pursuant to the Rules and Regulations and as of the
Closing Date or the Option Closing
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<PAGE>
Date, as the case may be, contained an untrue statement of a material fact
or omitted to state a material fact, necessary in order to make the
statements therein, in the light of the circumstances under which they are
made, not misleading (except that such counsel need express no view as to
financial statements, schedules and statistical information therein or
omitted therefrom). With respect to such statement,Hogan & Hartson may
state that their belief is based upon the procedures set forth therein, but
is without independent check and verification.
(d) The Representatives shall have received at or prior to the Closing
Date from Hogan & Hartson L.L.P. a memorandum or summary, in form and
substance satisfactory to the Representatives, with respect to the
qualification for offering and sale by the Underwriters of the Shares under
the State securities or Blue Sky laws of such jurisdictions as the
Representatives may reasonably have designated to the Company.
(e) You shall have received, on each of the dates hereof, the Closing Date
and the Option Closing Date, as the case may be, a letter dated the date
hereof, the Closing Date or the Option Closing Date, as the case may be, in
form and substance satisfactory to you, of Ernst & Young L.L.P. [and X]
confirming that they are independent public accountants within the meaning
of the Act and the applicable published Rules and Regulations thereunder
and stating that in their opinion the financial statements and schedules
examined by them and included in the Registration Statement comply in form
in all material respects with the applicable accounting requirements of the
Act and the related published Rules and Regulations; and containing such
other statements and information as is ordinarily included in accountants'
"comfort letters" to Underwriters with respect to the financial statements
and certain financial and statistical information contained in the
Registration Statement and Prospectus.
(f) The Representatives shall have received on the Closing Date or the
Option Closing Date, as the case may be, a certificate or certificates of
the Chief Executive Officer and the Chief Financial Officer of the Company
to the effect that, as of the Closing Date or the Option Closing Date, as
the case may be, each of them severally represents as follows:
(i) The Registration Statement has become effective under the
Act and no stop order suspending the effectiveness of the
Registrations Statement has been issued, and no proceedings for such
purpose have been taken or are, to his knowledge, contemplated by the
Commission;
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(ii) The representations and warranties of the Company contained
in Section 1 hereof are true and correct as of the Closing Date or the
Option Closing Date, as the case may be;
(iii) All filings required to have been made pursuant to Rules
424 or 430A under the Act have been made;
(iv) He or she has carefully examined the Registration Statement
and the Prospectus and, in his or her opinion, as of the effective
date of the Registration Statement, the statements contained in the
Registration Statement were true and correct, and such Registration
Statement and Prospectus did not omit to state a material fact
required to be stated therein or necessary in order to make the
statements therein not misleading, and since the effective date of the
Registration Statement, no event has occurred which should have been
set forth in a supplement to or an amendment of the Prospectus which
has not been so set forth in such supplement or amendment; and
(v) Since the respective dates as of which information is given
in the Registration Statement and Prospectus, there has not been any
material adverse change or any development involving a prospective
material adverse change in or affecting the condition, financial or
otherwise, of the Company and its Subsidiaries taken as a whole or the
earnings, business, management, properties, assets, rights,
operations, condition (financial or otherwise) or prospects of the
Company and the Subsidiaries taken as a whole, whether or not arising
in the ordinary course of business.
(g) The Company shall have furnished to the Representatives such further
certificates and documents confirming the representations and warranties,
covenants and conditions contained herein and related matters as the
Representatives may reasonably have requested.
(h) The Firm Shares and Option Shares, if any, have been approved for
listing upon notice of issuance on The NASDAQ Stock Market.
(i) The Lockup Agreements described in Section 4 (j) are in full
force and effect.
The opinions and certificates mentioned in this Agreement shall be
deemed to be in compliance with the provisions hereof only if they are in
all
20
<PAGE>
material respects satisfactory to the Representatives and to Hogan &
Hartson L.L.P., counsel for the Underwriters.
If any of the conditions hereinabove provided for in this Section 6
shall not have been fulfilled when and as required by this Agreement to be
fulfilled, the obligations of the Underwriters hereunder may be terminated
by the Representatives by notifying the Company of such termination in
writing or by telegram at or prior to the Closing Date or the Option
Closing Date, as the case may be.
In such event, the Company and the Underwriters shall not be under any
obligation to each other (except to the extent provided in Sections 5 and 8
hereof).
7. Conditions of the Obligations of the Company.
--------------------------------------------
The obligations of the Company to sell and deliver the portion of the
Shares required to be delivered as and when specified in this Agreement are
subject to the conditions that at the Closing Date or the Option Closing
Date, as the case may be, no stop order suspending the effectiveness of the
Registration Statement shall have been issued and in effect or proceedings
therefor initiated or threatened.
8. Indemnification.
---------------
(a) The Company agrees to indemnify and hold harmless each Underwriter and
each person, if any, who controls any Underwriter within the meaning of the
Act, against any losses, claims, damages or liabilities to which such
Underwriter or any such controlling person may become subject under the Act
or otherwise, insofar as such losses, claims, damages or liabilities (or
actions or proceedings in respect thereof) arise out of or are based upon
(i) any untrue statement or alleged untrue statement of any material fact
contained in the Registration Statement, any Preliminary Prospectus, the
Prospectus or any amendment or supplement thereto, or (ii) the omission or
alleged omission to state therein a material fact required to be stated
therein or necessary to make the statements therein not misleading, in the
light of the circumstances under which they were made; and will reimburse
each Underwriter and each such controlling person upon demand for any legal
or other expenses reasonably incurred by such Underwriter or such
controlling person in connection with investigating or defending any such
loss, claim, damage or liability, action or proceeding or in responding to
a subpoena or governmental inquiry related to the offering of the Shares,
whether or not
21
<PAGE>
such Underwriter or controlling person is a party to any action or
proceeding; provided, however, that the Company will not be liable in any
such case to the extent that any such loss, claim, damage or liability
arises out of or is based upon an untrue statement or alleged untrue
statement, or omission or alleged omission made in the Registration
Statement, any Preliminary Prospectus, the Prospectus, or such amendment or
supplement, in reliance upon and in conformity with written information
furnished to the Company by or through the Representatives specifically for
use in the preparation thereof. This indemnity agreement will be in
addition to any liability which the Company may otherwise have.
(b) Each Underwriter severally and not jointly will indemnify and hold
harmless the Company, each of its directors, each of its officers who have
signed the Registration Statement and each person, if any, who controls the
Company within the meaning of the Act, against any losses, claims, damages
or liabilities to which the Company or any such director, officer or
controlling person may become subject under the Act or otherwise, insofar
as such losses, claims, damages or liabilities (or actions or proceedings
in respect thereof) arise out of or are based upon (i) any untrue
statement or alleged untrue statement of any material fact contained in
the Registration Statement, any Preliminary Prospectus, the Prospectus or
any amendment or supplement thereto, or (ii) the omission or the alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading in the light of the
circumstances under which they were made; and will reimburse any legal or
other expenses reasonably incurred by the Company or any such director,
officer or controlling person in connection with investigating or defending
any such loss, claim, damage, liability, action or proceeding; provided,
however, that each Underwriter will be liable in each case to the extent,
but only to the extent, that such untrue statement or alleged untrue
statement or omission or alleged omission has been made in the Registration
Statement, any Preliminary Prospectus, the Prospectus or such amendment or
supplement, in reliance upon and in conformity with written information
furnished to the Company by or through the Representatives specifically for
use in the preparation thereof. This indemnity agreement will be in
addition to any liability which such Underwriter may otherwise have.
(c) In case any proceeding (including any governmental investigation)
shall be instituted involving any person in respect of which indemnity may
be sought pursuant to this Section 8, such person (the "indemnified party")
shall promptly notify the person against whom such indemnity may be sought
(the "indemnifying party") in writing. No indemnification provided for in
Section
22
<PAGE>
8(a) or (b) shall be available to any party who shall fail to give
notice as provided in this Section 8(c) if the party to whom notice was not
given was unaware of the proceeding to which such notice would have related
and was materially prejudiced by the failure to give such notice, but the
failure to give such notice shall not relieve the indemnifying party or
parties from any liability which it or they may have to the indemnified
party for contribution or otherwise than on account of the provisions of
Section 8(a) or (b). In case any such proceeding shall be brought against
any indemnified party and it shall notify the indemnifying party of the
commencement thereof, the indemnifying party shall be entitled to
participate therein and, to the extent that it shall wish, jointly with any
other indemnifying party similarly notified, to assume the defense thereof,
with counsel satisfactory to such indemnified party and shall pay as
incurred (or within 30 days of presentation) the fees and disbursements of
such counsel related to such proceeding. In any such proceeding, any
indemnified party shall have the right to retain its own counsel at its own
expense. Notwithstanding the foregoing, the indemnifying party shall pay
as incurred the fees and expenses of the counsel retained by the
indemnified party in the event (i) the indemnifying party and the
indemnified party shall have mutually agreed to the retention of such
counsel, (ii) the named parties to any such proceeding (including any
impleaded parties) include both the indemnifying party and the indemnified
party and representation of both parties by the same counsel would be
inappropriate due to actual or potential differing interests between them
or (iii) the indemnifying party shall have failed to assume the defense and
employ counsel acceptable to the indemnified party within a reasonable
period of time after notice of commencement of the action. It is
understood that the indemnifying party shall not, in connection with any
proceeding or related proceedings in the same jurisdiction, be liable for
the reasonable fees and expenses of more than one separate firm for all
such indemnified parties. Such firm shall be designated in writing by you
in the case of parties indemnified pursuant to Section 8(a) and by the
Company in the case of parties indemnified pursuant to Section 8(b). The
indemnifying party shall not be liable for any settlement of any proceeding
effected without its written consent but if settled with such consent or if
there be a final judgment for the plaintiff, the indemnifying party agrees
to indemnify the indemnified party from and against any loss or liability
by reason of such settlement or judgment. In addition, the indemnifying
party will not, without the prior written consent of the indemnified party,
settle or compromise or consent to the entry of any judgment in any pending
or threatened claim, action or proceeding of which indemnification may be
sought hereunder (whether or not any indemnified party is an actual or
potential party to such claim, action or proceeding) unless such
settlement, compromise or consent includes an
23
<PAGE>
unconditional release of each indemnified party from all liability arising
out of such claim, action or proceeding.
(d) If the indemnification provided for in this Section 8 is unavailable
to or insufficient to hold harmless an indemnified party under Section 8(a)
or (b) above in respect of any losses, claims, damages or liabilities (or
actions or proceedings in respect thereof) referred to therein, then each
indemnifying party shall contribute to the amount paid or payable by such
indemnified party as a result of such losses, claims, damages or
liabilities (or actions or proceedings in respect thereof) in such
proportion as is appropriate to reflect the relative benefits received by
the Company on the one hand and the Underwriters on the other from the
offering of the Shares. If, however, the allocation provided by the
immediately preceding sentence is not permitted by applicable law then each
indemnifying party shall contribute to such amount paid or payable by such
indemnified party in such proportion as is appropriate to reflect not only
such relative benefits but also the relative fault of the Company on the
one hand and the Underwriters on the other in connection with the
statements or omissions which resulted in such losses, claims, damages or
liabilities, (or actions or proceedings in respect thereof), as well as any
other relevant equitable considerations. The relative benefits received by
the Company on the one hand and the Underwriters on the other shall be
deemed to be in the same proportion as the total net proceeds from the
offering (before deducting expenses) received by the Company bear to the
total underwriting discounts and commissions received by the Underwriters,
in each case as set forth in the table on the cover page of the Prospectus.
The relative fault shall be determined by reference to, among other things,
whether the untrue or alleged untrue statement of a material fact or the
omission or alleged omission to state a material fact relates to
information supplied by the Company on the one hand or the Underwriters on
the other and the parties' relative intent, knowledge, access to
information and opportunity to correct or prevent such statement or
omission.
The Company and the Underwriters agree that it would not be just and
equitable if contributions pursuant to this Section 8(d) were determined by
pro rata allocation (even if the Underwriters were treated as one entity
for such purpose) or by any other method of allocation which does not take
account of the equitable considerations referred to above in this Section
8(d). The amount paid or payable by an indemnified party as a result of
the losses, claims, damages or liabilities (or actions or proceedings in
respect thereof) referred to above in this Section 8(d) shall be deemed to
include any legal or other expenses reasonably incurred by such indemnified
party in connection with investigating or defending any such action or
claim. Notwithstanding
24
<PAGE>
the provisions of this subsection (d), (i) no Underwriter shall be required
to contribute any amount in excess of the underwriting discounts and
commissions applicable to the Shares purchased by such Underwriter and (ii)
no person guilty of fraudulent misrepresentation (within the meaning of
Section 11(f) of the Act) shall be entitled to contribution from any person
who was not guilty of such fraudulent misrepresentation. The Underwriters'
obligations in this Section 8(d) to contribute are several in proportion to
their respective underwriting obligations and not joint.
(e) In any proceeding relating to the Registration Statement, any
Preliminary Prospectus, the Prospectus or any supplement or amendment
thereto, each party against whom contribution may be sought under this
Section 8 hereby consents to the jurisdiction of any court having
jurisdiction over any other contributing party, agrees that process issuing
from such court may be served upon him or it by any other contributing
party and consents to the service of such process and agrees that any other
contributing party may join him or it as an additional defendant in any
such proceeding in which such other contributing party is a party.
(f) Any losses, claims, damages, liabilities or expenses for which an
indemnified party is entitled to indemnification or contribution under this
Section 8 shall be paid by the indemnifying party to the indemnified party
as such losses, claims, damages, liabilities or expenses are incurred. The
indemnity and contribution agreements contained in this Section 8 and the
representations and warranties of the Company set forth in this Agreement
shall remain operative and in full force and effect, regardless of (i) any
investigation made by or on behalf of any Underwriter or any person
controlling any Underwriter, the Company, its directors or officers or any
persons controlling the Company, (ii) acceptance of any Shares and payment
therefor hereunder, and (iii) any termination of this Agreement. A
successor to any Underwriter, or to the Company, its directors or officers,
or any person controlling the Company, shall be entitled to the benefits of
the indemnity, contribution and reimbursement agreements contained in this
Section 8.
25
<PAGE>
9. Default by Underwriters.
-----------------------
If on the Closing Date or the Option Closing Date, as the case may be,
any Underwriter shall fail to purchase and pay for the portion of the
Shares which such Underwriter has agreed to purchase and pay for on such
date (otherwise than by reason of any default on the part of the Company),
you, as Representatives of the Underwriters, shall use your reasonable
efforts to procure within 36 hours thereafter one or more of the other
Underwriters, or any others, to purchase from the Company such amounts as
may be agreed upon and upon the terms set forth herein, the Firm Shares or
Option Shares, as the case may be, which the defaulting Underwriter or
Underwriters failed to purchase. If during such 36 hours you, as such
Representatives, shall not have procured such other Underwriters, or any
others, to purchase the Firm Shares or Option Shares, as the case may be,
agreed to be purchased by the defaulting Underwriter or Underwriters, then
(a) if the aggregate number of shares with respect to which such default
shall occur does not exceed 10% of the Firm Shares or Option Shares, as the
case may be, covered hereby, the other Underwriters shall be obligated,
severally, in proportion to the respective numbers of Firm Shares or Option
Shares, as the case may be, which they are obligated to purchase hereunder,
to purchase the Firm Shares or Option Shares, as the case may be, which
such defaulting Underwriter or Underwriters failed to purchase, or (b) if
the aggregate number of shares of Firm Shares or Option Shares, as the case
may be, with respect to which such default shall occur exceeds 10% of the
Firm Shares or Option Shares, as the case may be, covered hereby, the
Company or you as the Representatives of the Underwriters will have the
right, by written notice given within the next 36-hour period to the
parties to this Agreement, to terminate this Agreement without liability on
the part of the non-defaulting Underwriters or of the Company except to the
extent provided in Section 8 hereof. In the event of a default by any
Underwriter or Underwriters, as set forth in this Section 9, the Closing
Date or Option Closing Date, as the case may be, may be postponed for such
period, not exceeding seven days, as you, as Representatives, may determine
in order that the required changes in the Registration Statement or in the
Prospectus or in any other documents or arrangements may be effected. The
term "Underwriter" includes any person substituted for a defaulting
Underwriter. Any action taken under this Section 9 shall not relieve any
defaulting Underwriter from liability in respect of any default of such
Underwriter under this Agreement.
26
<PAGE>
10. Notices.
-------
All communications hereunder shall be in writing and, except as
otherwise provided herein, will be mailed, delivered, telecopied or
telegraphed and confirmed as follows: if to the Underwriters, to Alex.
Brown & Sons Incorporated, 135 East Baltimore Street, Baltimore, Maryland
21202, Attention: Phillip A. Clough; with a copy to Alex. Brown & Sons
Incorporated, 135 East Baltimore Street, Baltimore, Maryland 21202.
Attention: General Counsel; if to the Company, to Production Group
International, Inc., 2200 Wilson Boulevard, Arlington, VA 22201,
Attention: President.
11. Termination.
-----------
This Agreement may be terminated by you by notice to the Company as
follows:
(a) at any time prior to the earlier of (i) the time the Shares are
released by you for sale by notice to the Underwriters, or (ii) 11:30 a.m.
on the first business day following the date of this Agreement;
(b) at any time prior to the Closing Date if any of the following has
occurred: (i) since the respective dates as of which information is given
in the Registration Statement and the Prospectus, any material adverse
change or any development involving a prospective material adverse change
in or affecting the condition, financial or otherwise, of the Company and
its Subsidiaries taken as a whole or the earnings, business, management,
properties, assets, rights, operations, condition (financial or otherwise)
or prospects of the Company and its Subsidiaries taken as a whole, whether
or not arising in the ordinary course of business, (ii) any outbreak or
escalation of hostilities or declaration of war or national emergency or
other national or international calamity or crisis or change in economic or
political conditions if the effect of such outbreak, escalation,
declaration, emergency, calamity, crisis or change on the financial markets
of the United States would, in your reasonable judgment, make it
impracticable to market the Shares or to enforce contracts for the sale of
the Shares, or (iii) suspension of trading in securities generally on the
New York Stock Exchange or the American Stock Exchange or limitation on
prices (other than limitations on hours or numbers of days of trading) for
securities on either such Exchange, (iv) the enactment, publication, decree
or other promulgation of any statute, regulation, rule or order of any
court or other governmental authority which in your opinion
27
<PAGE>
materially and adversely affects or may materially and adversely affect the
business or operations of the Company, (v) declaration of a banking
moratorium by United States or New York State authorities, (vi) any
downgrading in the rating of the Company's debt securities by any
"nationally recognized statistical rating organization" (as defined for
purposes of Rule 436(g) under the Exchange Act); (vii) the suspension of
trading of the Company's common stock by the Commission on the NASDAQ Stock
Market or (viii) the taking of any action by any governmental body or
agency in respect of its monetary or fiscal affairs which in your
reasonable opinion has a material adverse effect on the securities markets
in the United States; or
(c) as provided in Sections 6 and 9 of this Agreement.
12. Successors.
----------
This Agreement has been and is made solely for the benefit of the
Underwriters and the Company and their respective successors, executors,
administrators, heirs and assigns, and the officers, directors and
controlling persons referred to herein, and no other person will have any
right or obligation hereunder. No purchaser of any of the Shares from any
Underwriter shall be deemed a successor or assign merely because of such
purchase.
13. Information Provided by Underwriters.
------------------------------------
The Company and the Underwriters acknowledge and agree that the only
information furnished or to be furnished by any Underwriter to the Company
for inclusion in any Prospectus or the Registration Statement consists of
the information set forth in the last paragraph on the front cover page
(insofar as such information relates to the Underwriters), legends required
by Item 502(d) of Regulation S-K under the Act and the information under
the caption "Underwriting" in the Prospectus.
14. Miscellaneous.
-------------
The reimbursement, indemnification and contribution agreements
contained in this Agreement and the representations, warranties and
covenants in this Agreement shall remain in full force and effect
regardless of (a) any termination of this Agreement, (b) any
investigation made by or on behalf of any Underwriter or controlling person
thereof, or by or on behalf of
28
<PAGE>
the Company or its directors or officers and (c) delivery of and payment
for the Shares under this Agreement.
This Agreement may be executed in two or more counterparts, each of
which shall be deemed an original, but all of which together shall
constitute one and the same instrument.
This Agreement shall be governed by, and construed in accordance with,
the laws of the State of Maryland.
If the foregoing letter is in accordance with your understanding of
our agreement, please sign and return to us the enclosed duplicates hereof,
whereupon it will become a binding agreement among the Company and the
several Underwriters in accordance with its terms.
Very truly yours,
PRODUCTION GROUP INTERNATIONAL, INC.
By: ____________________________________
President
29
<PAGE>
The foregoing Underwriting Agreement
is hereby confirmed and accepted as
of the date first above written.
ALEX. BROWN & SONS INCORPORATED
MONTGOMERY SECURITIES
ROBERTSON, STEPHENS & COMPANY
As Representatives of the several
Underwriters listed on Schedule I
By: Alex. Brown & Sons Incorporated
By: ____________________________________
Authorized Officer
30
<PAGE>
SCHEDULE I
Schedule of Underwriters
Number of Firm Shares
Underwriter to be Purchased
----------- -------------------
Alex. Brown & Sons Incorporated
Montgomery Securities
Robertson, Stephens & Company
__________
Total __________
31
<PAGE>
Exhibit 3.1
CERTIFICATE OF INCORPORATION
OF
Production Group International, INC.
FIRST: Name. The name of the corporation is Production Group
----
International, Inc.
SECOND: Registered Office and Agent. The address of the Corporation's
---------------------------
registered office in the State of Delaware is Corporation Trust Center, 1209
Orange Street, in the City of Wilmington, County of New Castle. The name of the
Corporation's registered agent at such address is The Corporation Trust Company.
THIRD: Purpose. The nature of the business or purposes to be conducted
-------
or promoted by the Corporation is as follows:
To engage in any lawful act or activity for which corporations may be
organized under the General Corporation Law of Delaware and to possess and
exercise all of the powers and privileges granted under such law and the
other laws of the State of Delaware.
FOURTH: Capital Stock.
-------------
(A) Authorized Capital. The total number of shares of capital stock
------------------
which the Corporation shall have authority to issue is Forty Million Five
Hundred Twenty-Three Thousand One Hundred and Fifty-Five (40,523,155) shares, of
which (i) Thirty Million (30,000,000) shares shall be Common Stock, $.01 par
value per share, and (ii) Ten Million Five Hundred Twenty-Three Thousand One
Hundred and Fifty-Five (10,523,155) shares shall be Preferred Stock, $.01 par
value per share.
(B) Rights, Preferences and Restrictions of Preferred Stock.
-------------------------------------------------------
The Preferred Stock authorized by this Certificate of Incorporation may be
issued from time to time in series. The rights, preferences, privileges, and
restrictions granted to and imposed on the Series A Preferred Stock (the "Series
A Stock"), which series shall consist of 600,000 shares, on the Series B
Preferred Stock (the "Series B Stock"), which series shall consist of 400,000
shares, on the Series C Preferred Stock (the "Series C Stock"), which series
shall consist of 1,350,000 shares, on the Series D Preferred Stock (the "Series
D Stock") which Series shall consist of 1,600,000, and on the Series E Preferred
Stock (the "Series E Stock"), which series shall consist of 1,796,407 shares are
as set forth below in this Division (B) of Article FOURTH. Except as to the
Series A Stock, the Series B Stock, the Series C Stock, the Series D Stock, and
the Series E Stock, and except as otherwise provided in this Certificate of
Incorporation, the Board of Directors is hereby authorized, subject to
limitations prescribed by the Delaware General Corporation Law (the "DGCL") and
the provisions of this Certificate of Incorporation, for the issuance from time
to time of additional shares of Preferred Stock in one or more series, to
establish from time to time the number of shares to be included in each such
series, and to fix the designation, powers,
<PAGE>
preferences and other rights of the shares of each such series and to fix the
qualifications, limitations and restrictions thereon, including, but without
limiting the generality of the foregoing, the following:
(a) the number of shares constituting that series and the
distinctive designation of that series;
(b) the dividend rate on the shares of that series, whether
dividends shall be cumulative, and, if so, from which date or dates, and
the relative rights of priority, if any, of payment of dividends on shares
of that series;
(c) whether that series shall have voting rights, in addition to
the voting rights provided by law, and, if so, the terms of such voting
rights;
(d) whether that series shall have conversion privileges, and, if
so, the terms and conditions of such conversion, including provision for
adjustment of the conversion rate in such events as the Board of Directors
shall determine;
(e) whether or not the shares of that series shall be redeemable,
and, if so, the terms and conditions of such redemption, including the
dates upon or after which they shall be redeemable, and the amount per
share payable in case of redemption, which amount may vary under different
conditions and at different redemption rates;
(f) whether that series shall have a sinking fund for the
redemption or purchase of shares of that series, and, if so, the terms and
amount of such sinking fund;
(g) the rights of the shares of that series in the event of
voluntary or involuntary liquidation, dissolution or winding up of the
Corporation, and the relative rights of priority, if any, of payment of
shares of that series; and
(h) any other relative powers, preferences, and rights of that
series, and qualifications, limitations or restrictions on that series.
Subject to compliance with applicable Protective Provisions set forth
in 7 below, the Board of Directors is also authorized to increase or decrease
the number of shares of any series (other than the Series A Stock, the Series B
Stock, the Series C Stock, the Series D Stock, and the Series E Stock), prior or
subsequent to the issue of that series, but not below the number of shares of
such series then outstanding. In case the number of shares of any series shall
be so decreased, the shares constituting such decrease shall resume the status
which they had prior to the adoption of the resolution originally fixing the
number of shares of such series.
1. Dividend Provisions. Subject to the rights of series of
-------------------
Preferred Stock which may from time to time come into existence, the holders of
the Series A Stock, the Series C Stock, the Series D Stock, and the Series E
Stock shall be entitled to receive dividends, out of any assets legally
available therefor, prior and in preference to any declaration or payment of any
-2-
<PAGE>
dividend (payable other than in Common Stock or other nonredeemable equity
securities and rights convertible into or entitling the holder thereof to
receive, directly or indirectly, additional shares of Common Stock of the
Corporation) on the Common Stock of the Corporation, at the per share rate of
$.08, $0.26, $0.70 and $0.835 per annum, respectively, or, if greater (as
determined on a per annum basis and on an as converted basis for the Preferred
Stock), an amount equal to that paid on any other outstanding shares of the
Corporation, payable quarterly when, as and if declared by the Board of
Directors. Subject to the prior rights of holders of all classes of stock at the
time outstanding having prior rights as to dividends, the holders of Series B
Stock shall be entitled to receive, when and as declared by the Board of
Directors, out of any assets of the Corporation legally available therefor, such
dividends as may be declared from time to time by the Board of Directors. The
right to such dividends on shares of the Series A Stock, the Series B Stock, the
Series C Stock, the Series D Stock, or the Series E Stock shall not be
cumulative and no right shall accrue to holders of shares of the Series A Stock,
the Series B Stock, the Series C Stock, the Series D Stock, or the Series E
Stock by reason of the fact that dividends on said shares are not declared in
any prior year, nor shall any undeclared or unpaid dividend bear or accrue
interest.
2. Liquidation Preference.
----------------------
(a) In the event of any liquidation, dissolution or winding up
of the Corporation, either voluntary or involuntary, subject to the rights of
series of Preferred Stock which may from time to time come into existence:
(i) The holders of the Series E Stock shall be entitled
to receive, prior and in preference to any distribution of any of the assets of
the Corporation to the holders of Series A Stock, Series C Stock, Series B
Stock, Series D Stock, or Common Stock by reason of their ownership thereof, an
amount per share equal to $8.35 for each outstanding share of Series E Stock
held by each such holder (the "Original Series E Issue Price") plus any declared
but unpaid dividends on such stock. If, upon the occurrence of such event, the
assets and funds thus distributed among the holders of the Series E Stock shall
be insufficient to permit the payments to such holders of the full aforesaid
preferential amount, then, subject to the rights of series of Preferred Stock
which may from time to time come into existence, the entire assets and funds of
the Corporation legally available for distribution shall be distributed ratably
among the holders of the Series E Stock in proportion to the amount of such
stock owned by each such holder.
(ii) Upon the completion of the distribution required by
subsection a(i) of this Section 2, and subject to the rights of series of
Preferred Stock which may come into existence, the holders of the Series D Stock
shall be entitled to receive, prior and in preference to any distribution of any
of the assets of the Corporation to the holders of Series A Stock, Series C
Stock, Series B Stock, or Common Stock by reason of their ownership thereof, an
amount per share equal to $7.00 for each outstanding share of Series D Stock
held by each such holder (the "Original Series D Issue Price") plus any declared
but unpaid dividends on such stock. If, upon the occurrence of such event, the
assets and funds thus distributed among the
-3-
<PAGE>
holders of the Series D Stock shall be insufficient to permit the payments to
such holders of the full aforesaid preferential amount, then, subject to the
rights of series of Preferred Stock which may from time to time come into
existence, the entire assets and funds of the Corporation legally available for
distribution shall be distributed ratably among the holders of the Series D
Stock in proportion to the amount of such stock owned by each such holder.
(iii) Upon the completion of the distribution required
by subsections (a)(i) and (ii) of this Section 2, and subject to the rights of
series of Preferred Stock which may from time to time come into existence, the
holders of the Series A Stock and Series C Stock shall be entitled to receive,
prior and in preference to any distribution of any of the assets of the
Corporation to the holders of Series B Stock, or Common Stock by reason of their
ownership thereof, an amount per share equal to $.84 and $2.60 for each
outstanding share of Series A Stock and Series C Stock, respectively, held by
each such holder (the "Original Series A Issue Price" and "Original Series C
Issue Price", respectively) plus any declared but unpaid dividends on such
stock. If, upon the occurrence of such event, the assets and funds thus
distributed among the holders of the Series A Stock and Series C Stock shall be
insufficient to permit the payments to such holders of the full aforesaid
preferential amount, then, subject to the rights of series of Preferred Stock
which may from time to time come into existence, the entire assets and funds of
the Corporation legally available for distribution upon completion of the
distribution required by subsection (a)(i) and (ii) of this Section 2 shall be
distributed ratably among the holders of the Series A Stock and Series C Stock
in proportion to the aggregate liquidation preference to which each such holder
is entitled.
(iv) Upon the completion of the distribution required by
subsections (a)(i), (ii) and (iii) of this Section 2, and subject to the rights
of series of Preferred Stock which may from time to time come into existence,
the holders of the Series B Stock shall be entitled to receive, prior and in
preference to any distribution of any of the assets of the Corporation to the
holders of Common Stock by reason of their ownership thereof, an amount per
share equal to the price paid for a share of Series B Stock pursuant to the
terms of the agreement by which the shares of Series B Stock were first issued
(the "Original Series B Issue Price") for each share of Series B Stock held by
each such holder plus any declared but unpaid dividends on the Series B Stock.
If upon the occurrence of such event, the assets and funds thus distributed
among the holders of the Series B Stock shall be insufficient to permit the
payment to such holders of the full aforesaid preferential amounts, then,
subject to the rights of series of Preferred Stock which may from time to time
come into existence, the entire assets and funds of the Corporation legally
available for distribution upon completion of the distribution required by
subsections (a)(i), (ii) and (iii) of this Section 2 shall be distributed
ratably among the holders of the Series B Stock in proportion to the amount of
such stock owned by each such holder.
(v) Upon the completion of the distributions required by
subsections (a)(i), (a)(ii), (a)(iii) and (a)(iv) of this Section 2, and subject
to the rights of series of Preferred Stock which may from time to time come into
existence, the holders of the Common Stock of the Corporation shall receive all
of the remaining assets of the Corporation.
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<PAGE>
(b) A consolidation or merger of the Corporation with or into
any other corporation or corporations (other than a merger of the Corporation
into its wholly-owned subsidiary) which results in the Corporation's
stockholders immediately prior to such transaction not holding at least 20% of
the voting power of the surviving or continuing entity, or a sale, conveyance or
disposition of all or substantially all of the assets of the Corporation or the
effectuation by the Corporation of a transaction or series of related
transactions in which more than 80% of the voting power of the Corporation is
disposed of, shall be deemed to be a liquidation, dissolution or winding up
within the meaning of this Section 2, with additional implementing provisions as
specified in Section 5.
3. Redemption. The Preferred Stock is not redeemable.
----------
4. Conversion. The holders of the Series A Stock, the
----------
Series B Stock, the Series C Stock, the Series D, and the Series E Stock shall
have conversion rights (the "Conversion Rights") as follows:
(a) Right to Convert.
----------------
(i) Each share of Series A Stock, Series B Stock, Series
C Stock, Series D Stock, and Series E Stock shall be convertible, at the option
of the holder thereof, at any time after the date of issuance of such share at
the office of the Corporation or any transfer agent for the Series A Stock, the
Series B Stock, the Series C Stock, the Series D Stock, or the Series E Stock,
respectively, into such number of fully paid and nonassessable shares of Common
Stock equal to the quotient determined by dividing the Initial Conversion Price
(as hereinafter defined) for such share of Preferred Stock by the respective
Conversion Price (as hereinafter defined) for such share in effect at the time
of conversion.
(ii) Each share of Series A Stock, Series B Stock, Series
C Stock, Series D Stock, and Series E Stock shall automatically be converted
into shares of Common Stock at the Conversion Price then in effect for such
series of Preferred Stock immediately upon the consummation of the Corporation's
sale of its Common Stock in a bona fide, firm commitment underwriting pursuant
to a registration statement on Form S-1 under the Securities Act of 1933, as
amended, the public offering price of which is not less than $15.00 per share
(appropriately adjusted to reflect subsequent stock dividends, stock splits, or
recapitalizations) and $12,000,000 in the aggregate.
All certificates evidencing shares of Series A Stock,
Series B Stock, Series C Stock, Series D Stock, and Series E Stock which are
required to be surrendered for automatic conversion in accordance with the
foregoing provision shall, from and after the date such certificates are so
required to be surrendered, be deemed to have been retired and cancelled and the
shares of the Series A Stock, Series B Stock, Series C Stock, Series D Stock,
and Series E Stock represented thereby converted into Common Stock for all
purposes, notwithstanding the failure of the holder or holders thereof to
surrender such certificates on or prior to such date.
-5-
<PAGE>
(b) Conversion Price. As used in this Article FOURTH, the
----------------
term "Conversion Price" shall mean, for each share of Series A Stock, Series B
Stock, Series C Stock, Series D Stock, and Series E Stock, the Initial
Conversion Price as adjusted from time to time pursuant to the provisions of
this Section 4, and the term "Initial Conversion Price" shall mean, for each
share of Series A Stock, $.84 per share, for each share of Series B Stock, the
Original Series B Issue Price per share, for each share of Series C Stock, $2.60
per share, for each share of Series D Stock, $7.00 per share, and for each share
of Series E Stock, $8.35 per share.
(c) Mechanics of Conversion. Before any holder of the Series
-----------------------
A Stock, the Series B Stock, the Series C Stock, the Series D Stock, or the
Series E Stock shall be entitled to convert the same into shares of Common
Stock, such holder shall surrender the certificate or certificates therefor,
duly endorsed, at the office of the Corporation or of any transfer agent for
such holder, and shall give written notice by mail, postage prepaid, to the
Corporation at its principal corporate office, of the election to convert the
same and shall state therein the name or names in which the certificate or
certificates for shares of Common Stock are to be issued. The Corporation shall,
as soon as practicable thereafter, issue and deliver at such office to such
holder, or to the nominee or nominees of such holder, a certificate or
certificates for the number of shares of Common Stock to which such holder shall
be entitled as aforesaid. Such conversion shall be deemed to have been made
immediately prior to the close of business on the date of such surrender of the
shares of such holder to be converted, and the person or persons entitled to
receive the shares of Common Stock issuable upon such conversion shall be
treated for all purposes as the record holder or holders of such shares of
Common Stock as of such date. If the conversion is in connection with an
underwritten offer of securities registered pursuant to the Securities Act of
1933, as amended, the conversion may, at the option of any holder tendering
shares of Series A Stock, Series B Stock, Series C Stock, Series D Stock, or
Series E Stock for conversion, be conditioned upon the closing with the
underwriter of the sale of securities pursuant to such offering, in which event
the person(s) entitled to receive the Common Stock issuable upon such conversion
of such shares of Series A Stock, Series B Stock, Series C Stock, Series D
Stock, or Series E Stock shall not be deemed to have converted such Preferred
Stock until immediately prior to the closing of such sale of securities.
(d) Conversion Price Adjustments for Series A Stock, Series
-------------------------------------------------------
B Stock, Series C Stock, Series D Stock and Series E Stock. The respective
- ----------------------------------------------------------
Conversion Price for the Series A Stock, the Series B Stock, the Series C Stock,
the Series D Stock, and the Series E Stock shall be subject to adjustment from
time to time as follows:
(i) (A) If the corporation shall issue any Additional Stock
(as defined below) without consideration or for a consideration per share less
than the applicable Conversion Price for the Series A Stock, the Series B Stock,
the Series C Stock, the Series D Stock, or the Series E Stock in effect
immediately prior to the issuance of such Additional Stock, the respective
Conversion Price for the Series A Stock, Series B Stock, Series C Stock, Series
D Stock, or Series E Stock, as applicable, in effect immediately prior to each
such issuance shall forthwith (except as otherwise provided in this clause (i))
be adjusted to a price equal to the
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<PAGE>
quotient obtained by dividing the total computed under clause (x) below by the
total computed under clause (y) below as follows:
(x) an amount equal to the sum of
(1) the aggregate purchase price of all
shares of Series A Stock, Series B Stock, Series C Stock,
Series D Stock, or Series E Stock, as applicable, sold
pursuant to the agreement to which shares of Series A
Stock, Series B Stock, Series C Stock, Series D Stock, or
Series E Stock, as applicable, are first issued (the
"Series A Stock Purchase Agreement," the "Series B Stock
Purchase Agreement," the "Series C Stock Purchase
Agreement," the "Series D Stock Purchase Agreement," or the
"Series E Stock Purchase Agreement," as applicable), plus
(2) the aggregate consideration, if
any, received by the Corporation for all Additional Stock
issued on or after the date of the Series A Stock Purchase
Agreement (the "Series A Purchase Date"), the Series B
Stock Purchase Agreement (the "Series B Purchase Date"),
the Series C Stock Purchase Agreement (the "Series C
Purchase Date"), the Series D Stock Purchase Agreement (the
"Series D Purchase Date"), or the Series E Stock Purchase
Agreement (the "Series E Purchase Date"), as applicable,
other than shares of Common Stock issued or issuable upon
conversion of such series of Preferred Stock:
(y) an amount equal to the sum of
(1) the aggregate purchase price of the
shares of Series A Stock sold pursuant to the Series A
Stock Purchase Agreement, shares of Series B Stock sold
pursuant to the Series B Stock Purchase Agreement, shares
of Series C Stock sold pursuant to the Series C Stock
Purchase Agreement, shares of Series D Stock, or shares of
Series E Stock sold pursuant to the Series E Stock Purchase
Agreement, as applicable, divided by the Conversion Price
for such shares of Series A Stock in effect at the Series A
Purchase Date, Series B Stock in effect at the Series B
Purchase Date, Series C Stock in effect at the Series C
Purchase Date, Series D Stock in effect at the Series D
Purchase Date, or Series E Stock in effect at the Series E
Purchase Date, as applicable (or such higher or lower
Conversion Price for the Series A Stock, Series B Stock,
Series C Stock, Series D Stock, or Series E Stock, as
applicable, as results from the application of subsections
4(d)(iii) and (iv) and assuming that these Articles there
in effect as of the Series A Purchase Date, Series B
Purchase Date, Series C Purchase Date, Series D Purchase
Date, or Series E Purchase Date, as applicable), plus
-7-
<PAGE>
(2) the number of shares of Additional
Stock issued since the Series A Purchase Date, Series B
Purchase Date, Series C Purchase Date, Series D Purchase
Date, or Series E Purchase Date, as applicable (increased
or decreased to the extent that the number of such shares
of Additional Stock shall have been increased or decreased
as the result of the application of subsections 4(d)(iii)
and (iv) hereof).
(B) No adjustment of the respective
Conversion Price for the Series A Stock, Series B Stock, the Series C Stock,
Series D Stock, or Series E Stock shall be made in an amount less than one cent
per share, provided that any adjustments which are not required to be made by
reason of this sentence shall be carried forward and shall be either taken into
account in any subsequent adjustment made prior to 3 years from the date of the
event giving rise to the adjustment being carried forward, or shall be made at
the end of 3 years from the date of the event giving rise to the adjustment
being carried forward. Except to the limited extent provided for in subsections
(E)(3) and (E)(4), no adjustment of such Conversion Price pursuant to this
subsection 4(d)(i) shall have the effect of increasing the Conversion Price
above the Conversion Price in effect immediately prior to such adjustment.
(C) In the case of the issuance of Common
Stock for cash, the consideration shall be deemed to be the amount of cash paid
therefor before deducting any reasonable discounts, commissions or other
expenses allowed, paid or incurred by the Corporation for any underwriting or
otherwise in connection with the issuance and sale thereof.
(D) In the case of the issuance of Common
Stock for a consideration in whole or in part other than cash, the consideration
other than cash shall be deemed to be the fair value thereof as determined by
the Board of Directors irrespective of any accounting treatment.
(E) In the case of the issuance (whether
before, on, or after the Series A Purchase Date, Series B Purchase Date, Series
C Purchase Date, Series D Purchase Date, or Series E Purchase Date, as
applicable) of options to purchase or rights to subscribe for Common Stock,
securities by their terms convertible into or exchangeable for Common Stock, or
options to purchase or rights to subscribe for such convertible or exchangeable
securities, the following provisions shall apply for all purposes of this
subsection 4(d)(i) and subsection 4(d)(ii) below:
1. The aggregate maximum number of
shares of Common Stock deliverable upon exercise of such options
to purchase or rights to subscribe for Common Stock shall be
deemed to have been issued at the time such options or rights
were issued and for a consideration equal to the consideration
(determined in the manner provided in subsections 4(d)(i)(C) and
(d)(i)(D)), if any, received by the corporation upon the issuance
of such options or rights plus the minimum exercise price
provided in such options or rights for the Common Stock covered
thereby.
-8-
<PAGE>
2. The aggregate maximum number of
shares of Common Stock deliverable upon conversion of or in
exchange for any such convertible or exchangeable securities, or
upon the exercise of options to purchase or rights to subscribe
for such convertible or exchangeable securities and subsequent
conversion or exchange thereof shall be deemed to have been
issued at the time such securities were issued or such options or
rights were issued and for a consideration equal to the
consideration, if any, received by the corporation for any such
securities and related options or rights (excluding any cash
received on account of accrued interest or accrued dividends),
plus the additional consideration, if any, to be received by the
corporation upon the conversion or exchange of such securities or
the exercise of any related options or rights (the consideration
in each case to be determined in the manner provided in
subsections 4(d)(i)(C) and (d)(i)(D)).
3. In the event of any change in the
number of shares of Common Stock deliverable or in the
consideration payable to the Corporation upon exercise of such
options or rights, or upon conversion of or in exchange for such
convertible or exchangeable securities, including, but not
limited to, a change resulting from the antidilution provisions
thereof, the respective Conversion Price of the Series A Stock,
the Series B Stock, the Series C Stock, the Series D Stock, or
the Series E Stock, to the extent in any way affected by or
computed using such options, rights or securities, shall be
recomputed to reflect such change, but no further adjustment
shall be made for the actual issuance of Common Stock or any
payment of such consideration upon the exercise of any such
options or rights or the conversion or exchange of such
securities.
4. Upon the expiration of any such
options or rights, the termination of any such rights to convert
or exchange or the expiration of any options or rights related to
such convertible or exchangeable securities, the respective
Conversion Price of the Series A Stock, the Series B Stock, the
Series C Stock, the Series D Stock, or the Series E Stock, to the
extent in any way affected by or computed using such options,
rights or securities or options or rights related to such
securities, shall be recomputed to reflect the issuance of only
the number of shares of Common Stock (and convertible or
exchangeable securities which remain in effect) actually issued
upon the exercise of such options or rights, upon the conversion
or exchange of such securities or upon the exercise of the
options or rights related to such securities.
5. The number of shares of Common
Stock deemed issued and the consideration deemed paid therefor
pursuant to subsections 4(d)(i)(E)(1) and (2) shall be
appropriately adjusted to reflect any change, termination or
expiration of the type described in either subsection
4(d)(i)(E)(3) or (4).
-9-
<PAGE>
(ii) "Additional Stock" shall mean any shares
of Common Stock issued (or deemed to have been issued pursuant to subsection
4(d)(i)(E)) by the Corporation after the Series A Purchase Date, the Series B
Purchase Date, the Series C Purchase Date, the Series D Purchase Date, or the
Series E Purchase Date, as applicable, other than
(A) shares of Common Stock issued
pursuant to a transaction described in subsection 4(d)(iii)
hereof, or
(B) shares of Common Stock issuable or
issued to employees, directors or consultants of the
Corporation directly or pursuant to a stock benefit plan
approved by the Board of Directors of the Corporation, so
long as the total number of such shares so issued since the
date of inception of the Corporation does not exceed
1,261,000 (net of repurchased shares and canceled options),
or
(C) shares of Common Stock issued upon
conversion of the Series A Stock, Series B Stock, Series C
Stock, Series D Stock, or Series E Stock.
(iii) In the event the Corporation should at
any time or from time to time after the Series E Purchase Date fix a record date
for the effectuation of a split or subdivision of the outstanding shares of
Common Stock or the determination of holders of Common Stock entitled to receive
a dividend or other distribution payable in additional shares of Common Stock or
other securities or rights convertible into, or entitling the holder thereof to
receive directly or indirectly, additional shares of Common Stock (hereinafter
referred to as "Common Stock Equivalents") without payment of any consideration
by such holder for the additional shares of Common Stock or the Common Stock
Equivalents (including the additional shares of Common Stock issuable upon
conversion or exercise thereof), then, as of such record date (or the date of
such dividend distribution, split or subdivision if no record date is fixed),
the respective Conversion Price for the Series A Stock, Series B Stock, Series C
Stock, Series D Stock, and Series E Stock shall be appropriately decreased so
that the number of shares of Common Stock issuable upon conversion of each share
of such series shall be increased in proportion to such increase of the
aggregate of shares of Common Stock outstanding and those issuable with respect
to such Common Stock Equivalents.
(iv) If the number of shares of Common Stock
outstanding at any time after the Series E Purchase Date is decreased by a
combination of the outstanding shares of Common Stock, then, following the
Record date of such combination, the respective Conversion Price for the Series
A Stock, Series B Stock, Series C Stock, Series D Stock, and Series E Stock
shall be appropriately increased so that the number of shares of Common Stock
issuable on conversion of each share of such series shall be decreased in
proportion to such decrease in outstanding shares.
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<PAGE>
(e) Other Distributions. In the event the Corporation shall
-------------------
declare a distribution payable in securities of other persons, evidences of
indebtedness issued by the Corporation or other persons, assets (excluding cash
dividends) then, in each such case for the purpose of this subsection 4(e), the
holders of the Series A Stock, Series B Stock, Series C Stock, Series D Stock,
and Series E Stock shall be entitled to a proportionate share of any such
distribution as though they were the holders of the number of shares of Common
Stock of the corporation into which their shares of Preferred Stock are
convertible as of the record date fixed for the determination of the holders of
Common Stock of the corporation entitled to receive such distribution.
(f) Recapitalizations. If at any time or from time to time
-----------------
there shall be a recapitalization of the Common Stock (other than a subdivision,
combination or merger, or sale of assets transaction provided for elsewhere in
this Section 4 or Section 5), provision shall be made so that the holders of the
Series A Stock, the holders of the Series B Stock, the holders of the Series C
Stock, the holders of the Series D Stock, and the holders of the Series E Stock
shall thereafter be entitled to receive, upon conversion of such Preferred
Stock, the number of shares of stock or other securities or property of the
corporation or otherwise, to which a holder of Common Stock deliverable upon
conversion would have been entitled on such recapitalization. In any such case,
an appropriate adjustment shall be made in the application of the provisions of
this Section 4 with respect to the rights of the holders of the Series A Stock,
the holders of the Series B Stock, the holders of the Series C Stock, the
holders of the Series D Stock, and the holders of the Series E Stock after the
recapitalization to the end that the provisions of this Section 4 (including
adjustment of the Conversion Price then in effect and the number of shares
purchasable upon conversion of the Preferred Stock) shall be applicable after
that event as nearly equivalent as may be practicable.
(g) No Impairment. The Corporation will not, by amendment of
-------------
its Certificate of Incorporation or through any reorganization,
recapitalization, transfer of assets, consolidation, merger, dissolution, issue
or sale of securities, or any other voluntary action, avoid or seek to avoid the
observance or performance of any of the terms to be observed or performed
hereunder by the Corporation, but will at all times in good faith assist in the
carrying out of all the provisions of this Section 4 and in the taking of all
such action as may be necessary or appropriate in order to protect the
Conversion Rights of the holders of the Series A Stock, the holders of the
Series B Stock, the holders of the Series C Stock, the holders of the Series D
Stock, and the holders of Series E Stock against impairment.
(h) No Fractional Shares and Certificate as to Adjustments.
------------------------------------------------------
(i) No fractional shares shall be issued upon conversion
of the Series A Stock, Series B Stock, Series C Stock, Series D Stock, or Series
E Stock, and the number of shares of Common Stock to be issued shall be rounded
to the nearest whole share. Such rounding shall be based on the total number of
shares of Series A Stock, Series B Stock, Series C Stock, Series D Stock, or
Series E Stock such respective holder is at the time converting
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<PAGE>
into Common Stock and the number of shares of Common Stock issuable upon such
aggregate conversion.
(ii) Upon the occurrence of each adjustment or
readjustment of the respective Conversion Price of the Series A Stock, Series B
Stock, Series C Stock, Series D Stock, or Series E Stock pursuant to this
Section 4, the Corporation, at its expense, shall promptly compute such
adjustment or readjustment in accordance with the terms hereof and prepare and
furnish to each holder of such Preferred Stock a certificate setting forth such
adjustment or readjustment, and showing in detail the facts upon which such
adjustment or readjustment is based. The Corporation shall, upon the written,
reasonable request of any holder of Preferred Stock, furnish or cause to be
furnished to such holder a like certificate setting forth (A) such adjustment
and readjustment, (B) the Conversion Price at the time in effect, and (C) the
number of shares of Common Stock and the amount, if any, of other property which
at the time would be received upon the conversion of a share of such Preferred
Stock.
(i) Notices of Record Date. In the event of any taking by
----------------------
the Corporation of a record of the holders of any class of securities for the
purpose of determining the holders thereof who are entitled to receive any
dividend (other than a cash dividend) or other distribution, any right to
subscribe for, purchase or otherwise acquire any shares of stock of any class or
any other securities or property, or to receive any other right, the Corporation
shall mail to each holder of Preferred Stock, at least 20 days prior to the date
specified therein, a notice specifying the date on which any such record is to
be taken for the purpose of such dividend, distribution or right, and the amount
and character of such dividend, distribution or right.
(j) Reservation of Stock Issuable Upon Conversion. The
---------------------------------------------
Corporation shall at all times reserve and keep available out of its authorized
but unissued shares of Common Stock solely for the purpose of effecting the
conversion of the shares of the Series A Stock, Series B Stock, Series C Stock,
Series D Stock, and Series E Stock such number of its shares of Common Stock as
shall from time to time be sufficient to effect the conversion of all
outstanding shares of the Series A Stock, Series B Stock, Series C Stock, Series
D Stock, and Series E Stock; and if at any time the number of authorized but
unissued shares of Common Stock shall not be sufficient to effect the conversion
of all then outstanding shares of the Series A Stock, Series B Stock, Series C
Stock, Series D Stock, and Series E Stock, in addition to such other remedies as
shall be available to the holder of such Preferred Stock, the Corporation will
take such corporate action as may, in the opinion of its counsel, be necessary
to increase its authorized but unissued shares of Common Stock to such number of
shares as shall be sufficient for such purposes.
(k) Notices. Any notice required by the provisions of this
-------
Section 4 to be given to the holders of shares of Preferred Stock shall be
deemed given if deposited in the United States mail, postage prepaid, and
addressed to each holder of record at such holder's address appearing on the
books of the Corporation.
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5. Merger, Consolidation.
---------------------
(a) At any time, in the event of:
(i) any transaction or series of related transactions
effectuated by the corporation (including, without limitation, any
reorganization, merger or consolidation) which will result in the corporation's
shareholders immediately prior to such transaction not holding (by virtue of
such shares or securities issued solely with respect thereto) at least 20% of
the voting power of the surviving or continuing entity, or
(ii) a sale of all or substantially all of the assets of
the corporation, unless the corporation's shareholders immediately prior to such
sale will, as a result of such sale, hold (by virtue of securities issued as
consideration for the corporation's sale) at least 20% of the voting power of
the purchasing entity, then, subject to the rights of series of Preferred Stock
which may from time to time come into existence, the proceeds of such
transaction shall be distributed as specified in Section 2 above as if such
transaction were a liquidation, dissolution or winding up of the Corporation.
(b) Any securities to be delivered to the holders of the
Preferred Stock pursuant to subsection 5(a) above shall be valued as follows:
(i) Securities not subject to investment letter or other
similar restrictions on free marketability:
(A) If traded on a securities exchange, the value
shall be deemed to be the average of the closing prices of the securities on
such exchange over the 30-day calendar period ending three (3) days prior to the
closing:
(B) If actively traded over-the-counter, the value
shall be deemed to be the average of the closing bid or sale prices (whichever
are applicable) over the 30-day calendar period ending three (3) days prior to
the closing; or
(C) If there is no active public market, the value
shall be the fair market value thereof, as mutually determined by the
corporation and the holders of Preferred Stock which would be entitled to
receive such securities or the same type of securities and which Preferred Stock
represents at least a majority of the voting power of all then outstanding
shares of such Preferred Stock.
(ii) The method of valuation of securities subject to
investment letter or other restrictions on free marketability shall be to make
an appropriate discount from the market value determined as above in (i) (A),
(B), or (C) to reflect the approximate fair market value thereof, as mutually
determined by the corporation and the holders of Preferred Stock which would be
entitled to receive such securities or the same type of securities and which
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<PAGE>
represent at least a majority of the voting power of all then outstanding shares
of such Preferred Stock.
(c) In the event the requirements of subsection 5(a) are not
complied with, the corporation shall forthwith either:
(i) cause such closing to be postponed until such time as
the requirements of this Section 5 have been complied with, or
(ii) cancel such transaction, in which event the rights,
preferences and privileges of the holders of Series A Stock, the holders of
Series B Stock, the holders of Series C Stock, the holders of Series D Stock,
and the holders of Series E Stock shall revert to and be the same as such
rights, preferences and privileges existing immediately prior to the date of the
first notice referred to in subsection 5(d) hereof.
(d) The Corporation shall give each holder of record of
Preferred Stock written notice of such impending transaction not later than
twenty (20) days prior to the shareholders' meeting called to approve such
transaction, or twenty (20) days prior to the closing of such transaction,
whichever is earlier, and shall also notify such holders in writing of the final
approval of such transaction. The first of such notices shall describe the
material terms and conditions of the impending transaction and the provisions of
this Section 5, and the corporation shall thereafter give such holders prompt
notice of any material changes. The transaction shall in no event take place
sooner than twenty (20) days after the corporation has given the first notice
provided for herein or sooner than ten (10) days after the corporation has given
notice of any material changes provided for herein: provided, however, that such
periods may be shortened upon the written consent of the holders of a majority
of the shares of Series A, Series B, Series C, Series D, and Series E Stock then
outstanding, voting together as a single class.
(e) The provisions of this Section 5 are in addition to the
protective provisions of Section 7 hereof.
6. Voting Rights. The holder of each share of Series A Stock,
-------------
Series B Stock, Series C Stock, Series D Stock, and Series E Stock shall have
the right to one vote for each share of Common Stock into which such Preferred
Stock could then be converted (with any fractional share determined on an
aggregate conversion basis being rounded to the nearest whole share), and with
respect to such vote, such holder shall have full voting rights and powers equal
to the voting rights and powers of the holders of Common Stock, and shall be
entitled, notwithstanding any provision hereof, to notice of any shareholders'
meeting in accordance with the By-Laws of the Corporation, and shall be entitled
to vote, together with holders of Common Stock, with respect to any question
upon which holders of Common Stock have the right to vote.
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<PAGE>
7. Protective Provisions.
---------------------
(a) Subject to the rights of series of Preferred Stock which
may from time to time come into existence, so long as any shares of Series A
Stock, Series B Stock, Series C Stock, Series D Stock, and Series E Stock are
outstanding, the Corporation shall not, without first obtaining the approval (by
vote or written consent, as provided by law) of the holders of at least a
majority of the voting power of the then outstanding shares of such Series A
Stock, Series B Stock, Series C Stock, Series D Stock, and Series E Stock,
voting together as a single class:
(i) authorize or issue, or obligate itself to issue, any
other equity security, including any other security convertible into or
exercisable for any equity security having a preference over, or being on a
parity with, the Series A Stock, the Series B Stock, the Series C Stock, the
Series D Stock, or the Series E Stock with respect to voting, dividends or upon
liquidation;
(ii) pay or declare any dividend on its Common Stock or
any other junior equity security other than a dividend in Common Stock of the
Corporation;
(iii) redeem, purchase or otherwise acquire (or pay into or
set aside for a sinking fund for such purpose) any of the Common Stock;
provided, however, that this restriction shall not apply to the repurchase of
shares of Common Stock from employees, officers, directors, consultants, or
other persons performing services for the Corporation or any subsidiary pursuant
to agreements under which the Corporation has the option to repurchase such
shares at cost or at cost plus interest upon the occurrence of certain events,
such as the termination of employment; provided, further, that this restriction
shall not apply to the repurchase of shares of Common Stock pursuant to the
Second Restated Investors' Rights Agreement between the Corporation and certain
of its stockholders dated on or about February 22, 1996;
(iv) sell, convey, or otherwise dispose of or encumber all
or substantially all of its property or business or merge into or consolidate
with any other corporation (other than a wholly owned subsidiary corporation) or
effect any transaction or series of related transactions in which more than 50%
of the voting power of the Corporation is disposed of;
(v) increase the authorized number of shares of Preferred
Stock; or
(vi) adversely alter or change the rights, preferences or
privileges of the shares of Series A Stock, Series B Stock, Series C Stock,
Series D Stock, or Series E Stock.
8. Status of Converted Stock. In the event any shares of Preferred
-------------------------
Stock shall be converted pursuant to Section 4 hereof, the shares so converted
shall be canceled and
-15-
<PAGE>
shall not be issuable by the Corporation, and the Certificate of Incorporation
of the Corporation shall be appropriately amended to effect the corresponding
reduction in the Corporation's authorized capital stock.
(C) Common Stock.
------------
(1) Dividend Rights. Subject to the prior rights of holders
---------------
of all classes of stock at the time outstanding having prior rights as to
dividends, the holders of the Common Stock shall be entitled to receive, when
and as declared by the Board of Directors, out of any assets of the corporation
legally available therefor, such dividends as may be declared from time to time
by the Board of Directors.
(2) Liquidation Rights. Upon the liquidation, dissolution,
------------------
or winding up of the corporation, the assets of the corporation shall be
distributed as provided in Section 2 of Division (B) of this Article FOURTH.
(3) Redemption. The Common Stock is not redeemable.
----------
(4) Voting Rights. The holder of each share of Common Stock
-------------
shall have the right to one vote, and shall be entitled to notice of any
shareholders' meeting in accordance with the By-Laws of the Corporation, and
shall be entitled to vote upon such matters and in such manner as may be
provided by law.
FIFTH: Board of Directors.
------------------
(A) General. Except as otherwise provided in this Certificate of
-------
Incorporation or a certificate of designation relating to the rights of the
holders of any series of Preferred Stock, voting separately by series, to elect
additional directors under specified circumstances, the number of directors of
the Corporation shall be as fixed from time to time by or pursuant to the By-
Laws of the Corporation (the "By-Laws"). No director of the Corporation (a
"Director") need be a stockholder.
(B) Classification. The Directors, other than those who may be
--------------
elected by the holders of any series of Preferred Stock voting separately by
series, shall be classified with respect to the time for which they severally
hold office into three separate classes, Class I, Class II and Class III, which
shall be as nearly equal in number as possible, and shall be adjusted from time
to time in the manner specified in the By-Laws of the Corporation to maintain
such proportionality. Each initial Director in Class I shall hold office for a
term expiring at the 1999 annual meeting of stockholders. Each initial Director
in Class II shall hold office initially for a term expiring at the 1998 annual
meeting of stockholders. Each initial Director in Class III shall hold office
for a term expiring at the 1997 annual meeting of stockholders. Notwithstanding
the foregoing provisions of this Article Fifth, each Director shall serve until
such Director's successor is duly elected and qualified or until such Director's
earlier death, resignation or removal. At each annual meeting of
-16-
<PAGE>
stockholders, the successors to the class of Directors whose term expires at
that meeting shall be elected to hold office for a term expiring at the annual
meeting of stockholders held in the third year following the year of their
election and until their successors have been duly elected and qualified or
until any such Director's earlier death, resignation or removal.
(C) Election, By-Laws. In furtherance of and not in limitation of
-----------------
powers conferred by statute, it is further provided:
(a) Election of Directors need not be by written ballot.
(b) The Board of Directors is expressly authorized to adopt,
amend, modify or repeal the By-Laws by the affirmative vote of a majority
of the directors then in office.
This Article FIFTH shall not be amended, modified or repealed in any
manner, directly or indirectly, except by the affirmative vote of the holders of
sixty-six and two-thirds percent (66 2/3%) or more of all votes entitled to be
cast.
SIXTH: Limitation on Liability. No Director of the Corporation shall be
-----------------------
personally liable to the Corporation or to any stockholder of the Corporation
for monetary damages for breach of fiduciary duty as a Director, provided that
this provision shall not limit the liability of a Director (i) for any breach of
the Director's duty of loyalty to the corporation or its stockholders, (ii) for
acts or omissions not in good faith or which involve intentional misconduct or a
knowing violation of law, (iii) under Section 174 of the DGCL, or (iv) for any
transaction from which the Director derived an improper personal benefit.
If the DGCL any other statute of the State of Delaware hereafter is
amended to authorize the further elimination or limitation of the liability of
Directors of the Corporation, then the liability of a Director of the
Corporation shall be limited to the fullest extent permitted by the statutes of
the State of Delaware, as so amended, and such elimination or limitation of
liability shall be in addition to, and not in lieu of, the limitation on the
liability of a Director provided by the foregoing provisions of this Article
SIXTH.
This Article SIXTH shall not be amended, modified or repealed in any
manner, directly or indirectly, except by the affirmative vote of the holders of
sixty-six and two-thirds percent (66 2/3%) or more of all votes entitled to be
cast. Any repeal of or amendment to this Article SIXTH shall be prospective
only and shall not adversely affect any limitation on the liability of a
Director of the corporation existing at the time of such repeal or amendment.
SEVENTH: Indemnification. To the extent permitted by law, the Corporation
---------------
shall fully 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) by reason of the fact
that such person is or was a Director or officer of the Corporation, or is or
was serving at the request of the Corporation as a director or officer of
another corporation, partnership, joint venture, trust, employee benefit plan or
other
-17-
<PAGE>
enterprise, against expenses (including attorneys' fees), judgments, fines and
amounts paid in settlement actually and reasonably incurred by such person in
connection with such action, suit or proceeding.
To the extent permitted by law, the Corporation may fully 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) by reason of the fact that such
person is or was an employee or agent of the Corporation, or is or was serving
at the request of the Corporation as an employee or agent of another
corporation, partnership, joint venture, trust, employee benefit plan or other
enterprise, against expenses (including attorneys' fees), judgments, fines and
amounts paid in settlement actually and reasonably incurred by such person in
connection with such action, suit or proceeding.
The Corporation may advance expenses (including attorneys' fees)
incurred by a Director or officer in advance of the final disposition of such
action, suit or proceeding upon the receipt of an undertaking by or on behalf of
the Director or officer to repay such amount if it shall ultimately be
determined that such Director or officer is not entitled to indemnification.
The Corporation may advance expenses (including attorneys' fees) incurred by an
employee or agent in advance of the final disposition of such action, suit or
proceeding upon such terms and conditions, if any, as the Board of Directors
deems appropriate.
This Article SEVENTH shall not be amended, modified or repealed in any
manner, directly or indirectly, except by the affirmative vote of the holders of
sixty-six and two-thirds percent (66 2/3%) or more of all votes entitled to be
cast.
EIGHTH: Actions by Stockholders. Except as otherwise provided herein or
-----------------------
in the Corporation's By-Laws or required by applicable law, if a quorum is
present at a meeting of the Stockholders, action on a matter other than the
election of directors shall be approved if the votes cast favoring the action
exceed the votes cast opposing the action, including, without limitation,
approval of a plan of merger or share exchange or a sale of all or substantially
all of the assets of the Corporation.
Upon the closing of an underwritten initial public offering of the
Company's Common Stock pursuant to an effective registration statement under the
Securities Act of 1933, as amended, any action required or permitted to be taken
by the stockholders of the Corporation must be effected at a duly called annual
or special meeting of stockholders, and may not be effected by any consent in
writing by such stockholders, unless such consent is unanimous. Meetings of
stockholders may be held within or without the State of Delaware, as the By-Laws
may provide.
NINTH: Amendment. The Corporation reserves the right to amend, alter,
---------
change or repeal any provision contained in this Certificate of Incorporation,
in the manner now or hereafter prescribed by statute and the Certificate of
Incorporation, and all rights conferred upon stockholders herein are granted
subject to this reservation.
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<PAGE>
TENTH: Incorporator. The name and mailing address of the sole
------------
incorporator is Nancy A. Spangler, 1200 19th Street, N.W., Washington, D.C.
20036.
IN WITNESS WHEREOF, the undersigned, for the purpose of forming a
corporation pursuant to the General Corporation Law of the State of Delaware,
does make, file and record this Certificate and does hereby certify that the
facts herein stated are true, and accordingly hereto sets his hand this 16th day
of October, 1996.
/s/ Nancy A. Spangler
-------------------------------------
Nancy A. Spangler, Incorporator
-19-
<PAGE>
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
Production Group International, Inc. (hereinafter called the
"Corporation"), organized and existing under and by virtue of the General
Corporation Law of the State of Delaware, does hereby certify as follows:
That by unanimous written consent of the Board of Directors of the
Corporation, resolutions were duly adopted, pursuant to Section 242 of the
General Corporation Law of the State of Delaware, setting forth amendments to
the Certificate of Incorporation of the Corporation and declaring said
amendments to be advisable. The stockholders of the Corporation waived notice of
the time, place and purpose of a special meeting of the stockholders and duly
approved said amendment by written consent in accordance with Sections 228 and
242 of the General Corporation law of the State of Delaware. The resolutions
setting forth the amendments are as follows:
RESOLVED. That the Certificate of Incorporation be amended so that the
--------
price referenced in Article FOURTH(B)(4)(a)(ii) shall be changed from "$15.00
per share" to "$9.00 per share."
IN WITNESS WHEREOF, the Corporation has caused its corporate seal to be affixed
hereto and this Certificate of Amendment to be signed by its President this 24th
day of October, 1996.
PRODUCTION GROUP INTERNATIONAL, INC.
By: /s/ Mark N. Sirangelo
--------------------------------
Mark N. Sirangelo
President
<PAGE>
Exhibit 3.2
BY-LAWS
OF
Production Group International, INC.
(a Delaware Corporation)
Dated as of October 18, 1996
<PAGE>
BY-LAWS
Table of Contents
ARTICLE 1 - Stockholders
Section 1.1 Place of Meetings
Section 1.2 Annual Meeting
Section 1.3 Special Meetings
Section 1.4 Notice of Meetings
Section 1.5 Voting List
Section 1.6 Quorum
Section 1.7 Adjournments
Section 1.8 Voting and Proxies
Section 1.9 Action at Meeting
Section 1.10 Action without Meeting
ARTICLE 2 - Directors
Section 2.1 General Powers
Section 2.2 Number and Classes
Section 2.3 Term of Office, Election and Qualification
Section 2.4 Vacancies
Section 2.5 Resignation
Section 2.6 Regular Meetings
Section 2.7 Special Meetings
Section 2.8 Notice of Special Meetings
Section 2.9 Meetings by Telephone Conference Calls
Section 2.10 Quorum
Section 2.11 Action at Meeting
Section 2.12 Action by Consent
Section 2.13 Removal
Section 2.14 Committees
Section 2.15 Compensation of Directors
ARTICLE 3 - Officers
Section 3.1 Enumeration
Section 3.2 Election
Section 3.3 Qualification
Section 3.4 Tenure
Section 3.5 Resignation and Removal
Section 3.6 Vacancies
Section 3.7 Chairman of the Board and Vice-Chairman of the Board
<PAGE>
Section 3.8 President
Section 3.9 Vice Presidents
Section 3.10 Secretary and Assistant Secretaries
Section 3.11 Treasurer and Assistant Treasurers
Section 3.12 Salaries
ARTICLE 4 - Capital Stock
Section 4.1 Issuance of Stock
Section 4.2 Certificates of Stock
Section 4.3 Transfers
Section 4.4 Lost, Stolen or Destroyed Certificates
Section 4.5 Record Date
ARTICLE 5 - Indemnification
Section 5.1 Indemnification in Actions, Suits or Proceedings Other Than
Those by or in the Right of Corporation
Section 5.2 Indemnification in Actions, Suits or Proceedings by or in the
Right of the Corporation
Section 5.3 Authorization of Indemnification
Section 5.4 Advancement of Expenses
ARTICLE 6 - General Provisions
Section 6.1 Fiscal Year
Section 6.2 Corporate Seal
Section 6.3 Waiver of Notice
Section 6.4 Voting of Securities
Section 6.5 Evidence of Authority
Section 6.6 Certificate of Incorporation
Section 6.7 Transactions with Interested Parties
Section 6.8 Severability
Section 6.9 Pronouns
ARTICLE 7 - Amendments
Section 7.1 By the Board of Directors
Section 7.2 By the Stockholders
-ii-
<PAGE>
BY-LAWS
OF
PRODUCTION GROUP INTERNATIONAL, INC.
ARTICLE 1 - Stockholders
------------------------
1.1 Place of Meeting. All meetings of stockholders shall be held at such
-----------------
place within or without the State of Delaware as may be designated from time to
time by the Board of Directors or the President or, if not so designated, at the
registered office of the corporation.
1.2 Annual Meeting. The annual meeting of stockholders for the election
---------------
of directors and for the transaction of such other business as may properly be
brought before the meeting shall be held at such date, time and place as may be
fixed by the Board of Directors or the President. If this date shall fall upon
a legal holiday at the place of the meeting, then such meeting shall be held on
the next succeeding business day at the same hour. If no annual meeting is held
in accordance with the foregoing provisions, the Board of Directors shall cause
the meeting to be held as soon thereafter as convenient. If no annual meeting
is held in accordance with the foregoing provisions, a special meeting may be
held in lieu of the annual meeting, and any action taken at that special meeting
shall have the same effect as if it had been taken at the annual meeting, and in
such case all references in these By-Laws to the annual meeting of the
stockholders shall be deemed to refer to such special meeting.
1.3 Special Meetings. Special meetings of stockholders may be called at
-----------------
any time by the President, the Board of Directors or the holders of a majority
of the outstanding shares of the Common Stock. Business transacted at any
special meeting of stockholders shall be limited to matters relating to the
purpose or purposes stated in the notice of meeting.
1.4 Notice of Meetings. Except as otherwise provided by law, written
-------------------
notice of each meeting of stockholders, whether annual or special, shall be
given not less than ten nor more than 60 days before the date of the meeting to
each stockholder entitled to vote at such meeting. The notices of all meetings
shall state the place, date and hour of the meeting. The notice of a special
meeting shall state, in addition, the purpose or purposes for which the meeting
is called. If mailed, notice is given when deposited in the United States mail,
postage prepaid, directed to the stockholder at his address as it appears on the
records of the corporation.
1.5 Voting List. The officer who has charge of the stock ledger of the
------------
corporation shall prepare, at least ten days before every meeting of
stockholders, a complete list of the stockholders entitled to vote at the
meeting, arranged in alphabetical order, and showing the address of each
stockholder and the number of shares registered in the name of each stockholder.
Such list shall be open to the examination of any stockholder, for any purpose
germane to the meeting, during ordinary business hours, for a period of at least
ten days prior to the meeting, at a place within the city where the meeting is
to be held. The list shall also be
<PAGE>
produced and kept at the time and place of the meeting during the whole time of
the meeting, and may be inspected by any stockholder who is present.
1.6 Quorum. Except as otherwise provided by law, the Certificate of
-------
Incorporation or these By-Laws, the holders of a majority of the shares of the
capital stock of the corporation issued and outstanding and entitled to vote at
the meeting, present in person or represented by proxy, shall constitute a
quorum for the transaction of business.
1.7 Adjournments. Any meeting of stockholders may be adjourned to any
------------
other time and to any other place at which a meeting of stockholders may be held
under these By-Laws by the stockholders present or represented at the meeting
and entitled to vote, although less than a quorum, or, if no stockholder is
present, by any officer entitled to preside at or to act as Secretary of such
meeting. It shall not be necessary to notify any stockholder of any adjournment
of less than 30 days if the time and place of the adjourned meeting are
announced at the meeting at which adjournment is taken, unless after the
adjournment a new record date is fixed for the adjourned meeting. At the
adjourned meeting, the corporation may transact any business which might have
been transacted at the original meeting.
1.8 Voting and Proxies. Each stockholder shall have one vote for each
-------------------
share of stock entitled to vote held of record by such stockholder and a
proportionate vote for each fractional share so held, unless otherwise provided
in the Certificate of Incorporation. Each stockholder of record entitled to
vote at a meeting of stockholders, or to express consent or dissent to corporate
action in writing without a meeting, may vote or express such consent or dissent
in person or may authorize another person or persons to vote or act for him by
written proxy executed by the stockholder or his authorized agent and delivered
to the Secretary of the corporation. No such proxy shall be voted or acted upon
after three years from the date of its execution, unless the proxy expressly
provides for a longer period.
1.9 Action at Meeting. When a quorum is present at any meeting, the
------------------
holders of a majority of the stock present or represented and voting on a matter
(or if there are two or more classes of stock entitled to vote as separate
classes, then in the case of each such class, the holders of a majority of the
stock of that class present or represented and voting on a matter) shall decide
any matter to be voted upon by the stockholders at such meeting, except when a
different vote is required by express provision of law, the Certificate of
Incorporation or these By-Laws. Any election by stockholders shall be
determined by a plurality of the votes cast by the stockholders entitled to vote
at the election.
1.10 Action without Meeting. Upon the closing of an underwritten initial
----------------------
public offering of the Company's Common Stock pursuant to the effective
registration statement under the Securities Act of 1933, as amended, any action
required or permitted to be taken at any annual or special meeting of
stockholders of the corporation may be taken only upon the vote of stockholders
at an annual or special meeting duly noticed and called in accordance
-2-
<PAGE>
with the General Corporation Law of the State of Delaware and may not be taken
by written consent of stockholders without a meeting, unless such consent is
unanimous.
ARTICLE 2 - Directors
---------------------
2.1 General Powers. The business and affairs of the corporation shall
---------------
be managed by or under the direction of a Board of Directors, who may exercise
all of the powers of the corporation except as otherwise provided by law, the
Certificate of Incorporation or these By-Laws. In the event of a vacancy in the
Board of Directors, the remaining directors, except as otherwise provided by
law, may exercise the powers of the full Board until the vacancy is filled.
2.2 Number and Classes. The number of directors which shall constitute
------------------
the whole Board of Directors shall be determined solely by resolution adopted by
a majority of the Board of Directors, but in no event shall be less than three.
The number of directors may be decreased at any time and from time to time by a
majority of the directors then in office, but only to eliminate vacancies
existing by reason of the death, resignation, removal or expiration of the term
of one or more directors. The number of directors may be increased at any time
and from time to time by a majority of the directors then in office. Unless
otherwise provided in the Certificate of Incorporation, the Board of Directors
shall divide the directors into three classes, which shall be as equal in number
as possible; and, when the number of directors is changed, shall determine the
class or classes to which the increased or decreased number of directors shall
be apportioned, which shall be done so as to maintain as equal a number of
directors in each class as possible; provided, however, that no decrease in the
-------- -------
number of directors shall affect the term of any director then in office.
2.3 Tenure, Election and Qualification. The directors shall be elected
----------------------------------
at the annual meeting of stockholders by such stockholders as have the right to
vote on such election. At each annual meeting of stockholders, directors
elected to succeed those whose terms are expiring shall be elected for a term of
office expiring at the annual meeting of stockholders held in the third year
following their election and until their respective successors are elected and
qualified, or until such director's earlier death, resignation or removal.
Directors need not be stockholders of the corporation.
2.4 Vacancies. Unless otherwise provided in the Certificate of
----------
Incorporation, any vacancy in the Board of Directors, however occurring,
including a vacancy resulting from an enlargement of the Board, may be filled
solely by vote of a majority of the directors then in office (although less than
a quorum) or by a sole remaining director. If there are no directors in office,
then an election of directors may be held in accordance with the General
Corporation Law of the State of Delaware. A director elected to fill a vacancy
shall be elected for the unexpired term of his predecessor in office, and a
director chosen to fill a position resulting from an increase in the number of
directors shall hold office until the next annual
-3-
<PAGE>
meeting of stockholders and until his successor is elected and qualified, or
until his earlier death, resignation or removal.
2.5 Resignation. Any director may resign by delivering his written
------------
resignation to the corporation at its principal office or to the President or
Secretary. Such resignation shall be effective upon receipt unless it is
specified to be effective at some other time or upon the happening of some other
event.
2.6 Regular Meetings. Provided that meetings are held at least once
-----------------
during each of the Company's fiscal quarters, regular meetings of the Board of
Directors may be held without notice at such time and place, either within or
without the State of Delaware, as shall be determined from time to time by the
Board of Directors; provided that any director who is absent when such a
determination is made shall be given notice of the determination. A regular
meeting of the Board of Directors may be held without notice immediately after
and at the same place as the annual meeting of stockholders.
2.7 Special Meetings. Special meetings of the Board of Directors may
-----------------
be held at any time and place, within or without the State of Delaware,
designated in a call by any member of the Board of Directors or by the President
of the Company.
2.8 Notice of Special Meetings. Notice of any special meeting of
---------------------------
directors shall be given to each director by the Secretary or by the officer or
one of the directors calling the meeting. Notice shall be duly given to each
director (i) by giving notice to such director in person or by telephone at
least 24 hours in advance of the meeting, (ii) by sending a facsimile, telegram
or telex, or delivering written notice by hand, to his last known business or
home address at least 24 hours in advance of the meeting, or (iii) by delivering
written notice to his last known business or home address at least 72 hours in
advance of the meeting by a nationally recognized overnight service (receipt
requested). A notice or waiver of notice of a meeting of the Board of Directors
need not specify the purposes of the meeting.
2.9 Meetings by Telephone Conference Calls. Directors or any members
---------------------------------------
of any committee designated by the directors may participate in a meeting of the
Board of Directors or such committee by means of conference telephone or similar
communications equipment by means of which all persons participating in the
meeting can hear each other, and participation by such means shall constitute
presence in person at such meeting.
2.10 Quorum. A majority of the total number of the whole Board of
-------
Directors shall constitute a quorum at all meetings of the Board of Directors.
In the event one or more of the directors shall be disqualified to vote at any
meeting, then the required quorum shall be reduced by one for each such director
so disqualified; provided, however, that in no case shall less than one-third
(1/3) of the number so fixed constitute a quorum. In the absence of a quorum at
any such meeting, a majority of the directors present may adjourn the meeting
from
-4-
<PAGE>
time to time without further notice other than announcement at the meeting,
until a quorum shall be present.
2.11 Action at Meeting. At any meeting of the Board of Directors at
------------------
which a quorum is present, the vote of a majority of those present shall be
sufficient to take any action, unless a different vote is specified by law, the
Certificate of Incorporation or these By-Laws.
2.12 Action by Consent. Any action required or permitted to be taken
------------------
at any meeting of the Board of Directors or of any committee of the Board of
Directors may be taken without a meeting, if all members of the Board or
committee, as the case may be, consent to the action in writing, and the written
consents are filed with the minutes of proceedings of the Board or committee.
2.13 Removal. Any one or more or all of the directors may be removed,
--------
with or without cause, by the holders of a majority of the shares then entitled
to vote at an election of directors, except that the directors elected by the
holders of a particular class or series of stock may be removed without cause
only by vote of the holders of a majority of the outstanding shares of such
class or series.
2.14 Committees. The Board of Directors may, by resolution passed by a
-----------
majority of the whole Board, designate one or more committees, each committee to
consist of one or more of the directors of the corporation. The Board may
designate one or more directors as alternate members of any committee, who may
replace any absent or disqualified member at any meeting of the committee. In
the absence or disqualification of a member of a committee, the member or
members of the committee present at any meeting and not disqualified from
voting, whether or not he or they constitute a quorum, may unanimously appoint
another member of the Board of Directors to act at the meeting in the place of
any such absent or disqualified member. Any such committee, to the extent
provided in the resolution of the Board of Directors and subject to the
provisions of the General Corporation Law of the State of Delaware, shall have
and may exercise all the powers and authority of the Board of Directors in the
management of the business and affairs of the corporation and may authorize the
seal of the corporation to be affixed to all papers which may require it. Each
such committee shall keep minutes and make such reports as the Board of
Directors may from time to time request. Except as the Board of Directors may
otherwise determine, any committee may make rules for the conduct of its
business, but unless otherwise provided by the directors or in such rules, its
business shall be conducted as nearly as possible in the same manner as is
provided in these By-Laws for the Board of Directors.
2.15 Compensation of Directors. Directors may be paid such
--------------------------
compensation for their services and such reimbursement for expenses of
attendance at meetings as the Board of Directors may from time to time
determine. No such payment shall preclude any director from serving the
corporation or any of its parent or subsidiary corporations in any other
capacity and receiving compensation for such service.
-5-
<PAGE>
ARTICLE 3 - Officers
--------------------
3.1 Enumeration. The officers of the corporation shall consist of a
------------
President, a Secretary, a Treasurer and such other officers with such other
titles as the Board of Directors shall determine, including a Chairman of the
Board, a Vice-Chairman of the Board, and one or more Vice Presidents, Assistant
Treasurers, and Assistant Secretaries. The Board of Directors may appoint such
other officers as it may deem appropriate.
3.2 Election. The President, Treasurer and Secretary shall be elected
---------
annually by the Board of Directors at its first meeting following the annual
meeting of stockholders. Other officers may be appointed by the Board of
Directors at such meeting or at any other meeting.
3.3 Qualification. No officer need be a stockholder. Any two or more
--------------
offices may be held by the same person.
3.4 Tenure. Except as otherwise provided by law, by the Certificate of
-------
Incorporation or by these By-Laws, each officer shall hold office until his
successor is elected and qualified, unless a different term is specified in the
vote choosing or appointing him, or until his earlier death, resignation or
removal.
3.5 Resignation and Removal. Any officer may resign by delivering his
------------------------
written resignation to the corporation at its principal office or to the
President or Secretary. Such resignation shall be effective upon receipt unless
it is specified to be effective at some other time or upon the happening of some
other event.
Any officer appointed by Board of Directors may be removed at any
time, with or without cause, by vote of a majority of the entire number of
directors then in office.
Except as the Board of Directors may otherwise determine, no
officer who resigns or is removed shall have any right to any compensation as an
officer for any period following his resignation or removal, or any right to
damages on account of such removal, whether his compensation be by the month or
by the year or otherwise, unless such compensation is expressly provided in a
duly authorized written agreement with the corporation.
3.6 Vacancies. The Board of Directors may fill any vacancy occurring
----------
in any office for any reason and may, in its discretion, leave unfilled for such
period as it may determine any offices other than those of President, Treasurer
and Secretary. Each such successor shall hold office for the unexpired term of
his predecessor and until his successor is elected and qualified, or until his
earlier death, resignation or removal.
-6-
<PAGE>
3.7 Chairman of the Board and Vice-Chairman of the Board. The Board of
-----------------------------------------------------
Directors may appoint a Chairman of the Board. If the Board of Directors
appoints a Chairman of the Board, he shall perform such duties and possess such
powers as are assigned to him by the Board of Directors. If the Board of
Directors appoints a Vice-Chairman of the Board, he shall, in the absence or
disability of the Chairman of the Board, perform the duties and exercise the
powers of the Chairman of the Board and shall perform such other duties and
possess such other powers as may from time to time be vested in him by the Board
of Directors.
3.8 President. Unless the Board of Directors otherwise determines, the
----------
President shall be the Chief Executive Officer of the corporation. The
President shall, subject to the direction of the Board of Directors, have
general charge and supervision of the business of the corporation. Unless
otherwise provided by the Board of Directors, he shall preside at all meetings
of the stockholders, if he is a director, at all meetings of the Board of
Directors. The President shall perform such other duties and shall have such
other powers as the Board of Directors may from time to time prescribe.
3.9 Vice Presidents. Any Vice President shall perform such duties and
----------------
possess such powers as the Board of Directors or the President may from time to
time prescribe. In the event of the absence, inability or refusal to act of the
President, the Vice President designated as the Chief Operating Officer of the
Corporation shall perform the duties of the President and when so performing
shall have all the powers of and be subject to all the restrictions upon the
President. The Board of Directors may assign to any Vice President the title of
Executive Vice President, Senior Vice President or any other title selected by
the Board of Directors.
3.10 Secretary and Assistant Secretaries. The Secretary shall perform such
------------------------------------
duties and shall have such powers as the Board of Directors or the President may
from time to time prescribe. In addition, the Secretary shall perform such
duties and have such powers as are incident to the office of the secretary,
including without limitation the duty and power to give notices of all meetings
of stockholders and special meetings of the Board of Directors, to attend all
meetings of stockholders and the Board of Directors and keep a record of the
proceedings, to maintain a stock ledger and prepare lists of stockholders and
their addresses as required, to be custodian of corporate records and the
corporate seal and to affix and attest to the same on documents.
Any Assistant Secretary shall perform such duties and possess such
powers as the Board of Directors, the President or the Secretary may from time
to time prescribe. In the event of the absence, inability or refusal to act of
the Secretary, the Assistant Secretary, (or if there shall be more than one,
the Assistant Secretaries in the order determined by the Board of Directors)
shall perform the duties and exercise the powers of the Secretary.
-7-
<PAGE>
In the absence of the Secretary or any Assistant Secretary at any
meeting of stockholders or directors, the person presiding at the meeting shall
designate a temporary secretary to keep a record of the meeting.
3.11 Treasurer and Assistant Treasurers. The Treasurer shall perform such
-----------------------------------
duties and shall have such powers as may from time to time be assigned to him by
the Board of Directors or the President. In addition, the Treasurer shall
perform such duties and have such powers as are incident to the office of
treasurer, including without limitation the duty and power to keep and be
responsible for all funds and securities of the corporation, to deposit funds of
the corporation in depositories selected in accordance with these By-Laws, to
disburse such funds as ordered by the Board of Directors, to make proper
accounts of such funds, and to render as required by the Board of Directors
statements of all such transactions and of the financial condition of the
corporation.
The Assistant Treasurers shall perform such duties and possess such
powers as the Board of Directors, the President or the Treasurer may from time
to time prescribe. In the event of the absence, inability, or refusal to act of
the Treasurer, the Assistant Treasurer, (or if there shall be more than one, the
Assistant Treasurers in the order determined by the Board of Directors) shall
perform the duties and exercise the powers of the Treasurer.
3.12 Salaries. Officers of the corporation shall be entitled to such
---------
salaries, compensation or reimbursement as shall be fixed or allowed from time
to time by the Board of Directors.
ARTICLE 4 - Capital Stock
-------------------------
4.1 Issuance of Stock. Unless otherwise voted by the stockholders and
------------------
subject to the provisions of the Certificate of Incorporation, the whole or any
part of any unissued balance of the authorized capital stock of the corporation
or the whole or any part of any unissued balance of the authorized capital stock
of the corporation held in its treasury may be issued, sold, transferred or
otherwise disposed of by vote of the Board of Directors in such manner, for such
consideration and on such terms as the Board of Directors may determine.
4.2 Certificates of Stock. Every holder of stock of the corporation shall
----------------------
be entitled to have a certificate, in such form as may be prescribed by law and
by the Board of Directors, certifying the number and class of shares owned by
him in the corporation. Each such certificate shall be signed by, or in the
name of the corporation by, the Chairman or Vice-Chairman, if any, of the Board
of Directors, or the President or a Vice President, and the Treasurer or an
Assistant Treasurer, or the Secretary or an Assistant Secretary of the
corporation. Any or all of the signatures on the certificate may be a
facsimile.
-8-
<PAGE>
Each certificate for shares of stock which are subject to any
restriction on transfer pursuant to the Certificate of Incorporation, the By-
Laws, applicable securities laws or any agreement among any number of
shareholders or among such holders and the corporation shall have conspicuously
noted on the face or back of the certificate either the full text of the
restriction or a statement of the existence of such restriction.
4.3 Transfers. Except as otherwise established by rules and regulations
----------
adopted by the Board of Directors, and subject to applicable law, shares of
stock may be transferred on the books of the corporation by the surrender to the
corporation or its transfer agent of the certificate representing such shares
properly endorsed or accompanied by a written assignment or power of attorney
properly executed, and with such proof of authority or the authenticity of
signature as the corporation or its transfer agent may reasonably require.
Except as may be otherwise required by law, by the Certificate of Incorporation
or by these By-Laws, the corporation shall be entitled to treat the record
holder of stock as shown on its books as the owner of such stock for all
purposes, including the payment of dividends and the right to vote with respect
to such stock, regardless of any transfer, pledge or other disposition of such
stock until the shares have been transferred on the books of the corporation in
accordance with the requirements of these By-Laws.
4.4 Lost, Stolen or Destroyed Certificates. The corporation may issue a
---------------------------------------
new certificate of stock in place of any previously issued certificate alleged
to have been lost, stolen, or destroyed, upon such terms and conditions as the
Board of Directors may prescribe, including the presentation of reasonable
evidence of such loss, theft or destruction and the giving of such indemnity as
the Board of Directors may require for the protection of the corporation or any
transfer agent or registrar.
4.5 Record Date. The Board of Directors may fix in advance a date as a
------------
record date for the determination of the stockholders entitled to notice of or
to vote at any meeting of stockholders or to express consent (or dissent) to
corporate action in writing without a meeting, or entitled to receive payment of
any dividend or other distribution or allotment of any rights in respect of any
change, conversion or exchange of stock, or for the purpose of any other lawful
action. Such record date shall not be more than 60 nor less than ten days
before the date of such meeting, nor more than 60 days prior to any other action
to which such record date relates.
If no record date is fixed, the record date for determining
stockholders entitled to notice of or to vote at a meeting of stockholders shall
be at the close of business on the day before the day on which notice is given,
or, if notice is waived, at the close of business on the day before the day on
which the meeting is held. The record date for determining stockholders entitled
to express consent to corporate action in writing without a meeting, when no
prior action by the Board of Directors is necessary, shall be the day on which
the first written consent is expressed. The record date for determining
stockholders for any other
-9-
<PAGE>
purpose shall be at the close of business on the day on which the Board of
Directors adopts the resolution relating to such purpose.
A determination of stockholders of record entitled to notice of or to
vote at a meeting of stockholders shall apply to any adjournment of the meeting;
provided, however, that the Board of Directors may fix a new record date for the
adjourned meeting.
ARTICLE 5 - Indemnification
---------------------------
5.1 Indemnification in Actions, Suits or Proceedings Other Than Those by
--------------------------------------------------------------------
or in the Right of the Corporation. (a) The Corporation shall indemnify any
- ----------------------------------
person who was or is a party or is threatened to be made a party to any
threatened, pending or completed action, suit or proceeding (whether civil,
criminal, administrative or investigative) by reason of the fact that such
person is or was a director or officer of the Corporation, or is or was serving
at the request of the Corporation as a director or officer of another
corporation, partnership, joint venture, trust, employee benefit plan or other
enterprise, against expenses (including attorneys' fees), judgments, fines and
amounts paid in settlement actually and reasonably incurred by such person in
connection with such action, suit or proceeding, if such person acted in good
faith and in a manner which such person reasonably believed to be in or not
opposed to the best interests of the Corporation, and, with respect to any
criminal action or proceeding, had no reasonable cause to believe that such
conduct was unlawful. The termination of any action, suit or proceeding by
judgment, order, settlement, conviction, or upon a plea of nolo contendere or
---- ----------
its equivalent, shall not, of itself, create a presumption that the person did
not act in good faith and in a manner which such person reasonably believed to
be in or not opposed to the best interests of the Corporation, and, with respect
to any criminal action or proceeding, had reasonable cause to believe that such
conduct was unlawful.
(b) The Corporation may 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) by
reason of the fact that such person is or was an employee or agent of the
Corporation, or is or was serving at the request of the Corporation as an
employee or agent of another corporation, partnership, joint venture, trust,
employee benefit plan or other enterprise, against expenses (including
attorneys' fees), judgments, fines and amounts paid in settlement actually and
reasonably incurred by such person in connection with such action, suit or
proceeding, if such person acted in good faith and in a manner which such person
reasonably believed to be in or not opposed to the best interests of the
Corporation, and, with respect to any criminal action or proceeding, had no
reasonable cause to believe that such conduct was unlawful. The termination of
any action, suit or proceeding by judgment, order, settlement, conviction, or
upon a plea of nolo contendere or its equivalent, shall not, of itself, create
---------------
presumption that the person did not act in good faith and in a manner which such
person reasonably believed to
-10-
<PAGE>
be in or not opposed to the best interests of the Corporation, and, with respect
to any criminal action or proceeding, had reasonable cause to believe that such
conduct was unlawful.
5.2 Indemnification in Actions, Suits or Proceedings by or in the Right of
----------------------------------------------------------------------
the Corporation. (a) The Corporation shall indemnify any person who was or is
- ---------------
a party or is threatened to be made a party to any threatened, pending or
completed action, suit or proceeding by or in the right of the Corporation to
procure a judgment in its favor by reason of the fact that such person is or was
a director or officer of the Corporation, or is or was serving at the request of
the Corporation as a director of officer of another corporation, partnership,
joint venture, trust, employee benefit plan or other enterprise, against
expenses (including attorneys' fees) actually and reasonably incurred by such
person in connection with the defense or settlement of such action or suit if
such person acted in good faith and in a manner which such person reasonably
believed to be in or not opposed to the best interest of the Corporation. No
such indemnification shall be made in respect of any claim, issue or matter as
to which such person shall have been adjudged to be liable to the Corporation
unless and only to the extent that the court in which such action or suit was
brought shall determine upon application that, despite the adjudication of
liability but in view of all the circumstances of the case, such person is
fairly and reasonably entitled to indemnity for such expenses which such court
shall deem proper.
(b) The Corporation may 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 by or in the right of the Corporation to procure a judgment
in its favor by reason of the fact that such person is or was an employee or
agent of the Corporation, or is or was serving at the request of the Corporation
as an employee or agent of another corporation, partnership, joint venture,
trust, employee benefit plan or other enterprise, against expenses (including
attorneys' fees) actually and reasonably incurred by such person in connection
with the defense or settlement of such action or suit if such person acted in
good faith and in a manner which such person reasonably believed to be in or not
opposed to the best interests of the Corporation. No such indemnification shall
be made in respect of any claim, issue or matter as to which such person shall
have been adjudged to be liable to the Corporation unless and only to the extent
that the court in which such action or suit was brought shall determine upon
application that, despite the adjudication of liability but in view of all the
circumstances of the case, such person is fairly and reasonably entitled to
indemnity for such expenses which such court shall deem proper.
5.3 Authorization of Indemnification. Any indemnification under this
--------------------------------
Article 5 shall be made by the Corporation only as authorized in the specific
case upon a determination that indemnification of the director, officer,
employee or agent is proper in the circumstances because such person or persons
have met the applicable standard of conduct set forth in Sections 5.1 and 5.2
hereof. Such determination shall be made (i) by a majority vote of the
directors who are not parties to such action, suit or proceeding, even though
less than a
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<PAGE>
quorum, or (ii) if there are no such directors, or if such directors so direct,
by independent legal counsel in a written opinion, or (iii) by the stockholders.
5.4 Advancement of Expenses. The Corporation may advance expenses
-----------------------
(including attorneys' fees) incurred by a director or officer in advance of the
final disposition of such action, suit or proceeding upon the receipt of an
undertaking by or on behalf of the director of officer to repay such amount if
it shall ultimately be determined that such director or officer is not entitled
to indemnification.
The Corporation may advance expenses (including attorneys' fees)
incurred by an employee or agent in advance of the final disposition of such
action, suit or proceeding upon such terms and conditions, if any, as the Board
of Directors deems appropriate.
ARTICLE 6 - General Provisions
------------------------------
6.1 Fiscal Year. The fiscal year of the Corporation shall be the twelve
------------
months ending August 31 of each calendar year.
6.2 Corporate Seal. The corporate seal shall be in such form as shall be
---------------
approved by the Board of Directors.
6.3 Waiver of Notice. Whenever any notice whatsoever is required to be
-----------------
given by law, by the Certificate of Incorporation or by these By-Laws, a waiver
of such notice either in writing signed by the person entitled to such notice or
such person's duly authorized attorney, or by telegraph, cable or any other
available method, whether before, at or after the time stated in such waiver, or
the appearance of such person or persons at such meeting in person or by proxy,
shall be deemed equivalent to such notice.
6.4 Voting of Securities. Except as the directors may otherwise
---------------------
designate, the President or Treasurer may waive notice of, and act as, or
appoint any person or persons to act as, proxy or attorney-in-fact for this
corporation (with or without power of substitution) at, any meeting of
stockholders or shareholders of any other corporation or organization, the
securities of which may be held by this corporation.
6.5 Evidence of Authority. A certificate by the Secretary, or an
----------------------
Assistant Secretary, or a temporary Secretary as to any action taken by the
stockholders, directors, a committee or any officer or representative of the
corporation shall as to all persons who rely on the certificate in good faith be
conclusive evidence of such action.
6.6 Certificate of Incorporation. All references in these By-Laws to the
-----------------------------
Certificate of Incorporation shall be deemed to refer to the Certificate of
Incorporation of the corporation, as amended and in effect from time to time.
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<PAGE>
6.7 Transactions with Interested Parties. No contract or transaction
-------------------------------------
between the corporation and one or more of the directors or officers, or between
the corporation and any other corporation, partnership, association, another
organization in which one or more of the directors or officers are directors or
officers, or have a financial interest, shall be void or voidable solely for
this reason, or solely because the director or officer is present at or
participates in the meeting of the Board of Directors or a committee of the
Board of Directors which authorizes the contract or transaction or solely
because his or their votes are counted for such purpose, if:
(a) The material facts as to his relationship or interest and as to the
contract or transaction are disclosed or are known to the Board of
Directors or the committee, and the Board or committee in good faith
authorizes the contract or transaction by the affirmative votes of a
majority of the disinterested directors, even though the disinterested
directors be less than a quorum;
(b) The material facts as to his relationship or interest and as to the
contract or transaction are disclosed or are known to the stockholders
entitled to vote thereon, and the contract or transaction is
specifically approved in good faith by vote of the stockholders; or
(c) The contract or transaction is fair as to the corporation as of the
time it is authorized, approved or, ratified, by the Board of
Directors, a committee of the Board of Directors, or the stockholders.
Common or interested directors may be counted in determining the
presence of a quorum at a meeting of the Board of Directors or of a committee
which authorizes the contract or transaction.
6.8 Severability. Any determination that any provision of these By-Laws
-------------
is for any reason inapplicable, illegal or ineffective shall not affect or
invalidate any other provision of these By-Laws.
6.9 Pronouns. All pronouns used in these By-Laws shall be deemed to refer
---------
to the masculine, feminine or neuter, singular or plural, as the identity of the
person or persons may require.
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<PAGE>
ARTICLE 7 - Amendments
----------------------
7.1 By the Board of Directors. These By-Laws may be altered, amended or
--------------------------
repealed or new by-laws may be adopted by the affirmative vote of a majority of
the directors present at any regular or special meeting of the Board of
Directors at which a quorum is present.
7.2 By the Stockholders. These By-Laws may be altered, amended or
--------------------
repealed or new by-laws may be adopted by the affirmative vote of the holders of
a majority of the shares of the capital stock of the corporation issued and
outstanding and entitled to vote at any regular meeting of stockholders, or at
any special meeting of stockholders, provided notice of such alteration,
amendment, repeal or adoption of new by-laws shall have been stated in the
notice of such special meeting. Notwithstanding the foregoing, the affirmative
vote of the holders of at least 66 2/3% of the outstanding stock shall be
required to alter, amend or repeal Sections 2.2 and 2.4 of Article 2.
-14-
<PAGE>
Exhibit 10.3
PRODUCTION GROUP INTERNATIONAL, INC.
1997 DIRECTORS' STOCK OPTION PLAN
1. Purpose.
The purpose of this 1997 Directors' Option Plan (the "Plan") of
Production Group International, Inc. (the "Company") is to promote the
recruiting and retention of highly qualified outside Directors and to strengthen
the commonality of interest between Directors and stockholders.
2. Administration.
The Plan will be administered by the Board of Directors of the Company,
whose construction and interpretation of the terms and provisions of the Plan
shall be final and conclusive. Grants of stock options under the Plan and the
amount and nature of the awards to be granted shall be automatic and non-
discretionary in accordance with Section 5. However, all questions of
interpretation of the Plan or of any options issued under it shall be determined
by the Board of Directors and such determination shall be final and binding upon
all persons having an interest in the Plan. No Director shall be liable for any
action or determination under the Plan made in good faith.
3. Participation in the Plan.
Directors of the Company who are not employees of the Company or any
subsidiary of the Company ("Eligible Directors") are eligible to receive options
under the Plan.
4. Stock Subject to the Plan.
(a) The maximum number of shares which may be issued under the Plan
shall be 100,000 shares of the Company's Common Stock, $0.01 par value per share
("Common Stock"), subject to adjustment as provided in Section 9.
(b) If any outstanding option under the Plan for any reason expires or
is terminated without having been exercised in full, the shares allocable to the
unexercised portion of such option shall again become available for grant
pursuant to the Plan.
(c) All options granted under the Plan shall be non-statutory options
which are not intended to meet the requirements of Section 422 of the Internal
Revenue Code of 1986, as amended (the "Code").
5. Terms, Conditions and Form of Options.
Each option granted under the Plan shall be evidenced by a written
agreement in such form as the Board of Directors shall from time to time
approve, which agreements shall comply with and be subject to the following
terms and conditions:
<PAGE>
(a) Option Grant Dates. Following approval of the Plan by the holders
of a majority of the shares of Common Stock present or represented at a meeting
of the Company's stockholders duly called and held in accordance with the
Company's by-laws and applicable law, options shall be granted automatically to
all eligible Directors as follows: (i) each person who becomes an Eligible
Director before the date of the Company's initial public offering of shares of
its Common Stock (the "Initial Public Offering") shall be granted an option to
purchase 10,000 shares of Common Stock on the close of business on the date of
his or her initial election or appointment to the Board of Directors or such
later date as may be determined by the Board of Directors prior to the Initial
Public Offering; and (ii) commencing with the 1997 annual stockholders' meeting,
each Eligible Director shall be granted an additional option to purchase 2,500
shares of Common Stock (an "Annual Grant") on the date of each annual
stockholders' meeting, including the meeting at which such Director is initially
elected, provided he or she is serving as a Director immediately after such
meeting.
(b) Option Exercise Price. The option exercise price per share for
each option granted under the Plan shall equal the closing price per share of
the Company's Common Stock on NASDAQ, or the principal exchange on which the
Common Stock is then listed, on the date of grant, and if no such price is
reported on such date, such price as reported on the nearest preceding date on
which such price is reported; if any options are granted on or prior to the date
that the Company's Common Stock is listed on an exchange, the option exercise
price per share shall be the fair market value of the Common Stock determined by
the Board of Directors.
(c) Options Non-Transferable. Each option granted under the Plan by
its terms shall not be transferable by the optionee otherwise than by will or by
the laws of descent and distribution. Notwithstanding the foregoing, options
may be transferred by Directors to family members, to trusts established for the
benefit of family members or to partnerships or corporations owned by family
members or to partnerships affiliated with Directors.
(d) Exercise Period. Each option to purchase 10,000 or 2,500 shares
(as applicable) of Common Stock on the date of the Director's election to the
Board of Directors shall become vested and exercisable with respect to one-third
of the shares upon each of the first, second, and third anniversaries of his or
her initial election or appointment to the Board of Directors (or the date of
the annual meeting of stockholders in such year, if earlier), and may be
exercised thereafter from time to time, in whole or in part, prior to the
earlier of (i) 60 days after an optionee ceases to serve as a Director (180 days
if the optionee ceased to serve because of his or her death or permanent
disability) or (ii) the fifth anniversary of the date of grant. Each Annual
Grant shall become fully vested upon the earlier of (a) the next annual
stockholders' meeting or (b) the first anniversary of the date of grant and may
be exercised thereafter from time to time, in whole or in part, prior to the
earlier of (i) 60 days after an optionee ceases to serve as a Director (180 days
if the optionee ceased to serve because of his or her death or permanent
disability) or (ii) the fifth anniversary of the date of grant.
-2-
<PAGE>
(e) Exercise Procedure. Options may be exercised only by written
notice (in a form provided by or acceptable to the Company) to the Company at
its principal office accompanied by payment of the full consideration for the
shares as to which they are exercised.
(f) Payment of Purchase Price. Payment of the exercise price may be
made, at the election of the optionee, (i) by delivery of cash or check to the
order of the Company in an amount equal to the exercise price, (ii) by delivery
to the Company of shares of Common Stock of the Company already owned and held
by the optionee for at least twelve months and having a fair market value equal
in amount to the exercise price of the options being exercised, or (iii) by any
combination of such methods of payment. The fair market value of any shares of
Common Stock which may be delivered upon exercise of an option shall be
determined by the Company as of the date that such shares are delivered.
6. Assignments.
The rights and benefits under the Plan may not be assigned except as
provided in Section 5.
7. Time for Granting Options.
All options for shares subject to the Plan shall be granted, if at all,
not later than ten years after the date of the Board's adoption of the Plan.
8. Limitation of Rights.
(a) No Right to Continue as a Director. Neither the Plan, nor the
granting of an option nor any other action taken pursuant to the Plan, shall
constitute or be evidence of any agreement or understanding, express or implied,
that the Company will retain a Director for any period of time.
(b) No Stockholder Rights for Options. The holder of an option shall
have no rights as a stockholder with respect to the shares covered by the option
until the date that the holder delivers all materials to exercise such option to
the Company in proper form with payment of the exercise price, and no adjustment
will be made for dividends or other rights for which the record date is prior to
the date on which such materials and payment are delivered.
-3-
<PAGE>
9. Adjustment Provisions.
(a) Recapitalizations. If, through or as a result of any merger,
consolidation, sale of all or substantially all of the assets of the Company,
reorganization, recapitalization, reclassification, stock dividend, stock split,
reverse stock split or other similar transaction, (i) the outstanding shares of
Common Stock are increased or decreased or are exchanged for a different number
or kind of shares or other securities of the Company, or (ii) additional shares
or new or different shares or other securities of the Company or other non-cash
assets are distributed with respect to such shares of Common Stock or other
securities, an appropriate and proportionate adjustment may be made in (x) the
maximum number and kind of shares reserved for issuance under the Plan, (y) the
number and kind of shares or other securities subject to then outstanding
options under the Plan, and (z) the price for each share subject to any then
outstanding options under the Plan, without changing the aggregate purchase
price as to which such options remain exercisable.
(b) Mergers. In the event of a consolidation or merger or sale of all
or substantially all of the assets of the Company in which outstanding shares of
Common Stock are exchanged for securities, cash or other property of any other
corporation or business entity or in the event of a liquidation of the Company,
the Board of Directors of the Company, or the board of Directors of any
corporation assuming the obligations of the Company, may, in its discretion,
take any one or more of the following actions, as to outstanding options: (i)
provide that such options shall be assumed, or equivalent options shall be
substituted, by the acquiring or succeeding corporation (or an affiliate
thereof), (ii) upon written notice to the optionees, provide that all
unexercised options will terminate immediately prior to the consummation of such
transaction unless exercised by the optionee within a specified period following
the date of such notice, and (iii) in the event of a merger under the terms of
which holders of the Common Stock of the Company will receive upon consummation
thereof a cash payment for each share surrendered in the merger (the "Merger
Price"), make or provide for a cash payment to the optionees equal to the
difference between (a) the Merger Price times the number of shares of Common
Stock subject to such outstanding options (to the extent then exercisable at
prices not in excess of the Merger Price) and (b) the aggregate exercise price
of all such outstanding options in exchange for the termination of such options.
10. Change in Control.
Notwithstanding any other provision of the Plan, in the event of a
"Change in Control of the Company" (as defined below), any outstanding options
issued pursuant to the Plan prior to the date of such Change in Control of the
Company shall vest and be exercisable as to 50% of the number of shares that
remain unvested on the date of such Change in Control of the Company. For
purposes of the Plan, a "Change in Control of the Company" shall occur or be
deemed to have occurred only if :
(a) any "person", as such term is used in Sections 13(d) and 14(d) of
the Exchange Act (other than the Company, any trustee or other fiduciary holding
securities under an employee benefit plan of the Company, or any corporation
owned directly or indirectly by the stockholders of the Company in substantially
the same proportion as their ownership of stock of the Company), is or
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<PAGE>
becomes the "beneficial owner" (as defined in Rule 13d-3 under the Exchange
Act), directly or indirectly, of securities of the Company representing 50% or
more of the combined voting power of the Company's then outstanding securities;
(b) during any period of two consecutive years ending during the term
of the Plan (not including any period prior to the adoption of the Plan),
individuals who at the beginning of such period constitute the Board of
Directors of the Company, and any new director (other than a director designated
by a person who has entered into an agreement with the Company to effect any
transaction described in clause (a), (c) or (d) of this Section 10) whose
election by the Board of Directors or nomination for election by the Company's
stockholders was approved by a vote of at least two-thirds of the directors then
still in office who were either directors at the beginning of the period or
whose election or whose nomination for election was previously so approved
(collectively, the "Disinterested Directors"), cease for any reason to
constitute a majority of the Board of Directors;
(c) the stockholders of the Company approve a merger or consolidation
of the Company with any other corporation, other than (i) a merger or
consolidation which would result in the voting securities of the Company
outstanding immediately prior thereto continuing to represent (either by
remaining outstanding or by being converted into voting securities of the
surviving entity) more than 50% of the combined voting power of the voting
securities of the Company or such surviving entity outstanding immediately after
such merger or consolidation or (ii) a merger or consolidation effected to
implement a recapitalization of the Company (or similar transaction) in which no
"person" (as hereinabove defined) acquires more than 50% of the combined voting
power of the Company's then outstanding securities; or
(d) the stockholders of the Company approve a plan of complete
liquidation of the Company or the sale of all or substantially all of the
Company's assets which, in either case, has not previously been approved by a
majority of the Disinterested Directors.
11. Amendment of the Plan.
(a) The Board of Directors may at any time, and from time to time,
modify or amend the Plan in any respect.
(b) The termination or any modification or amendment of the Plan
shall not, without the consent of an optionee, affect his or her rights under an
option previously granted to him or her. With the consent of the optionees
affected (if so required hereby), the Board of Directors may amend outstanding
option agreements in a manner not inconsistent with the Plan.
12. Notice.
Any written notice to the Company required by any of the provisions of
the Plan shall be addressed to the Chief Financial Officer of the Company and
shall become effective when it is received.
-5-
<PAGE>
13. Effective Date and Duration of the Plan.
(a) Effective Date. The Plan shall become effective when adopted by
the Board of Directors, but no option granted under the Plan shall become
exercisable unless and until the Plan shall have been approved by the Company's
stockholders.
(b) Termination. Unless earlier terminated pursuant to Section 9,
the Plan shall terminate upon the earlier of (i) Ocotber 8, 2006, or (ii) the
date on which all shares available for issuance under the Plan shall have been
issued pursuant to the exercise of options granted under the Plan. If the date
of termination is determined under (i) above, then options outstanding on such
date shall continue to have force and effect in accordance with the provisions
of the instruments evidencing such options.
14. General Restrictions.
(a) Investment Representations. The Company may require any person
to whom an option is granted, as a condition of exercising such option, to give
written assurances in substance and form satisfactory to the Company to the
effect that such person is acquiring the Common Stock subject to the option for
his or her own account for investment and not with any present intention of
selling or otherwise distributing the same, and to such other effects as the
Company deems necessary or appropriate in order to comply with federal and
applicable state securities laws.
(b) Compliance With Securities Laws. Each option shall be subject to
the requirement that if, at any time, counsel to the Company shall determine
that the listing, registration or qualification of the shares subject to such
option upon any securities exchange or under any state or federal law, or the
consent or approval of any governmental or regulatory body, or that the
disclosure of non-public information or the satisfaction of any other condition
is necessary as a condition of, or in connection with, the issuance or purchase
of shares thereunder, such option may not be exercised, in whole or in part,
unless such listing, registration, qualification, consent or approval, or
satisfaction of such conditions is effected in a manner acceptable to the Board
of Directors. Nothing herein shall be deemed to require the Company to apply
for or to obtain such listing, registration or qualification, or to satisfy such
condition.
15. Governing Law.
The Plan and all determinations made and actions taken pursuant hereto
shall be governed by the laws of the State of Delaware.
Adopted by the Board of Directors,
on October 18, 1996.
-6-
<PAGE>
Exhibit 10.4
________________________________________
FINANCING AND SECURITY AGREEMENT
Dated as of October 18, 1995
by and among
THE FIRST NATIONAL BANK OF MARYLAND
and
PRODUCTION GROUP INTERNATIONAL, INC.
EXECUTOURS, INC.
SAFARIS EVENTS, INC.
KALEIDOSCOPE EVENTS, INC.
AGENDA WASHINGTON INC.
WASHINGTON, INC.
C.H.L. VENTURES, INC.
and
PGI ACQUISITION COMPANY E
__________________________________________
<PAGE>
TABLE OF CONTENTS
-----------------
Page
----
1. DEFINITIONS
1.1 Defined Terms.......................................... 1
1.2 Uniform Commercial Code Terms.......................... 11
1.3 Accounting Terms....................................... 11
1.4 ERISA Terms............................................ 11
1.5 Other Definitional Provisions.......................... 12
2. THE WORKING CAPITAL LINE OF CREDIT
2.1 Advances under the Working Capital Line
of Credit............................................ 12
2.2 Repayment and Prepayment under Working Capital
Line of Credit Advances.............................. 13
3. THE ACQUISITION FACILITY
3.1 Advances under the Acquisition Facility................ 14
3.2 Repayment and Prepayment of Advances under
the Acquisition Facility............................. 14
4. THE EQUIPMENT FACILITY
4.1 Advances under the Equipment Facility.................. 15
4.2 Repayment and Prepayment of Advances of the
Equipment Facility................................... 15
5. GENERAL CREDIT PROVISIONS
5.1 Payments............................................... 16
5.2 Illegality............................................. 16
5.3 Increased Costs........................................ 17
5.4 Computations........................................... 18
5.5 Application of Payments................................ 18
5.6 Reliance by Bank on Communications
and Authorizations from Production Group
International, Inc. on behalf of Borrowers........... 19
5.7 Joint and Several Liability; Right of
Contribution......................................... 19
6. SECURITY
6.1 Financing Documents.................................... 19
6.2 Collateral............................................. 20
6.3 Location of Collateral; Principal Place of
Business............................................. 21
6.4 Loss of Collateral..................................... 21
6.5 Filing of Financing Statements; Perfection
of Security Interest in Collateral.................... 21
- i -
<PAGE>
Page
----
7. REPRESENTATIONS AND WARRANTIES
7.1 Subsidiaries............................................ 22
7.2 Good Standing........................................... 22
7.3 Corporation Authority................................... 23
7.4 Binding Obligations..................................... 23
7.5 Litigation.............................................. 23
7.6 No Conflicting Agreements............................... 23
7.7 Financial Condition..................................... 23
7.8 Tax Returns............................................. 24
7.9 Compliance with Laws Generally.......................... 24
7.10 Margin Stock............................................ 24
7.11 ERISA................................................... 24
7.12 Governmental Consent.................................... 25
7.13 No Default or Event of Default.......................... 25
7.14 Other Liens............................................. 25
7.15 Prior Names, Trade Names, Principal Places
of Business........................................... 25
7.16 Nature of Financing; Usury.............................. 25
8. CONDITIONS PRECEDENT
8.1 Receipt and Approval of Documents required
by Bank Commitment Letter............................. 25
8.2 Approval of Bank's Counsel.............................. 26
8.3 Compliance.............................................. 26
8.4 Bank's Fees and Expenses................................ 26
9. AFFIRMATIVE COVENANTS
9.1 Financial Reporting..................................... 26
9.2 Taxes and Claims........................................ 27
9.3 Insurance............................................... 27
9.4 Corporate Existence..................................... 28
9.5 Changes in Management................................... 28
9.6 Compliance with Laws Generally.......................... 28
9.7 Books and Records; Inspection........................... 28
9.8 Litigation.............................................. 29
9.9 Notification of Certain Events, Events of
Default and Adverse Developments...................... 29
9.10 Addition of New Subsidiaries as Borrowers............... 29
10. FINANCIAL COVENANTS
10.1 Working Capital........................................ 30
10.2 Backlog of Purchase Orders............................. 30
10.3 Net Worth.............................................. 30
10.4 Intangible Assets...................................... 30
- ii -
<PAGE>
Page
----
11. NEGATIVE COVENANTS
11.1 Impairment of Security................................ 30
11.2 No Change in Control.................................. 31
11.3 Stock in Subsidiaries................................. 31
11.4 Sale, Transfer or Encumbrance of Property............. 31
11.5 No Additional Indebtedness............................ 31
11.6 Merger; Dissolution or Sale of Assets................. 31
11.7 Dividends or Distributions to Stockholders............ 31
11.8 Payments, Advances and Salaries to Stockholders....... 31
11.9 ERISA Compliance...................................... 32
12. EVENTS OF DEFAULT; REMEDIES
12.1 Events of Default..................................... 32
12.2 Remedies.............................................. 32
13. MISCELLANEOUS
13.1 Notices............................................... 37
13.2 Survival of Agreement; Successors and Assigns......... 38
13.3 Fees and Expenses of Bank............................. 38
13.4 Applicable Law; Jurisdiction; Consent to
Service of Process.................................. 39
13.5 Waiver of Trial by Jury............................... 39
13.6 Confession of Judgment................................ 40
13.7 Modifications......................................... 40
13.8 No Waiver of Rights by Bank........................... 41
13.9 No Liability of Bank; No Warranty by Bank............. 41
13.10 Indemnification....................................... 41
13.11 No Partnership........................................ 42
13.12 Time of Essence....................................... 42
13.13 Illegality............................................ 42
13.14 Counterparts.......................................... 42
13.15 Captions and Headings................................. 42
13.16 Borrowers' Obligations Absolute and
Unconditional....................................... 42
13.17 Extension of Termination Date ........................ 43
13.18 Confidentiality....................................... 44
EXHIBITS AND SCHEDULES
- ----------------------
Exhibit A - Form of Application and Agreement for Standby Letters of Credit
Exhibit B - Form of Borrowing Base Certificate
Exhibit C - Form of Customer Backlog Certificate
Exhibit D - Form of Subordination Agreement for Acquisition Debt
Exhibit E - Form of Assumption Agreement for New Subsidiaries
Schedule I - Description of Permitted Liens
Schedule II - Schedule of Prior Names; Trade Names; Principal Places of
Business
- iii -
<PAGE>
FINANCING AND SECURITY AGREEMENT
--------------------------------
THIS FINANCING AND SECURITY AGREEMENT (this "Agreement") is made as of this
____ day of October, 1995, among THE FIRST NATIONAL BANK OF MARYLAND, a national
banking association (the "Bank"), and PRODUCTION GROUP INTERNATIONAL, INC., a
Virginia corporation ("Production Group"), and its subsidiaries, EXECUTOURS,
INC., a Massachusetts corporation, SAFARIS EVENTS, INC., a Virginia corporation,
KALEIDOSCOPE EVENTS, INC., a Virginia corporation, AGENDA WASHINGTON INC., a
Virginia corporation, WASHINGTON, INC., a District of Columbia corporation,
C.H.L. VENTURES, INC., a California corporation, and PGI ACQUISITION COMPANY E,
a Virginia corporation (Production Group and each of its identified subsidiaries
being hereinafter identified each as a "Borrower" and collectively as the
"Borrowers").
RECITALS
--------
The Borrowers have applied to the Bank for credit facilities in the total
aggregate principal amount at any one time outstanding of United States Ten
Million Dollars (U.S. $10,000,000) to be comprised of the following
(collectively, the "Credit Facilities"):
(a) A working capital line of credit in the amount of up to
$4,000,000, which shall be available for direct loan advances and standby
letters of credit until September 30, 1996 (the "Working Capital Line of
Credit");
(b) An acquisition facility in the amount of up to $5,000,000, which
shall be available to finance Eligible Acquisitions and the purchase of shares
from minority shareholders until May 31, 1998 (the "Acquisition Facility"); and
(c) An equipment facility in the amount of up to $1,000,000, which
shall be available to purchase new equipment and to refinance existing equipment
until May 31, 1996 (the "Equipment Facility").
The Bank is willing to extend the Credit Facilities to the Borrowers upon
the terms and subject to the conditions of this Agreement.
AGREEMENTS
----------
NOW, THEREFORE, in consideration of the mutual agreements herein and other
good and valuable consideration, the Borrowers and the Bank hereby agree as
follows:
ARTICLE I
DEFINITIONS
1.1 Defined Terms. As used in this Agreement, the following terms shall
-------------
have the following meanings:
<PAGE>
"Acquisition Facility" shall mean the line of credit established
--------------------
pursuant to Article III of this Agreement to finance Eligible Acquisitions and
-----------
the purchase of shares from minority shareholders by any Borrower.
"Acquisition Facility Commitment" shall mean the commitment by the
-------------------------------
Bank to make direct loan advances to any Borrower to fund any of the approved
purposes for which the Acquisition Facility was established, in the aggregate
principal amount at any one time outstanding not to exceed United States Five
Million Dollars (U.S. $5,000,000).
"Acquisition Facility Obligations" shall mean the joint and several
--------------------------------
obligations of the Borrowers to repay all advances of the Acquisition Facility,
with interest thereon, at the times and in the amounts provided in the
Acquisition Facility Promissory Note, and any related obligations for the
payment of fees and expenses provided for by the terms of this Agreement.
"Acquisition Facility Promissory Note" shall mean the promissory note
------------------------------------
of even date herewith executed by the Borrowers in favor of the Bank and
containing the terms and conditions under which the principal amount of advances
made under the Acquisition Facility, together with interest thereon, will be
repaid.
"Advance Rate Percentage" shall mean the percentage of the Borrowers'
-----------------------
Eligible Receivables for purposes of determining the Receivables Collateral
Value which percentage will be determined on the basis of the Borrowers'
aggregate Dilution Rate for Receivables for the immediately preceding fiscal
quarter, as follows:
Dilution Rate Advance Rate Percentage
------------- -----------------------
0 greater than 5% 85%
5 greater than 10% 80%
10 greater than 15% 75%
greater than 15% 60%
"Agreement" shall mean this Financing and Security Agreement, as it
---------
may from time to time be amended, supplemented or otherwise modified in
accordance with the terms hereof.
"Application and Agreement for Standby Letter of Credit" shall mean an
------------------------------------------------------
Application and Agreement for Standby Letter of Credit in the form attached
hereto as Exhibit A and made a part hereof, or in such other form which is
---------
provided by the Bank to the Borrowers as the form of Application and Agreement
which is then in use by the Bank in connection with the issuance of its Standby
Letters of Credit, which is executed by a Borrower and delivered to the Bank in
connection with a request for the issuance of a Standby Letter of Credit.
"Available Acquisition Facility Commitment" shall mean, at any
-----------------------------------------
particular time, an amount equal to the amount of the
- 2 -
<PAGE>
Acquisition Facility Commitment at such time, minus the Utilized Portion of the
-----
Acquisition Facility Commitment.
"Available Equipment Facility Commitment" shall mean, at any
---------------------------------------
particular time, an amount equal to the amount of the Equipment Facility
Commitment at such time, minus the Utilized Portion of the Equipment Facility
-----
Commitment.
"Available Working Capital Line of Credit Commitment" shall mean, at
---------------------------------------------------
any particular time, an amount equal to the lesser of (a) the amount of the
Working Capital Line of Credit Commitment at such time, and (b) the Receivables
Collateral Value at such time, minus the Utilized Portion of the Working Capital
-----
Line of Credit Commitment.
"Bank Commitment Letter" shall mean the Bank's Commitment Letter dated
----------------------
August 30, 1995, addressed to the Borrowers.
"Borrowers' Account" shall mean the Production Group account with the
------------------
Bank.
"Borrowers' Obligations" shall mean, collectively, the Acquisition
----------------------
Facility Obligations, the Equipment Facility Obligations and the Working Capital
Line of Credit Obligations, together with all other sums due from the Borrowers
to the Bank under the terms of the Financing Documents.
"Business Day" shall mean a day on which commercial banking
------------
institutions are open for business in Baltimore, Maryland.
"Collateral" shall have the meaning given to such term in Section 6.2
---------- -----------
of this Agreement.
"Commitment Period" shall mean the period during which each of the
-----------------
Acquisition Facility Commitment, the Equipment Facility Commitment and the
Working Capital Facility Commitment, respectively, will be available to be
accessed by the Borrowers, which period begins on the date of this Agreement and
ends on the Termination Date applicable to each of the Credit Facilities.
"Credit Facilities" shall mean, collectively, the Acquisition
-----------------
Facility, the Equipment Facility and the Working Capital Line of Credit.
"Default" shall mean any of the events specified in Section 12.1
------- ------------
hereof, whether or not any requirement for the giving of notice, the lapse of
time, or both, or any other condition, has been satisfied.
"Dilution Rate" shall mean the aggregate percentage of the Borrowers'
-------------
Receivables which were subject to write-off or write-down, were determined by
the applicable Borrower to be "uncollectible" in accordance with that Borrower's
standard credit and collection policies, or were not for any reason collected
- 3 -
<PAGE>
within 180 days of the invoice date, during the Borrowers' previous fiscal
quarter.
"Dollars" and the sign "$" shall mean dollars in lawful money of the
------- -
United States of America and, in relation to all payments in Dollars hereunder,
(i) same day funds paid through the Baltimore Clearing House Interbank Payments
Systems, or (ii) immediately available funds paid through the Baltimore Federal
Reserve Bank, or (iii) such other funds as may then be required by the customary
procedure of member banks of the Baltimore Clearing House Association for the
settlement of payments in Dollars.
"Eligible Acquisitions" shall mean any corporation which satisfies the
-----------------------
following eligibility requirements or is otherwise approved in writing by the
Bank for financing under the Acquisition Facility:
(a) the corporation conducts a business which is within the same or
related lines of service businesses as those conducted by the Borrowers;
(b) the corporation has not been generating net losses on an
historical basis, taking into account any adjustments which are typically made
in accordance with generally accepted accounting principles as interpreted by
the "Big 6" international accounting firms when filing pro-forma post-
acquisition financial statements with the Securities and Exchange Commission
(the "SEC") (i.e. the inclusion of debt and related interest costs incurred to
finance the acquisition and the exclusion of income, charges and operating costs
and owner compensation beyond customary and reasonable salary all of which are
non-recurring in nature and which will be non-recurring following the
acquisition);
(c) Production Group has delivered to the Bank a certificate of each
of its chief financial officer or chief executive officer and, in the event that
---
the total purchase price of the Eligible Acquisition exceeds $2,000,000, of
Production Group's independent auditors or another independent auditor who is
engaged by Production Group to represent it in connection with the Acquisition,
to the effect that, on a pro-forma combined basis for the most recent fiscal
quarter of the Borrowers, the purchase of the Eligible Acquisition, if it had
occurred during such fiscal quarter, would not have resulted in a violation of
any of the financial covenants contained in the Financing Documents; taking into
account any adjustments which are typically made in accordance with generally
accepted accounting principles as interpreted by the "Big 6" international
accounting firms when filing pro-forma post-acquisition financial statements
with the SEC (i.e. the inclusion of debt and related interest costs incurred to
finance the acquisition and the exclusion of income, charges and operating costs
which are non-recurring in nature and which will be non-recurring following the
acquisition);
(d) any financing extended to the Borrowers by one or more sellers of
the corporation shall be (i) repaid (on an
- 4 -
<PAGE>
average weighted basis) over a period in excess of that which would be
determined on the basis of a three-year straight-line amortization schedule,
except for the Spearhead Communications Limited subordinated debt, which does
not satisfy this requirement and (ii) subordinated as to collection to the
Borrowers' obligations to the Bank in respect of the Acquisition Facility, which
subordination shall be documented in an agreement among the seller(s), Borrowers
and Bank in substantially the form attached hereto as Exhibit D and made a part
---------
hereof; and (e) the purchase by the Borrowers of the corporation shall not
---
immediately or with the passage of time cause a Default or an Event of Default
under the Financing Documents.
"Eligible Receivable" and "Eligible Receivables" mean, at any time of
--------------------- ----------------------
determination thereof, each account which conforms and continues to conform to
the following criteria to the satisfaction of the Bank. A Receivable which is
at any time an Eligible Receivable, but which subsequently fails to meet the
requirements of the Bank for eligibility shall cease for all purposes to be an
Eligible Receivable. In addition to any other criteria for eligibility
determined by the Bank, a Receivable shall not be deemed to be eligible unless
it meets the following minimum requirements (except as the Bank may otherwise
expressly consent in writing):
(a) the Receivable is genuine and is in all respects what it
purports to be;
(b) the Receivable arose in the ordinary course of the business
of any Borrower from a bona fide outright sale or lease of goods by a Borrower,
or from services performed by a Borrower, and (i) such goods have been delivered
to the appropriate account debtor or their respective designees, the appropriate
Borrower has in its possession shipping and delivery receipts evidencing such
shipment and delivery, no return, rejection or repossession has occurred, and
such goods have been finally accepted by the account debtor, or (ii) such
services have been satisfactorily completed and accepted by the appropriate
account debtor;
(c) the Receivable is based upon an enforceable written contract
for goods delivered or for services performed, and the same were shipped, held,
or performed in accordance with such order or contract; it being the intention
that advance billings not be considered as Receivables until such time as
performance is completed by the relevant Borrower;
(d) the title of the appropriate Borrower to the Receivable is
absolute and is not subject to any lien or security interest except in favor of
the Bank, and the appropriate Borrower otherwise has the full and unqualified
right and power to assign and grant a security interest in the Receivable to the
Bank as security and collateral for the payment of the Borrowers' obligations in
respect of the Financing;
- 5 -
<PAGE>
(e) the amount, which is shown on the books of the appropriate
Borrower and on any invoice, certificate, schedule or statement delivered to the
Bank, is owing to such Borrower and no partial payment has been received unless
accurately reflected and deducted from the principal amount of the Receivable
then due and \owing;
(f) the Receivable is not at that time and will not to the
knowledge of the Borrower be subject to any claim of reduction, counterclaim,
setoff, recoupment, or other defense in law or equity, or any claim for credits,
allowances, or adjustments by the account debtor because of returned, inferior,
or damaged goods or unsatisfactory services, or for any other reason;
(g) the account debtor has not returned or refused to retain, or
otherwise notified the Borrower of any dispute concerning, or claimed
nonconformity of, any of the goods or services from the sale of which the
account arose;
(h) the account debtor is not the subject of any bankruptcy or
insolvency proceedings, and the Receivable is not in the Bank's opinion unlikely
to be paid because of insolvency, potential bankruptcy, death or any other
reason;
(i) the Receivable is not subject to any potential claim of a
surety or bonding company;
(j) the Receivable does not arise from any transactions with any
affiliated entity or person of any Borrower, or employee of any Borrower;
(k) the Receivable does not represent the payment obligation of
any account debtor incorporated in or primarily conducting business outside of
the United States, unless (i) the transaction giving rise to the Receivable is
supported by a letter of credit, acceptance or other credit enhancement
acceptable to the Bank or (ii) the Receivable represents a credit risk which is
otherwise acceptable to the Bank, is denominated in U.S. Dollars, British
Sterling or other currency acceptable to the Bank and the assignment of the
---
Receivable to the Bank as security for the Borrowers' Obligations has been
perfected to the satisfaction of the Bank;
(l) the Receivable does not arise from any sales on approval or
consignments, and the Receivable is not otherwise subject to any repurchase or
return agreements;
(m) if the account debtor is the United States or any
instrumentality thereof, the appropriate Borrower has assigned the rights to
receive payment to the Bank in compliance with the Assignment of Claims Act of
---------------------------
1940, as amended, and any applicable regulations;
- ----
(n) the aggregate dollar amount of Receivables due from any
single account debtor do not exceed (i) 10% of the Borrower's aggregate annual
revenue and (ii) 25% of the Borrowers' aggregate Receivables represented in any
---
one monthly aging report;
- 6 -
<PAGE>
(o) no more than 120 days have elapsed from the invoice date and
no more than 90 days have elapsed from the date on which payment was due under
the invoice;
(p) the Receivable is not payable by an account debtor with
respect to which 50% or more of the dollar amount of such account debtor's
Receivables to any Borrower are more than 120 days from the date of invoice or
more than 90 days due from the date on which payment was due under the invoice;
(q) the Receivable is not evidenced by Chattel Paper or
Instruments unless the Bank has agreed in writing that it may be deemed eligible
and all originals of such Chattel Paper or Instruments have been endorsed and
delivered to the Bank;
(r) the Receivable is not subject to any offset and is not
payable by any account debtor who is owed any sum by any Borrower except for
unrelated trade debt owned by any Borrower to a provider of services in the
ordinary course of business;
(s) no part of the Receivable represents a progress billing or a
retainage, and
(t) the Bank in the exercise of its sole and absolute discretion
has not deemed the Receivable ineligible because of uncertainty as to the
creditworthiness of the account debtor or because the Bank otherwise considers
the collateral value thereof to the Bank to be impaired or its ability to
realize such value to be insecure.
In the event of any dispute, under the foregoing criteria, as to whether an
account is, or has ceased to be, an Eligible Receivable, the decision of the
Bank in the exercise of its sole and absolute discretion shall control.
"Equipment Facility" shall mean the line of credit established
------------------
pursuant to Article IV of this Agreement to fund the purchase of new equipment
----------
or refinancing of existing equipment by any Borrower.
"Equipment Facility Commitment" shall mean the commitment by the Bank
-----------------------------
to make direct loan advances to any Borrower to fund any of the approved
purposes for which the Equipment Facility was established in the aggregate
principal amount at any one time outstanding not to exceed United States One
Million Dollars (U.S. $1,000,000).
"Equipment Facility Obligations" shall mean the joint and several
------------------------------
obligations of the Borrowers to repay all advances of the Equipment Facility,
with interest thereon, at the times and in the amounts provided in the Equipment
Facility Promissory Note, and any related obligations for the payment of fees
and expenses provided for by the terms of this Agreement.
- 7 -
<PAGE>
"Equipment Facility Promissory Note" shall mean the promissory note of
----------------------------------
even date herewith executed by the Borrowers in favor of the Bank and containing
the terms and conditions under which the principal amount of advances made under
the Equipment Facility, together with interest thereon, will be repaid.
"Event of Default" shall mean any of the events specified in Section
---------------- -------
12.1 hereof, provided that any requirement for the giving of notice, the lapse
- ----
of time, or both, or any other condition, has been satisfied.
"Financing Documents" shall mean, collectively, this Financing and
-------------------
Security Agreement, all Applications and Agreements for Standby Letters of
Credit and Standby Letters of Credit issued pursuant thereto, the Acquisition
Facility Promissory Note, the Equipment Facility Promissory Note and the Working
Capital Line of Credit Promissory Note and any other documents, certificates and
agreements which are hereafter executed and delivered by one or more Borrowers
or any other Person in connection with any of the Borrowers' Obligations.
"Governmental Authority or Authorities" shall mean any governmental or
-------------------------------------
quasi-governmental entity, court or tribunal including, without limitation, any
department, commission, board, bureau, agency, administration, service or other
instrumentality of any foreign or domestic governmental entity.
"Permitted Liens" shall mean (a) liens or security interests in favor
---------------
of the Bank; (b) existing liens described in Schedule I attached hereto and made
----------
a part hereof; (c) liens arising or created in the future with the prior written
consent of the Bank; and (d) purchase money security interests in equipment,
except to the extent that such equipment is financed or refinanced under the
Equipment Facility.
"Person" shall mean an individual, a partnership, a corporation, a
------
trust, any other organization or entity or any government or governmental body
or authority.
"Prime Rate" shall mean the greater of (a) the floating and
----------
fluctuating per annum prime rate of interest established and declared by the
Bank from time to time, and (b) the average rate, rounded to the nearest one-
tenth of one percent (0.1%), for 90-day maturity dealer-placed commercial paper
for the week most recently reported in the Federal Reserve Statistical Release
number H-15, entitled "Selected Interest Rates" (or any succeeding publication).
The Prime Rate is an index determined by the Bank and does not represent the
lowest rate of interest charged by the Bank to any borrower or class of
borrowers. Each time the Prime Rate shall change, the rate of interest, which
is applicable to any of the Borrowers' Obligations bear interest on the basis of
the Prime Rate, shall change immediately and contemporaneously with each such
change of the Prime Rate.
- 8 -
<PAGE>
"Proceeds" or "proceeds" shall mean, when used with respect to any of
-------- --------
the Collateral, all cash and non-cash proceeds within the meaning of the Uniform
Commercial Code as adopted by the state in which the Collateral to which such
Proceeds relate is or was located, and shall include the proceeds of any an all
insurance policies.
"Receivables Collateral Value" shall mean the relevant Advance Rate
----------------------------
Percentage multiplied by the aggregate amount of the Borrowers' Eligible
Receivables for purposes of determining the Available Working Capital Line of
Credit Commitment.
"Standby Letter of Credit" shall mean a Standby Letter of Credit
------------------------
issued by the Bank under the Working Capital Line of Credit to a designated
beneficiary for the account of a Borrower, upon receipt of an executed
Application and Agreement for Standby Letter of Credit, which Standby Letter of
Credit will be in form and content satisfactory to the Bank in all respects.
"Subsidiary" shall mean, with respect to any Person, any other Person
----------
owning or controlling (a) securities having ordinary voting power to elect a
majority of the board of directors (or Persons having a similar function), or
(b) other ownership interests constituting a majority voting interest.
"Taxes" shall mean the taxes and assessments whether general or
-----
special, ordinary or extraordinary, or foreseen or unforeseen, which at any time
may be assessed, levied, confirmed or imposed on any Borrower or on any of its
properties or assets or any part thereof or in respect of any of its franchises,
businesses, income or profits.
"Termination Date" shall mean, for each of the Credit Facilities, the
----------------
date set forth below:
Credit Facility Termination Date
--------------- ----------------
Acquisition Facility May 31, 1998
Equipment Facility September 30, 1996
Working Capital Line of Credit September 30, 1996
(unless such date is not a Business Day, in which case the Termination Date
shall be the next succeeding Business Day), unless the Termination Date is
otherwise accelerated in accordance with Section 12.2 hereof or unless such
------------
Termination Date is extended in accordance with Section 13.17 hereof. The
-------------
effectiveness of this Agreement and of each of the other Financing Documents
shall not be determined on the basis of the Termination Date, it being the
intention of the parties that this Agreement and each of the other Financing
Documents remain in full force and effect until the Borrowers' Obligations have
been paid and performed in full.
"Utilized Portion of the Acquisition Facility Commitment" shall mean
-------------------------------------------------------
the sum of all outstanding advances under the
- 9 -
<PAGE>
Acquisition Facility with respect to which the Borrowers have not satisfied in
full their Acquisition Facility Obligations.
"Utilized Portion of the Equipment Facility Commitment" shall mean the
-----------------------------------------------------
sum of all outstanding advances under the Equipment Facility with respect to
which the Borrowers have not satisfied in full their Equipment Facility
Obligations.
"Utilized Portion of the Working Capital Line of Credit Commitment"
-----------------------------------------------------------------
shall mean the sum of (a) all outstanding loan advances with respect to which
the Borrowers have not satisfied in full their Working Capital Line of Credit
Advance Obligations, and (b) all amounts which have been drawn and not
reimbursed or are then available to be drawn by the beneficiaries of all Standby
Letters of Credit with respect to which the Borrowers have not satisfied in full
their Working Capital Line of Credit Obligations.
"Working Capital Line of Credit" shall mean the line of credit
------------------------------
established pursuant to Article II of this Agreement to provide direct loan
----------
advances and Standby Letters of Credit to finance the working capital needs of
any Borrower.
"Working Capital Line of Credit Commitment" shall mean the commitment
-----------------------------------------
by the Bank to make direct loan advances to any Borrower and to issue Standby
Letters of Credit for the account of any Borrower to satisfy any of the approved
financing needs for which the Working Capital Line of Credit was established,
the Borrowers' Obligations with respect to which shall not exceed United States
Four Million Dollars (U.S. $4,000,000) in the aggregate principal amount at any
one time outstanding.
"Working Capital Line of Credit Obligations" shall mean the joint and
------------------------------------------
several obligations of the Borrowers to repay all loan advances under the
Working Capital Line of Credit with interest thereon, at the time and in the
amounts provided in the Working Capital Line of Credit Promissory Note, and to
---
reimburse the Bank for all drawings under Standby Letters of Credit, with
interest thereon, at the times and in the amounts provided in the Applications
and Agreements for Standby Letters of Credit, and any related obligations for
the payment of fees and expenses provided for by the terms of this Agreement.
"Working Capital Line of Credit Promissory Note" shall mean the
----------------------------------------------
promissory note of even date herewith executed by the Borrowers in favor of the
Bank and containing the terms and conditions under which the principal amount of
loan advances made under the Working Capital Line of Credit, together with
interest thereon, will be repaid.
1.2 Uniform Commercial Code Terms.
-----------------------------
"Accounts", "Chattel Paper", "Contract Rights", "Equipment", "General
-------- ------------- --------------- --------- -------
Intangibles", "Instruments" and "Inventory" shall, in addition to any meaning
- ----------- ----------- ---------
given to such term in this Agreement, have the respective meanings as are given
to those terms
- 10 -
<PAGE>
in the Uniform Commercial Code as presently adopted and in effect in the States
in which any portion of the Collateral may be located, and shall also cover,
without limitation, (a) any property specifically included in this Agreement,
(b) all property included in these respective terms, whether now owned or
existing or hereafter acquired or created, and (c) all proceeds (cash and non-
cash) of the foregoing.
"Receivables" shall mean the Borrower's now owned or hereafter
-----------
acquired Accounts, Chattel Paper, Contract Rights, General Intangibles and
Instruments, and all cash and non-cash proceeds thereof.
1.3 Accounting Terms. Unless specifically provided otherwise, all
----------------
accounting terms (such as, by way of example, "Tangible Net Worth", "Net Worth",
"Debt", and "Debt Service") shall have the definitions given them in accordance
with United States generally accepted accounting principles as applied to the
applicable Person and its Subsidiaries, if any, on a consistent basis by its
accountants in the preparation of its previous annual financial statements, and
unless otherwise indicated, all accounting terms and covenants shall be applied
on a consolidated basis. For purposes of the financial covenants contained in
Article X of this Agreement, subordinated debt which satisfies the requirements
- ---------
of clause (d) of the definition of "Eligible Acquisitions" shall be treated as
equity.
1.4 ERISA Terms. Certain terms used in this Agreement are defined in the
-----------
Employee Retirement Income Security Act of 1974, as amended ("ERISA") or are
otherwise defined in the Internal Revenue Code of 1986, as amended (the "Code").
When and if used in this Agreement, such terms shall have the meanings given
them in ERISA. Specifically, the following terms shall have the following
meanings:
"Accumulated Funding Deficiency" means an "accumulated funding
------------------------------
deficiency" as defined in Section 302 of ERISA or Section 412(a) of the Code.
"Commonly Controlled Entity" means any Subsidiary or any other trade
--------------------------
or business (whether or not incorporated) which is under "common control" (as
defined in the Code) and of which any Borrower or any of its Subsidiaries is a
part.
"Multiemployer Plan" means a multiemployer plan (as defined in ERISA)
------------------
to which any Borrower or any Commonly Controlled Entity, as appropriate, has or
had an obligation to contribute.
"Plan" means any pension, profit sharing, savings, stock bonus or
----
other deferred compensation plan which is subject to the requirements of ERISA,
together with any related trusts.
"Prohibited Transaction" means a "prohibited transaction" as defined
----------------------
in Section 406 of ERISA or Section 4975 of the Code.
- 11 -
<PAGE>
"Reportable Event" means a "reportable event" as defined by Title IV
----------------
of ERISA.
1.5 Other Definitional Provisions.
-----------------------------
(a) All terms defined in this Agreement shall have their defined
meanings when used in any certificate or other document made or delivered
pursuant hereto.
(b) The words "hereof," "herein" and "hereunder" and words of similar
import, when used in this Agreement shall refer to this Agreement as a whole and
not to any particular provision of this Agreement, and section, subsection,
schedule and exhibit references are to this Agreement unless otherwise
specified.
ARTICLE II
THE WORKING CAPITAL LINE OF CREDIT
2.1 Working Capital Line of Credit Advances.
---------------------------------------
(a) Direct Loan Advances. Subject to the provisions of this
--------------------
Agreement, including the satisfaction of the conditions precedent described in
Article VIII hereof, the Bank agrees to make direct loan advances under the
- ------------
Working Capital Line of Credit in Dollars from time to time during the
Commitment Period, in amounts not to exceed the then Available Working Capital
Line of Credit Commitment. Direct loan advances will be made by the Bank under
the Working Capital Line of Credit in amounts of not less than $10,000 to the
Borrowers' Account within one Business Day following receipt by the Bank of a
written request therefor, together with a completed and executed Borrowing Base
Certificate substantially in the form of Exhibit B attached hereto and made a
---------
part hereof.
(b) Issuance of Standby Letters of Credit. Subject to the provisions
-------------------------------------
of this Agreement, including the satisfaction of the conditions precedent
described in Article VIII hereof, and upon receipt of a completed and executed
------------
Application and Agreement for Standby Letter of Credit and a completed and
executed Borrowing Base Certificate in substantially the form attached hereto as
Exhibit B and made a part hereof, the Bank agrees to issue from time to time
- ---------
during the Commitment Period, Standby Letters of Credit under the Working
Capital Line of Credit to beneficiaries designated by a Borrower, in stated
amounts denominated in Dollars, not to exceed the then Available Working Capital
Line of Credit Commitment. No Standby Letter of Credit shall have an Expiry
Date which is later than one calendar year from the date of its issuance. In
the event that the expiry date of any Standby Letter of Credit occurs after the
Termination Date, the Borrowers will be obligated to prepay all of their Working
Capital Line of Credit Obligations relating to such Standby Letter of Credit on
the day immediately preceding the Termination Date. Standby Letters of Credit
will be issued by the Bank as soon as practicable following receipt of the
related Application and Agreement, the Borrowing Base Certificate and any other
information which the Bank may
- 12 -
<PAGE>
require in order to issue the requested Standby Letter of Credit in form and
content satisfactory to the Bank in all respects.
2.2 Repayment and Prepayment of Working Capital Line of Credit Advances.
-------------------------------------------------------------------
(a) Repayment and Prepayment of Direct Loan Advances. All direct loan
------------------------------------------------
advances under the Working Capital Line of Credit, together with interest
thereon, must be repaid in accordance with the terms of the Working Capital Line
of Credit Promissory Note. The Borrowers' Working Capital Line of Credit
Obligations with respect to direct loan advances may be prepaid under the terms
of the Working Capital Line of Credit Promissory Note and must be prepaid from
Proceeds of Receivables received by any Borrower, as provided in the Working
Capital Line of Credit Promissory Note.
(b) Reimbursement of Drawings under Standby Letters of Credit.
---------------------------------------------------------
(i) The Borrowers' Working Capital Line of Credit Obligations
in respect of each Standby Letter of Credit, including (without limitation) the
Borrowers' obligations to reimburse the Bank for all drawings honored under each
Standby Letter of Credit, together with any interest thereon, shall be set forth
in the related Application and Agreement.
(ii) The terms of each Application and Agreement for Standby
Letters of Credit are incorporated herein by reference. To the extent that there
is any direct conflict between the terms of any Application and Agreement for
Standby Letter of Credit and this Agreement, the terms of this Agreement will
prevail, except to the extent of (i) definitions contained in any Application
and Agreement or (ii) any provision contained in any Application and Agreement
which subjects the Letter of Credit issued pursuant thereto to the "Uniform
Customs and Practice for Documentary Credits" of the International Chamber of
Commerce, as adopted from time to time.
(iii) (A) Working Capital Line of Credit Obligations may be
prepaid by the Borrowers, in whole but not in part for any one Standby Letter of
Credit, at any time, without premium or penalty; provided, however, that the
Borrowers shall give the Bank written notice of any prepayment no later than 12
noon on the date of such prepayment, and the Borrowers shall not be entitled to
(I) a rebate of the amount so prepaid, unless the Standby Letter of Credit to
which such prepayment relates expires without having been drawn by the
beneficiary thereof, or (II) any interest on the amount so prepaid, unless the
Borrowers elect to prepay the Working Capital Line of Credit Obligations
relating to Standby Letters of Credit due to the imposition by the Bank of
increased costs in accordance with the provisions of Section 5.3 hereof, in
-----------
which case, at the time that either (1) the stated amount of each such Standby
Letter of Credit is fully drawn by the beneficiary thereof and such drawing is
honored by the Bank, or (2) each such Standby Letter of Credit expires without
having been drawn by the
- 13 -
<PAGE>
beneficiary thereof, the Bank shall remit to the Borrowers interest on the
amount prepaid, for the period from the date of prepayment to the date of the
occurrence described in clause (1) or (2) above, at a rate equal to the bid rate
obtainable by the Bank in the Interbank Eurodollar Market one Business Day after
the date of the prepayment for deposits in a principal amount equal to the
amount prepaid and with a maturity approximating the period from the date of
prepayment to the date of the occurrence described in clause (1) or (2), minus
all reasonable costs and expenses of the Bank incurred as a result of such
prepayment and/or as a result of the investment of such prepaid sums.
(B) Working Capital Line of Credit Obligations relating to any Standby
Letter of Credit having an expiry date which is later than the Termination Date
must be prepaid in full on the day immediately preceding the Termination Date,
as this date may be accelerated in accordance with Section 12.2(a) of this
---------------
Agreement or extended in the sole and absolute discretion of the Bank in
accordance with Section 13.17 of this Agreement.
-------------
(C) Unless the remaining Receivables Collateral Value continues to
support the then outstanding Borrowers' Working Capital Line of Credit
Obligations, the Borrowers' Working Capital Line of Credit Obligations relating
to Standby Letters of Credit must be prepaid from Proceeds of Receivables
received by any Borrower in amounts which exceed the Borrowers' Working Capital
Line of Credit Obligations relating to direct loan advances.
ARTICLE III
THE ACQUISITION FACILITY
3.1 Advances under the Acquisition Facility. Subject to the provisions of
---------------------------------------
this Agreement, including the satisfaction of the conditions precedent described
in Article VIII hereof, the Bank agrees to make direct loan advances under the
------------
Acquisition Facility in Dollars from time to time during the Commitment Period,
in amounts not to exceed the then Available Acquisition Facility Commitment.
Direct loan advances under the Acquisition Facility will be made by the Bank in
amounts of not less than $10,000 to the Borrowers' Account within one Business
Day following receipt by the Bank of written request therefore, together with
all of the documents needed to substantiate the financing of an Eligible
Acquisition. On or about the Effective Date of this Agreement and provided that
all conditions precedent described in Article VIII hereof have been satisfied,
------------
an initial advance of the Acquisition Facility will be made for the purpose of
refinancing the bridge loan in the original principal amount of $2,500,000 which
was extended to the Borrowers pursuant to the terms of the Bank Commitment
Letter and related loan documents.
3.2 Repayment and Prepayment of Advances of the Acquisition Facility. The
----------------------------------------------------------------
principal amount of all direct loan advances under the Acquisition Facility,
together with interest thereon, must be
- 14 -
<PAGE>
repaid and may be prepaid in accordance with the terms of the Acquisition
Facility Promissory Note.
ARTICLE IV
THE EQUIPMENT FACILITY
4.1 Advances of the Equipment Facility. (a) Subject to the provisions of
----------------------------------
this Agreement, including the satisfaction of the conditions precedent described
in Article VIII hereof, the Bank agrees to make direct loan advances under the
------------
Equipment Facility in Dollars from time to time during the Commitment Period, in
the amount of up to 75% of the cost of new Equipment or 60% of the cost of used
Equipment, not to exceed the then Available Equipment Facility Commitment.
Direct loan advances under the Equipment Facility will be made by the Bank in
amounts of not less than $100,000 to the Borrowers' Account within one Business
Day following receipt by the Bank of a written request therefor, together with a
completed and executed Borrowing Base Certificate in substantially the form
attached hereto as Exhibit B-2 and made a part hereof and information describing
-----------
the particular items of equipment to be financed or refinanced and evidence of
the release and termination of record of any liens covering such equipment.
(b) At the written request of a Borrower, advances will be made in the
form of a loan to fund the purchase of a portion of the cost of a particular
item of equipment by the Bank (with the balance of the purchase price to be paid
in cash by applicable Borrower prior to purchase), subject to an equipment lease
to the Borrower.
4.2 Repayment and Prepayment of Advances of the Equipment Facility. (a)
--------------------------------------------------------------
The principal amount of all direct loan advances under the Equipment Facility,
together with interest thereon, must be repaid and may be prepaid in accordance
with the terms of the Equipment Facility Promissory Note. The Equipment
Facility Obligations must be prepaid from any Proceeds of the Equipment
resulting from any sale for fair market value, casualty or otherwise, as
provided in the Equipment Facility Promissory Note.
(b) In the event that advances of the Equipment Facility are made to
finance a portion of the purchase price of the cost of a particular item of
equipment by the Bank, subject to a lease to a Borrower, the repayment of the
advances, together with the financing cost associated with the lease
transaction, will be made in accordance with an equipment lease between the Bank
and applicable Borrower, with the joint and several guaranty of the other
Borrowers, in the standard form used by the Bank in connection with similar
equipment lease transactions.
- 15 -
<PAGE>
ARTICLE V
GENERAL CREDIT PROVISIONS
5.1 Payments.
--------
(a) All payments by the Borrowers under this Agreement and the other
Financing Documents of the Borrowers' Obligations, except as may be otherwise
specifically provided in the Financing Documents, shall be made to the Bank at
its office located at 25 South Charles Street, Baltimore, Maryland 21201, not
later than 2:00 P.M., prevailing Washington, D.C. time, on the due date for such
payment. If any amount payable to the Bank hereunder by the Borrowers shall not
be paid when due or the payment is made in funds which are not immediately
available, the Borrowers agree to pay to the Bank interest, to the extent
permitted by applicable law, on such amount from such due date until such amount
shall be paid in full or until funds are immediately available, as the case may
be, at a rate which is at all times equal to (i) the then applicable rate for
such overdue Borrowers' Obligations, plus two percent (2%) per annum, or (ii) in
---- --- -----
the case of overdue fees and expense reimbursements as to which no interest rate
is anticipated, the Prime Rate, plus two percent (2%) per annum. If any amount
---- --- -----
payable hereunder shall become due on a day other than a Business Day, then such
due date shall be the next succeeding Business Day.
(b) All payments to be made hereunder by the Borrowers shall be made
in Dollars, without set-off or counterclaim and free and clear of, and without
deduction for or on account of, any present or future income, stamp or other
taxes, levies, imposts, duties, charges, fees, deductions, withholdings or
restrictions or conditions of any nature whatsoever now or hereafter imposed,
levied, collected, withheld or assessed against any Borrower (collectively
referred to in this paragraph as "Withholding Taxes"). If any Withholding Taxes
are imposed and required to be withheld from any such payment, the Borrowers
shall (i) increase the amount of such payment so that the Bank will receive a
net amount (after giving effect to the payment of such additional amount and to
the deduction of all Withholding Taxes) equal to the amount due hereunder, (ii)
pay such Withholding Taxes to the appropriate taxing authority for the account
of the Bank, and (iii) as promptly as possible thereafter, send the Bank an
original receipt (or a copy thereof that has been stamped by the appropriate
taxing authority to certify payment) showing payment thereof, together with such
additional documentary evidence as the Bank may from time to time reasonably
require. If the Borrowers fail to perform their obligations to the Bank under
parts (ii) or (iii) of the preceding sentence, the Borrowers shall jointly and
severally indemnify the Bank for any such Withholding Taxes that are paid by the
Bank plus all incremental Withholding Taxes, interest or penalties that may
----
become payable as a consequence of such failure.
5.2 Illegality. Notwithstanding any other provision of this Agreement, in
----------
the event that it shall become unlawful for the Bank to maintain any aspect of
its commitment to provide the Credit Facilities contemplated by this Agreement,
including (without
- 16 -
<PAGE>
limitation) the issuance of Credit Facilities for the benefit of, or in
connection with any transaction involving, any Person resident of a country in
which the Bank is not permitted by the Office of Foreign Assets and Control of
the United States Treasury Department or any other Governmental Authority to do
business, the commitment of the Bank to extend any of the Credit Facilities so
affected shall be cancelled, and, the Borrowers agree to prepay to the Bank,
within thirty (30) calendar days of receipt of written demand by the Bank, all
of the outstanding Borrowers' Obligations to which that portion of the
commitment which is terminated as a result of illegality relates. The Bank
agrees that it will take such steps as may be reasonably available to it to
avoid or mitigate any illegality, provided that the taking of such steps shall
not in the opinion of the Bank be materially prejudicial to it.
5.3 Increased Costs. In the event that any change in applicable law,
---------------
treaty, regulation or directive, or in the interpretation or application
thereof, or compliance by the Bank with any request (whether or not having the
force of law) of any relevant central bank or other comparable agency, shall
affect obligations such as the Borrowers' Obligations or credit facilities such
as the Credit Facilities with the result of any of the following:
(a) subject the Bank to any tax of any kind whatsoever (other than
Withholding Taxes referred to in Section 5.1(b) hereof for which the Bank was
--------------
reimbursed by the Borrowers pursuant to the terms of that Section) with respect
to this Agreement or any of the other Financing Documents, any portion of the
Credit Facilities which are contemplated to be extended hereunder or of the
Borrowers' Obligations with respect thereto, or any other transactions
contemplated hereby or by the terms of any of the other Financing Documents, or
(b) change the basis of taxation of payments to the Bank of any
portion of the Borrowers' Obligations, fees, commissions or any other amounts
payable under this Agreement or under the other Financing Documents (except for
changes in the rate of tax on the overall net income of the Bank), or
(c) impose, modify or deem applicable any reserve, special deposit or
similar requirement against foreign assets held by, or deposits in or for the
account of, or advances or loans by, or acceptances created by, or any other
acquisition of funds by, any office of the Bank, or
(d) increase the amount of capital required or expected to be
maintained by the Bank, or by any corporation controlling the Bank (a "Parent"),
or reduce the rate of return on capital earned by the Bank or any Parent, (as
determined by the Bank or any Parent taking into consideration their internal
policies with respect to capital adequacy and desired return on capital), which
increased capital or reduced rate of return on capital is applied to assets
- 17 -
<PAGE>
such as the Credit Facilities or Borrowers' Obligations or any portion thereof,
or
(e) impose upon the Bank any other condition with respect to this
Agreement or the transactions contemplated hereby or by the other Financing
Documents, the result of which is to increase the actual cost to the Bank of
extending any of the Credit Facilities under this Agreement or the other
Financing Documents or to reduce any amount receivable by the Bank under this
Agreement or under the other Financing Documents or to increase the capital or
reduce the rate of return on capital which the Bank or any Parent is required or
expected to maintain as a result of this Agreement, the other Financing
Documents, the Credit Facilities, the Borrowers' Obligations, or any portion
thereof,
then the Borrowers shall pay to the Bank within thirty (30) days of a written
- ----
demand by the Bank, additional amounts which will compensate the Bank or any
Parent so affected for such increased cost, reduced amount receivable, increased
capital or reduced return on capital, as the case may be. Each such demand by
the Bank shall be accompanied by a certificate setting forth in reasonable
detail (i) the change that gave rise to such increased cost, reduced amount
receivable, increased capital or reduced rate of return on capital, (ii) the
additional amounts payable pursuant to the foregoing sentence, and (iii) a
calculation of such amount, which certificate shall be conclusive absent
manifest error.
Upon the occurrence of any of the foregoing events, the Borrowers shall
have the option, upon not less than five (5) Business Days' prior written notice
to the Bank, to prepay to the Bank all of the then outstanding Borrowers'
Obligations to which such increased costs relate and all other related sums due
by the Borrowers under the terms of this Agreement and the other Financing
Documents, in which event that portion of the Bank's commitment to extend the
Credit Facilities so affected shall immediately be cancelled. In the event that
the Borrowers elect to prepay the Borrowers' Obligations or any portion thereof
in accordance with the preceding sentence, all provisions herein regarding
prepayment shall apply and the Borrower will still be obligated to pay to the
Bank the additional amounts described by this Section 5.3 with respect to all
-----------
periods in which the affected Borrowers' Obligations remained outstanding.
5.4 Computations. All computations of interest and fees shall be made on
------------
the basis of a 360-day year of twelve 30-day months.
5.5 Application of Payments. All payments (including prepayments) made by
-----------------------
the Borrower in respect of the Borrowers' Obligations shall be applied by the
Bank first to the payment of any prepayment fee then due, second to the payment
----- ------
of accrued and unpaid interest, and then to the payment of the principal amount
----
of the Borrowers' Obligations to which such payment pertains. All partial
prepayments of the Acquisition Facility and the Equipment Facility shall be
applied to principal installments in the inverse
- 18 -
<PAGE>
order of their maturity as specified in the Acquisition Facility Promissory Note
and the Equipment Facility Promissory Note, respectively. All partial
prepayments of the Working Capital Line of Credit shall be applied first to the
repayment of direct loan advances and then to prepayment of reimbursement
obligations in respect of Standby Letters of Credit.
5.6 Reliance by Bank on Communications and Authorizations from Production
---------------------------------------------------------------------
Group International, Inc. on behalf of the Borrowers. In making advances or
- ----------------------------------------------------
issuing the Standby Letters of Credit under any of the Credit Facilities
contemplated by this Agreement, the Bank shall be authorized to rely on any
request, direction, notice or other communication which appears to have been
executed and delivered by any one or more of the authorized officers of
Production Group International, Inc. who are designated in the certificate
delivered to the Bank as required by the terms of the Bank Commitment Letter.
In the event that the officer(s) authorized to deliver such documents or to take
action hereunder on behalf of the Borrowers become unavailable or unable to do
so, the President of Production Group International, Inc. shall appoint a
successor or successors and shall furnish the Bank with a certified copy of the
authorizing resolution and the specimen signature of each officer so appointed
to act on behalf of the Borrowers pursuant to this Agreement and the other
Financing Documents.
5.7 Joint and Several Liability: Right of Contribution. All of the
--------------------------------------------------
Borrowers' Obligations are the joint and several obligations of all of the
Borrowers and all parties which hereafter become Subsidiaries of any Borrower,
which are required by the terms of Section 9.10 of this Agreement to become
------------
Borrowers by executing and delivering an Assumption Agreement in the form
attached hereto as Exhibit E and made a part hereof.
---------
Notwithstanding the foregoing, each Borrower shall have a right of
contribution to obtain reimbursement from each other Borrower for any payment
made by such Borrower in respect of the Borrowers' Obligations to the extent
that such payment exceeds the benefit realized by such Borrower under the Credit
Facilities. Any right of contribution among the Borrowers which arises as a
result of payments made in respect of the Borrowers' Obligations under the
Financing Documents shall be subordinate in all respect to the Bank's right to
receive payment in full of the Borrowers' Obligations. The Borrowers
acknowledge and agree that the right of contribution set forth above shall not
in any event be construed in a manner inconsistent with the joint and several
liability of each of the Borrowers for the Borrowers' Obligations.
- 19 -
<PAGE>
ARTICLE VI
SECURITY
6.1 Financing Documents.
-------------------
The Borrowers' Obligations to the Bank in respect of the Credit
Facilities are evidenced and secured by the Financing Documents.
6.2 Collateral. As security and collateral for the repayment of the
----------
Borrowers' Obligations, each Borrower hereby grants to the Bank a lien on and
security interest in all of the following (collectively, the "Collateral"),
subject only to Permitted Liens securing purchase money or lease financing of
equipment which has not been refinanced under the Equipment Facility:
a. All Equipment. All of the now owned and hereafter acquired
-------------
machinery, equipment, furniture, fixtures (whether or not attached to real
property), vehicles, supplies and other tangible personal property of the
Borrower, including any leasehold interests therein and all substitutions,
replacement parts and annexations thereto, and including all improvements
and accessions thereto and all spare parts, tools, accessories and
attachments now owned or hereafter acquired in connection therewith, and
any maintenance agreements applicable thereto, and all proceeds and
products thereof, including sales proceeds, and all rights thereto.
b. Receivables. All of the Borrower's now owned and hereafter
-----------
acquired and/or created accounts, accounts receivable, contracts, contract
rights, instruments, documents, chattel paper, notes, notes receivable,
drafts, acceptances, general intangibles (including, but not limited to,
trademarks, tradenames, licenses and patents), and other choses in action
(not including salary or wages), and all proceeds and products thereof, and
all rights thereto, including, but not limited to, proceeds of inventory
and returned goods and proceeds arising from the sale or lease of or the
providing of inventory, goods, or services by the Borrower, as well as all
other rights of any kind, contingent or non-contingent, of each Borrower to
receive payment, benefit, or credit from any person or entity, including,
but not limited to, the right to receive tax refunds or tax rebates.
c. Inventory. All of the Borrower's now owned and hereafter acquired
---------
inventory, wherever located, including, but not limited to, goods, wares,
merchandise, materials, raw materials, parts, containers, goods in process,
finished goods, work in progress, bindings or component materials,
packaging and shipping materials and other tangible or intangible personal
property held for sale or lease or furnished or to be furnished under
contracts of service or which contribute to the finished products or the
sale, promotion, storage and shipment thereof, all goods returned
- 20 -
<PAGE>
for credit, repossessed, reclaimed or otherwise reacquired by the Borrower,
whether located at facilities owned or leased by the Borrower, in the
course of transport to or from account debtors, placed on consignment, or
held at storage locations, and all proceeds and products thereof and all
rights thereto, including, but not limited to, all sales proceeds, all
chattel paper related to any of the foregoing and all documents, including,
but not limited to, documents of title, bills of lading and warehouse
receipts related to any of the foregoing.
d. Other Property. All now owned and hereafter acquired assets of
--------------
the Borrower, other than receivables, equipment and inventory, including,
but not limited to, all leases, rents chattels, leasehold improvements,
installment purchase and/or sales contracts, bonds, stocks, certificates,
deposits, trademarks, tradenames, licenses, patents and insurance policies,
including cash values.
Notwithstanding the foregoing, the Bank acknowledges and agrees that the
Collateral does not include (i) deposits held in escrow or trust by any Borrower
for another Person, or (ii) deposits held for payroll taxes.
The Borrowers further agrees that the Bank shall have in respect of the
Collateral all of the rights and remedies of a secured party under the Uniform
Commercial Code of each of the States in which the Collateral or any portion
thereof is located, as well as those provided in this Agreement.
6.3 Location of Collateral; Principal Place of Business. Each Borrower
---------------------------------------------------
agrees to (a) keep the Bank informed as to the location of the Collateral and
the address of the Borrower's principal place of business, (b) give the Bank
prior notice of any contemplated changes of location of Collateral (other than
any changes to the location of any other Borrower's principal place of business
or other office location described in Schedule II attached hereto and made a
-----------
part hereof), (c) give the Bank prior notice of any contemplated changes in the
Borrower's principal place of business, and (d) not change the location of any
of the Collateral (other than any changes to the location of any other
Borrower's principal place of business or other office location described in
Schedule II attached hereto and made a part hereof), or the Borrower's principal
- -----------
place of business, without the prior written consent of the Bank.
6.4 Loss of Collateral. The Bank shall not be liable for any loss of any
------------------
Collateral in its possession other than losses which occur as a direct result of
the gross negligence or wilful misconduct of the Bank's officers, directors or
employees. No loss of any Collateral shall diminish the debt due pursuant to
this Agreement and the other Financing Documents.
6.5 Filing of Financing Statements; Perfection of Security Interest in
------------------------------------------------------------------
Collateral. The security interest created by this Agreement shall be perfected
- ----------
by the filing of financing statements
- 21 -
<PAGE>
which fully comply with Article 9 of the Uniform Commercial Code, as adopted by
each of the States in which the Collateral or any portion thereof may be
located, in such offices as may be required by the Bank. The parties agree
that:
(a) with respect to any such financing statement, a carbon,
photographic or other reproduction of a security agreement or a financing
statement is sufficient as a financing statement for purposes of Section 9-402
of the Uniform Commercial Code;
(b) all necessary continuation statements shall be filed by the
secured party or its assigns named therein within the time prescribed by Article
9 of the Uniform Commercial Code, as adopted by each of the States in which the
Collateral or any portion thereof may be located, in order to continue the
perfection of the security interests created by this Agreement;
(c) if at any time any of the information contained in any financing
statement filed in connection with the security interests created by this
Agreement, including without limitation, the description or location of the
Collateral or the name and address of the applicable Borrower, shall change in
such manner as to cause such financing statement to become misleading in any
material respect or as may impair the perfection of the security interests
intended to be created by this Agreement, then the appropriate Borrower shall
promptly prepare an amendment to such financing statement as may be necessary to
continue the perfection of the security interest intended to be created by this
Agreement, obtain the signatures of the debtor and secured party upon such
amendment, and file the same in any office where such amendment is required to
be filed to continue the perfection of the security interests created by this
Agreement;
(d) upon the request of the Bank, the Borrowers shall prepare, have
executed and file any amendments to the financing statements filed with respect
to the security interests created by this Agreement in such form as the Bank may
require; and
(e) the Borrower shall bear all costs of any and all of the filings
described in this Section 6.5, including any recordation taxes payable as a
result of such filings; and
(f) upon request by the Bank (i) at any time after the occurrence of a
Default or Event of Default under the Financing Agreement or any of the other
Financing Documents referred to therein, (ii) for the purpose of enabling the
Bank to comply with the Financial Institutions Reform, Recovery and Enforcement
Act of 1989, as amended, or (iii) at any time that the Bank reasonably believes
that the security for the Borrowers' Obligations may be impaired, the Borrowers
shall provide, at their expense, an opinion of counsel as to the effectiveness
and perfection of the Bank's lien on the Collateral or any portion thereof.
- 22 -
<PAGE>
ARTICLE VII
REPRESENTATIONS AND WARRANTIES
To induce the Bank to make the Credit Facilities available to the
Borrowers pursuant to this Agreement and the other Financing Documents, each
Borrower represents and warrants to the Bank as follows, each of such
representations and warranties to be reconfirmed by each Borrower at the time
each direct loan advance is made and each Standby Letter of Credit is issued
under any of the Credit Facilities, it being the affirmative obligation of each
Borrower to notify the Bank in writing of any facts which would in any way
affect its ability to make the representations contained in the Article VII at
-----------
any subsequent date:
7.1 Subsidiaries. The only subsidiaries of Production Group
------------
International, Inc. are the other Borrowers. No other Borrower has any
Subsidiaries.
7.2 Good Standing. The Borrower (i) is a corporation duly organized and
-------------
existing, in good standing, under the laws of the jurisdiction of its
incorporation, (ii) has the corporate power to own its property and to carry on
its business as now being conducted, and (iii) is duly qualified to do business
and is in good standing in each jurisdiction in which the character of the
properties owned by it therein or in which the transaction of its business makes
such qualification necessary.
7.3 Corporate Authority. The Borrower has full corporate power and
-------------------
authority to enter into and execute and deliver this Agreement and each of the
other Financing Documents executed and delivered by the Borrower, and to incur
and perform the Borrowers' Obligations provided for herein and therein, all of
which have been duly authorized by all proper and necessary corporate action and
all material governmental licenses, authorizations, consents and approvals
required. No consent or approval of stockholders or of any other person or
public authority or regulatory body is required as a condition to the validity
or enforceability of this Agreement or any of the other Financing Documents, or
if required the same has been duly obtained.
7.4 Binding Obligations. This Agreement and each of the other Financing
-------------------
Documents executed and delivered by the Borrower have been properly executed by
the Borrower, constitute valid and legally binding obligations of the Borrower,
and are fully enforceable against the Borrower in accordance with their
respective terms.
7.5 Litigation. There is no litigation or proceeding pending or, so far
----------
as the Borrower knows, threatened before any court or administrative agency
which, in the opinion of the officers of the Borrower, will materially adversely
affect the financial condition or operations of the Borrower or the authority of
the Borrower to enter into, or the validity or enforceability of, this Agreement
or any of the other Financing Documents executed and delivered by the Borrower.
- 23 -
<PAGE>
7.6 No Conflicting Agreements. There is (A) no charter, by-law or
-------------------------
preference stock provision of the Borrower and no provision of any existing
contract or agreement binding on the Borrower or affecting its property, and (B)
to the knowledge of the Borrower, no law binding upon the Borrower or affecting
any of its property, which would conflict with or in any way prevent the
execution, delivery or performance of the terms of this Agreement or of any of
the other Financing Documents executed and delivered by the Borrower, or which
would be in default or violated as a result of such execution, delivery or
performance.
7.7 Financial Condition. The consolidated and consolidating balance
-------------------
sheets of the Borrowers as of November 30, 1994, together with statements of
profit and loss and of surplus for the period then ended, certified by Ernst &
Young, together with the seven-month interim statement for the period ended June
30, 1995, prepared by the Borrowers, both of which were heretofore delivered to
the Bank, are complete and correct and fairly present the financial position of
the Borrowers and the results of their operations and transactions in their
surplus account(s) as of the dates and for the periods referred to and have been
prepared in accordance with generally accepted accounting principles applied on
a consistent basis throughout the period involved; provided, however, that to
the extent such balance sheets reflect the financial information of any
corporation acquired by the Borrowers during the current fiscal year, such
financial information complies with generally accepted accounting principles to
the best of the Borrower's knowledge except as specifically noted, since full
audit of the acquired corporation's financial information will not take place
until the fiscal year end. There are no liabilities (of the type required to be
reflected on balance sheets prepared in accordance with generally accepted
accounting principles), direct or indirect, fixed or contingent, of any Borrower
as of the date of such balance sheets which are not reflected therein or in the
notes thereto. There has been no material adverse change in the financial
condition or operations of any Borrower since the date of such balance sheets
(and to any Borrower's knowledge no such material adverse change is pending or
threatened), and no Borrower has guaranteed the obligations of, or made any
investment in or loans to, any person except as disclosed in such balance
sheets. Each Borrower has good and marketable title to all of its properties
and assets, and all of such properties and assets are free and clear of
encumbrances, except as reflected on such balance sheets or in the notes
thereto.
7.8 Tax Returns. The Borrower has filed or caused to be filed all
-----------
required federal, state and local tax returns and has paid all taxes as shown on
such returns to the extent that such taxes have become due. No claims have been
assessed and are unpaid with respect to such taxes except as shown in the
financial statements referred to in Section 7.7 above.
-----------
7.9 Compliance with Laws Generally. To the best of its knowledge, the
------------------------------
Borrower is not in violation of any law, ordinance, governmental rule or
regulation to which the Borrower is subject
- 24 -
<PAGE>
(including, without limitation, any laws relating to employment practices or to
environmental, occupational and health standards and controls) and the violation
of which would have a material adverse effect on the conduct of the Borrower's
business, and the Borrower has obtained any and all licenses, permits,
franchises and other governmental authorizations necessary for the ownership and
operation of its properties and business.
7.10 Margin Stock. None of the proceeds of any of the Credit Facilities
------------
will be used, directly or indirectly, by the Borrower for the purpose of
purchasing or carrying, or for the purpose of reducing or retiring any
indebtedness which was originally incurred to purchase or carry, any "margin
security" within the meaning of Regulation G (12 CFR Part 207), or "margin
stock" within the meaning of Regulation U (12 CFR Part 221), of the board of
Governors of the Federal Reserve System (herein called "margin security" and
"margin stock") or for any other purpose which might make the transactions
contemplated herein a "purpose credit" within the meaning of said Regulation G
or Regulation U, or cause this Agreement to violate any other regulation of the
Board of Governors of the Federal Reserve System or the Securities Exchange Act
of 1934 or the Small Business Investment Act of 1958, as amended, or any rules
or regulations promulgated under any of such statutes.
7.11 ERISA. (i) Any Plan established and maintained by the Borrower or
-----
any Commonly Controlled Entity is a qualifying plan under the applicable
requirements of ERISA, and there is no current matter which would materially
adversely affect the qualified tax-exempt status of any Plan; (ii) neither the
Borrower nor any Commonly Controlled Entity has engaged in or is engaging in any
Prohibited Transaction or has incurred any Accumulated Funding Deficiency in
connection with any such Plan, whether or not waived, and no Reportable Event
has occurred with respect to any Plan subject to the minimum funding
requirements of Section 412 of the Code; (iii) no Multiemployer Plan has
"terminated", as that term is defined in ERISA; (iv) neither the Borrower nor
any Commonly Controlled Entity has "withdrawn" or "partially withdrawn" from any
Multiemployer Plan; and (v) no Multiemployer Plan is in "reorganization" nor has
notice been received from the administrator of any Multiemployer Plan that any
such Plan will be placed in "reorganization".
7.12 Governmental Consents. Neither the nature of the Borrower's business
---------------------
or properties, nor any relationship between the Borrower and any other entity or
person, nor any circumstance in connection with the extension of the Credit
Facilities is such as to require a consent, approval or authorization of, or
filing, registration or qualification with, any Governmental Authority, on the
part of the Borrower, as a condition to the execution and delivery of this
Agreement or any of the other Financing Documents.
7.13 No Default or Event of Default. No event has occurred which would
------------------------------
constitute a Default or an Event of Default under this Agreement or any of the
other Financing Documents. The Borrower is not in default under the terms of
any other agreement or instrument
- 25 -
<PAGE>
to which the Borrower may be a party or by which any of the security for any of
the Credit Facilities may be bound or subject.
7.14 Other Liens. The Borrower represents and warrants that, except for
-----------
Permitted Liens, there are no liens or encumbrances of any kind affecting the
Collateral or any of the Borrower's assets or property, and the Borrower has
made no contract or arrangement of any kind the performance of which by the
other party thereto would give rise to a lien on the Collateral or any other
security for the Borrowers' Obligations.
7.15 Prior Names; Trade Names; Principal Place of Business. The Borrower's
-----------------------------------------------------
correct name, including any prior names and trade names, and the location of its
principal place of business, within the meaning of the Uniform Commercial Code,
and any other offices maintained by it are correctly represented in Schedule III
------------
attached hereto and made a part hereof.
7.16 Nature of Financing; Usury. The Credit Facilities are being extended
--------------------------
to a business or commercial organization, or solely for the purpose of enabling
the Borrowers to conduct a business or commercial enterprise.
ARTICLE VIII
CONDITIONS PRECEDENT
The obligation of the Bank to extend any of the Credit Facilities to
or on behalf of any Borrower is subject to the following conditions precedent:
8.1 Receipt and Approval of Documents Required by Bank Commitment Letter.
---------------------------------------------------------------------
All of the documents required by the Bank Commitment Letter shall have been
received and approved by the Bank and its counsel, and the Bank shall be
satisfied that the Borrowers have otherwise complied with all of the terms and
conditions of the Bank Commitment Letter.
8.2 Approval of Bank's Counsel. All legal matters incident to the Credit
--------------------------
Facilities and all documents necessary in the opinion of the Bank to the
extension of such Credit Facilities shall be satisfactory in all respects to
counsel for the Bank.
8.3 Compliance. As of the date of the execution and delivery of this
----------
Agreement, (a) the Borrowers shall have complied with, and shall then be in
compliance with, all the terms, covenants, and conditions of this Agreement and
in the other Financing Documents which are binding upon it, (b) there shall
exist no Default or Event of Default, and (c) the representations and warranties
contained in Article VII hereof shall be true and correct.
-----------
8.4 Bank's Fees and Expenses. The Borrowers shall have paid all of the
------------------------
fees and expenses described in Section 13.3 hereof which are then due and
------------
payable.
- 26 -
<PAGE>
ARTICLE IX
AFFIRMATIVE COVENANTS
Until payment and performance in full of the Borrowers' Obligations,
each Borrower will perform each of the covenants contained in this Article IX.
----------
9.1 Financial Reporting. The Borrower shall provide to the Bank the
-------------------
following financial information:
(a) as soon as available but in no event more than 45 days after the
end of each fiscal quarter, a consolidated and consolidating balance sheet of
the Borrowers as of the close of such period and consolidated and consolidating
income and expense statements for such period, prepared in accordance with
United States generally accepted accounting principles and certified by the
chief financial officer or chief executive officer of Production Group
International, Inc. and accompanied by a certificate of that officer as to (i)
compliance with all covenants contained in the Financing Documents and (ii) the
occurrence of any Default or Event of Default under this Agreement or any of the
other Financing Documents, and, if so, stating the facts with respect thereto;
and
(b) as soon as available but in no event more than 120 days after the
close of its fiscal years, the Borrowers shall provide the Bank with a copy of
their consolidated and consolidating balance sheets as of the close of such
period and their consolidated and consolidating income and expense statements
for such period, prepared in accordance with United States generally accepted
accounting principals and examined and certified by an independent accountant
satisfactory to the Bank and accompanied by a certificate of the chief financial
officer or chief executive officer of Production Group International, Inc. as to
(i) compliance with all covenants contained in the Financing Documents and (ii)
the occurrence of any Default under this Agreement or any of the other Financing
Documents, and, if so, stating the facts with respect thereto;
(c) as soon as available but in no event more than 30 days after
filing with the Internal Revenue Service, the Borrowers shall provide the Bank
with a copy of their Federal income tax return for the immediately preceding
fiscal year;
(d) whenever requested by the Bank, but in any event no less
frequently than once per calendar month, within 15 days after the end of the
previous month, reports with respect to (A) the Borrowers' Receivables and
inventory, which reports shall include (without limitation) customer name,
dollar amount, invoice date and number of days outstanding for each Receivable
and location of each item of inventory, (B) the Borrowers' backlog of purchase
orders and the status of completion of each, which report shall be in
substantially the form of the Form of Backlog Certificate attached hereto as
Exhibit C and made a part hereof, and have attached thereto copies of all new
- ---------
contracts for purchase orders, (C) the
- 27 -
<PAGE>
Borrowers' prepayment aging report, and (D) the Borrowers' General Ledger
Account for Deferred Revenue; and
(e) such other information, reports or statements as the Bank may from
time to time reasonably request.
9.2 Taxes and Claims. The Borrower shall pay and discharge all Taxes due
----------------
and owing by the Borrower to all governmental authorities, prior to the date on
which penalties attach thereto, and all lawful claims which, if unpaid, might
become a lien or encumbrance upon any of its properties; provided, however, that
in the event of a good faith dispute over Taxes, the Borrower shall provide the
Bank with a bond or other evidence satisfactory to the Bank in its discretion of
the Borrower's ability to pay such Taxes, together with any applicable interest
and penalties.
9.3 Insurance. The Borrowers shall provide or cause to be provided to the
---------
Bank, and shall maintain, or cause to be maintained, in full force and effect at
all times during the term of any of the Credit Facilities and at all times prior
to the payment and performance in full of the Borrowers' Obligations, such
policies of insurance as are normally maintained by similar businesses operating
in the same vicinity as each of the Borrowers, which are underwritten by a
company or companies and are in form and amounts reasonably satisfactory to the
Bank, including, by way of example and not by way of limitation, at least the
following:
(a) permanent fire and hazard insurance or property damage insurance
covering all real property improvements and all Equipment and Inventory and
other personal property of all Borrowers wherever located, affording protection
against at least loss or damage by fire or other hazards covered by the standard
all-risk "extended coverage" endorsement (non-reporting form), including
vandalism and malicious mischief and such other risks as shall be customarily
covered with respect to similar property or as the Bank may from time to time
otherwise require, in amounts not less than the lesser of (i) the aggregate
principal amount of the Credit Facilities (whether or not such Credit Facilities
have been fully utilized by the Borrowers from time to time) and (ii) the
maximum amount available to the Borrowers from time to time, naming the Bank as
mortgagee and loss payee;
(b) public liability and property damage insurance for each Borrower
to afford protection in amounts of not less than (i) $1,000,000 per occurrence
and $3,000,000 for all annual occurrences in respect of bodily injury, and (ii)
$250,000 per occurrence and $500,000 for all annual occurrences in respect of
property damage, together with an endorsement naming the Bank as an additional
insured; and
(c) workers' compensation insurance of each Borrower with coverage
limits in accordance with the requirements of applicable laws or regulations.
- 28 -
<PAGE>
Each such policy shall provide that the policy may not be surrendered,
cancelled or substantially modified (including, without limitation, cancellation
for nonpayment of premiums) without at least thirty (30) days' prior written
notice to the Bank.
9.4 Corporate Existence. The Borrower shall maintain in good standing its
-------------------
existence in the State of its incorporation and shall maintain its qualification
to do business in each jurisdiction in which such qualification is necessary for
the conduct of its business in such jurisdiction.
9.5 Change in Management. The Borrower shall give the Bank written notice
--------------------
within thirty (30) days following any change in the offices of president, chief
executive officer or chief financial officer of any Borrower.
9.6 Compliance With Laws Generally. The Borrower shall comply with all
------------------------------
applicable laws, ordinances, governmental rules or regulations to which the
Borrower is or becomes subject (including, without limitation, any laws relating
to employment practices or to environmental, occupational and health standards
and controls) and the violation of which would have a material adverse effect on
the conduct of the Borrower's business, and the Borrower will maintain any and
all licenses, permits, franchises and other governmental authorizations
necessary for the ownership and operation of its properties and business.
9.7 Books and Records; Inspection. The Borrower will keep adequate
-----------------------------
records and books of account with respect to its business, in accordance with
generally accepted accounting principles; and permit the Bank, by its
accountants, attorneys, officers or other agents to examine such records and
books of account and to discuss the affairs, finances and accounts pertaining
thereto with officers of the Borrower at its offices at any time during normal
business hours.
9.8 Litigation. The Borrower shall give prompt notice in writing, with a
----------
full description to the Bank, of all litigation and any other proceedings before
any court or any governmental or regulatory agency affecting the Borrower which,
if adversely decided, would materially adversely affect the conduct of the
Borrower's business, the financial condition of the Borrower, or in any manner
affect the security for the Credit Facilities or the Borrowers' Obligations.
9.9 Notification of Certain Events, Events of Default and Adverse
-------------------------------------------------------------
Developments. The Borrower shall promptly notify the Bank in writing within
- ------------
fifteen (15) Business Days of obtaining knowledge of the occurrence of the
following (in each case describing in detail satisfactory to the Bank the nature
thereof and the action the Borrower proposes to take with respect thereto):
(a) any Default or Event of Default under this Agreement or any of the
other Financing Documents;
- 29 -
<PAGE>
(b) all actions, suits and proceedings before any court or
governmental department, commission, board, bureau, agency, or instrumentality,
domestic or foreign, affecting the Borrower which, if determined adversely to
the Borrower, could have a materially adverse effect on the financial condition,
properties or operations of the Borrower or could materially adversely affect
the security for the Borrowers' Obligations or the ability of each Borrower to
pay or perform in full the Borrowers' Obligations;
(c) any notice, claim or demand from any governmental agency which
alleges that the Borrower is in violation of any of the terms of, or has failed
to comply with, any applicable order issued pursuant to any federal or state
statute regulating its operation of business, including, but not limited to, the
Occupational Safety and Health Act and the Environmental Protection Act;
(d) any other development in the business or affairs of the Borrower
which could have a material adverse effect on the Borrower or could adversely
affect the security for the Borrowers' Obligations of the ability of each
Borrower to pay or perform in full the Borrowers' Obligations.
9.10 Addition of New Subsidiaries as Borrowers. The Borrower hereby agrees
-----------------------------------------
to cause any entity which becomes a Subsidiary to become a Borrower under this
Agreement by executing and delivering to the Bank an Assumption Agreement in
substantially the form attached hereto as Exhibit D and made a part hereof,
---------
whereupon such new Subsidiary shall become jointly and severally liable,
together with all other Borrowers, for the Borrowers' Obligations and will be
entitled to have access to each of the Credit Facilities to the same extent as
all other Borrowers. As a condition precedent to having access to the Credit
Facilities, each new Subsidiary shall provide the Bank with certified copies of
its corporate documents, resolutions authorizing the incurrence of joint and
several liability for the Borrowers' Obligations, and Uniform Commercial Code,
tax lien, judgment and pending suit searches in all jurisdictions designated by
the Bank.
ARTICLE X
FINANCIAL COVENANTS
Until payment and performance in full of the Borrowers' Obligations, the
Borrowers will comply with each of the financial covenants contained in this
Article X.
- ---------
10.1 Working Capital. On a consolidated basis, the Borrowers shall
---------------
maintain Working Capital (defined in accordance with United States generally
accepted accounting principles, but not including any advances outstanding under
the Working Capital Line of Credit) in an amount equal to or greater than two
months' consolidated expenses (which shall be determined on the basis of
aggregate cash expenses incurred during the four previous fiscal quarters
divided by six, without taking into consideration non-recurring acquisition
expenses).
- 30 -
<PAGE>
10.2 Backlog of Purchase Orders. On a consolidated basis, the Borrowers
--------------------------
shall maintain a backlog of contracted purchase orders sufficient to generate
gross revenues equal to or greater than two months' consolidated expenses (which
shall be determined on the basis of aggregate cash expenses incurred during the
four previous fiscal quarters divided by six, without taking into consideration
non-recurring acquisition expenses).
10.3 Net Worth. On a consolidated basis, the Borrowers shall maintain Net
---------
Worth (defined in accordance with United States generally accepted accounting
principles) of not less than $13,000,000, which amount shall be increased on a
cumulative basis by an amount equal to 50% of the consolidated net income
generated during each fiscal quarter.
10.4 Intangible Assets. On a consolidated basis, the value attributed to
-----------------
the Borrowers' goodwill and other intangible assets shall not exceed the sum of
stockholders' equity and the Borrowers' outstanding subordinated debt.
ARTICLE XI
NEGATIVE COVENANTS
Until payment and performance in full of all of the Borrowers' Obligations,
without the written consent of the Bank, none of the Borrowers will fail to
comply with any of the following covenants.
11.1 Impairment of Security. The Borrower shall not take any action, and
----------------------
shall not permit any Person to take any action, which shall impair in any manner
the value of the Collateral or any portion thereof or any other security for the
Borrowers' Obligations or the validity, priority or security of the security
interest granted to the Bank in the Collateral.
11.2 No Change in Control. No Borrower shall cause or permit any change to
--------------------
occur in the ownership of the controlling interest in the voting stock in
Production Group International, Inc..
11.3 Stock in Subsidiaries. Production Group International, Inc. shall not
---------------------
sell, transfer or otherwise encumber any shares of capital stock now or
hereafter owned by it in any of the other Borrowers, except for the pledge of
shares in any acquired corporation to secure seller financing which satisfies
the criteria for an Eligible Acquisition.
11.4 Sale, Transfer or Encumbrance of Collateral. Except for (a) the sale
-------------------------------------------
of Inventory in the ordinary course of business, and (b) sales or transfers of
Equipment for fair market value in the ordinary course of business, and (c)
Permitted Liens, the Borrower shall not sell, transfer, lease or further
encumber, or permit any Person to sell, transfer, lease or further encumber, any
of its assets, including the Collateral or any other security for the Borrowers'
Obligations.
- 31 -
<PAGE>
11.5 No Additional Indebtedness. Without the prior written consent of
--------------------------
the Bank, the Borrowers will not create or incur any liability for borrowed
money or obligations in respect of operating leases in excess of $250,000 in the
aggregate at any one time outstanding, except for (a) short-term trade
indebtedness incurred in the ordinary course of the business operations of the
Borrowers, and (b) subordinated debt to the seller of an acquired corporation
which debt satisfies all of the requirements of clause (d) of the definition of
"Eligible Acquisition."
11.6 Merger; Dissolution or Sale of Assets. The Borrower shall not enter
-------------------------------------
into any merger, consolidation or dissolution or sale, lease, or otherwise
disposition of any substantial portion of its assets (except assets disposed of
in the ordinary course of business for fair market value), except for (a)
Collateral covered by Permitted Liens, and (b) mergers and consolidations of any
Borrower into any other Borrower.
11.7 Distributions or Dividends to Stockholders. Production Group
------------------------------------------
International, Inc. will not make any distribution, loan, advance or payment of
dividend to any of its stockholders for any purpose whatsoever at any time
during the existence of a Default or Event of Default.
11.8 Payments, Advances and Salaries to Stockholders. Production Group
-----------------------------------------------
International, Inc. will not pay, advance or lend, or permit any payment
(including the payment of salaries in excess of amounts contemplated by existing
employment contracts to holders of more than 5% of stock in any Borrower who are
also officers of any Borrower), advance or loan of, either directly or
indirectly, any sum or sums of money to any of its stockholders or directors for
any purpose whatsoever, except the reimbursement of expenses incurred in the
normal course of business on behalf of any Borrowers, in excess of the lesser of
(a) $250,000 in the aggregate, and (b) any amount which would cause the
---
Borrowers to default in compliance with any financial covenant contained in the
Financing Documents.
11.9 ERISA Compliance. The Borrower shall not (a) Restate or amend any
----------------
Plan established and maintained by the Borrower or any Commonly Controlled
Entity, in a manner designed to disqualify such Plan under the applicable
requirements of the Code; (b) permit any officers of the Borrower or any
Commonly Controlled Entity to materially adversely affect the qualified tax-
exempt status of any Plan of the Borrower or any Commonly Controlled Entity; (c)
engage in or permit any Commonly Controlled Entity to engage in any Prohibited
Transaction; (d) incur or permit any Commonly Controlled Entity to incur any
Accumulated Funding Deficiency, whether or not waived, in connection with any
Plan; (e) take or permit any Commonly Controlled Entity to take any action or
fail to take any action which causes a termination of any Plan in a manner which
could result in the imposition of a lien on the property of the Borrower or any
Commonly Controlled Entity pursuant to Section 4068 of ERISA; (f) fail to notify
the Bank that notice has been received of a termination of any Multiemployer
Plan to which the Borrower or
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<PAGE>
any Commonly Controlled Entity has an obligation to contribute; (g) incur or
permit any Commonly Controlled Entity to incur a complete or partial withdrawal
from any Multiemployer Plan to which the Borrower or any Commonly Controlled
Entity has an obligation to contribute; or (h) fail to notify the Bank that
notice has been received from the administrator of any Multiemployer Plan to
which the Borrower or any Commonly Controlled Entity has an obligation to
contribute that any such plan will be placed in "reorganization".
ARTICLE XII
EVENTS OF DEFAULT; REMEDIES
12.1 Events of Default. Any one or more of the following events shall
-----------------
constitute an Event of Default under this Agreement:
(a) Failure to Pay Borrowers' Obligations. The Borrowers shall fail
-------------------------------------
to pay the amount of any of the Borrowers' Obligations as and when the same are
due and payable in accordance with the terms of this Agreement and the other
Financing Documents.
(b) Breach of Representation and Warranties. Any representation or
---------------------------------------
warranty made herein or in any of the Financing Documents, or in any report,
certificate, opinion (including any opinion of counsel for the Borrowers),
financial statement or other instrument delivered in connection with this
Agreement or any of the other Financing Documents shall prove to be false or
misleading in any material respect when made.
(c) Failure to Comply with Covenants. Default shall be made in the
--------------------------------
due observance or performance of any covenant, conditions or agreement contained
in Section 9.2, Section 9.3, Article X or Article XI hereof.
-------------------------------------------------
(d) Other Defaults. Default shall be made in the due observance or
--------------
performance of any other term, covenant or agreement contained in this Agreement
or in any of the other Financing Documents, and such default shall have
continued unremedied for a period of thirty (30) days after written notice
thereof shall have been given to Production Group International, Inc. by the
Bank, or default shall occur under any of the other Financing Documents.
(e) Change in Control. A change shall occur in the ownership of the
-----------------
controlling interest in the voting stock in Production Group International,
Inc., whether or not such change occurs as a result of a violation of the
covenant contained in Section 11.2 of this Agreement.
------------
(f) Default Under Other Indebtedness. Default shall be made with
--------------------------------
respect to any other evidence of indebtedness or liability for borrowed money of
any Borrower (i) to the Bank, or (ii) to any other Person, if, in the case of
clause (ii) only, the effect of such default is to accelerate the maturity of
such evidence of indebtedness or liability or to permit the holder or obligee
thereof to cause any indebtedness to become due prior to
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<PAGE>
its stated maturity, or any such indebtedness shall not be paid as and when due
and payable.
(g) Receiver; Bankruptcy. Any Borrower shall (i) apply for or consent
--------------------
to the appointment of a receiver, trustee or liquidator of itself or any of its
property, (ii) admit in writing its inability to pay its debts as they mature,
(iii) make a general assignment for the benefit of creditors, (iv) be
adjudicated as bankrupt or insolvent, or (v) file a voluntary petition in
bankruptcy, or a petition or an answer seeking reorganization or an arrangement
with creditors or to take advantage of any bankruptcy, reorganization,
insolvency, readjustment of debt, dissolution or liquidation law or statute, or
an answer admitting the material allegations of a petition filed against it in
any proceeding under any such law, or if corporate action shall be taken by any
Borrower for the purposes of effecting any of the foregoing, or (vi) by any act
indicate its consent to, approval or acquiescence in any such proceeding or the
appointment of any receiver of or trustee for any Borrower or any substantial
part of its property, or suffers any such receivership, trusteeship or
proceeding to continue undischarged for a period of 30 days.
(h) Involuntary Receiver; Bankruptcy. An order, judgment or decree
--------------------------------
shall be entered, without the application, approval or consent of any Borrower
by any court of competent jurisdiction, approving a petition seeking
reorganization of any Borrower or of all or a substantial part of the assets of
any Borrower or appointing a receiver, trustee or liquidator of any Borrower and
such order, judgment or decree shall continue unstayed and in effect for a
period of 30 days.
(i) Judgments. Any judgment in excess of $250,000 or judgments
---------
aggregating in excess of $500,000 against one or more Borrowers or any
attachment or other levy against the property of any Borrower with respect to a
claim, remains unpaid, unstayed on appeal, undischarged, unbonded, or
undismissed for a period of 30 days.
(j) Execution; Attachment. Any execution or attachment shall be
---------------------
levied against the Collateral or any other security for the Borrowers'
Obligations, and such execution or attachment shall not be set aside, discharged
or stayed within thirty (30) days after the same shall have been levied.
(k) Collateral Value Exceeded. The Working Capital Line of Credit
-------------------------
Obligations shall exceed the Receivables Collateral Value, and the Borrowers
shall fail to either reduce the outstanding Working Capital Line of Credit
Obligations or satisfy the Bank that the Receivables Collateral Value will be
increased, within five (5) Business Days after written notice thereof shall have
been given to Production Group International, Inc. by the Bank.
12.2 Remedies. Upon the occurrence of any Event of Default, and in every
--------
such Event of Default and at any time thereafter,
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<PAGE>
unless such Event of Default shall be cured to the satisfaction of the Bank, the
Bank may exercise any one or more of the following remedies.
(a) Accelerate Termination Date. Accelerate the Termination Date
---------------------------
whereupon the Acquisition Facility Commitment, the Equipment Facility Commitment
and the Working Capital Line of Credit Commitment shall terminate as of the
accelerated Termination Date.
(b) Accelerate the Borrowers' Obligations. Demand immediate payment
-------------------------------------
in full of all of the Borrowers' Obligations under this Agreement and the other
Financing Documents, including (without limitation) all accrued and unpaid
interest thereon, whether or not the Credit Facilities to which such Borrowers'
Obligations relate have become due and payable or, as in the case of Standby
Letters of Credit, may remain outstanding following repayment of the Borrowers'
Obligations relating thereto, whereupon all outstanding Borrowers' Obligations
shall become immediately due and payable without presentment, demand, protest,
or any other notice of any kind, all of which are hereby expressly waived,
anything contained in this Agreement or in the other Financing Documents to the
contrary notwithstanding. The occurrence or non-occurrence of an Event of
Default under this Agreement shall in no way affect or condition the right of
the Bank to demand payment at any time of any of the Borrowers' Obligations
which are payable on demand regardless of whether or not an Event of Default has
occurred.
(c) Liquidation of Security Interest in Collateral. Upon the
----------------------------------------------
occurrence of any Event of Default, and at any time during the continuance
thereof, the Bank shall have, in addition to all other rights and remedies, the
remedies of a secured party under the Uniform Commercial Code, or under any
other governing laws, including, without limitation, the right to take
possession of the Collateral (to which the Borrowers hereby specifically
consent), and for that purpose the Bank may, so far as the Borrowers can give
authority therefor, enter upon any premises on which the Collateral may be
situated and remove the same therefrom. Upon request of the Bank, the Borrowers
shall assemble and make the Collateral available to the Bank at a place to be
designated by the Bank. Unless the Collateral is perishable or threatens to
rapidly decline in value, or is of a type customarily sold on a recognized
market, the Bank shall give the Borrowers at least five (5) days' prior notice
of the time and place of any public sale or the time after which any private
sale or any other intended disposition is to be made. The Bank may at any time
in its discretion transfer any securities (i.e., stock or bonds) or other
----
property constituting the Collateral into its own name or that of its nominee
and receive the income thereon and hold the same as collateral for Borrowers'
Obligations or apply it to principal, or interest or other costs, fees or
charges due on, or with respect to, the Borrowers' Obligations. The Borrowers
hereby irrevocably constitute and appoint the Bank as the Borrowers' true and
lawful attorney in fact, with full power of substitution, at the sole cost and
expense
- 35 -
<PAGE>
of the Borrowers, but for the sole benefit of the Bank, to convert the
Collateral to cash, including without limitation, completing the manufacturing
process of work in process, and the sale (either public or private) of all or
any portion of the Collateral, to enforce collection of the Collateral, either
in its own name or in the name of the Borrowers, compromising or settling with
any account debtors and prosecuting, defending, compromising or releasing any
action relating to the Collateral; to receive, open and dispose of all mail
addressed to the Borrowers and to take therefrom any remittances on or proceeds
of the Collateral in which Bank has a security interest; to notify United States
Post Office authorities to change the address for delivery of mail addressed to
the Borrowers to such address as the Bank may designate; to endorse the name of
the Borrowers in favor of the Bank upon any and all checks, drafts, money
orders, notes, acceptances or other instruments of the same or different nature;
to sign and endorse the name of the Borrowers on and to receive as secured party
any of the Collateral, any invoices, schedules of collateral, freight or express
receipts and/or other documents of title of the same or different nature
relating to the Collateral; to sign the name of the Borrowers on any notice to
the account debtors or on verification of the Collateral; and to sign and file
or record on behalf of the Borrowers any financing or continuation statements or
other statements in order to perfect, keep perfected or protect the Bank's
security interest in the Collateral. The Bank shall not be obliged to do any of
the acts or exercise any of the powers hereinabove authorized, but if the Bank
elects to do any such act or exercise any such power, it shall not be
responsible to the Borrowers except for the Bank's own willful misconduct or
gross negligence. All powers conferred upon the Bank by this Agreement, being
coupled with an interest, shall be irrevocable as long as any of the Borrowers'
Obligations to the Bank shall remain unpaid.
Upon the occurrence of any Event of Default hereunder, the Borrowers
shall assemble all of the Collateral and make the same available at a central
location designated by the Bank. Any notification required by Section 9-504 of
the Uniform Commercial Code shall be deemed reasonably and properly given if
given in the manner specified for other notices under this Agreement, at least 5
days before any sale or other disposition of the Collateral, which time period
may be decreased in the event that the Bank reasonably determines that it is
necessary to dispose of any portion of the Collateral in a more expeditious
manner because declining Collateral Value or the like so dictates. Disposition
shall be deemed commercially reasonable if made pursuant to a public offering
advertised at least twice in a newspaper of general circulation in the community
where the Collateral is located.
(d) Borrowers Remain Liable for Deficiency. The Borrowers are liable
--------------------------------------
for the entire amount of the Borrowers' Obligations and will remain responsible
for any deficiency in any proceeds realized upon any liquidation of Collateral.
(e) Other Rights and Remedies. In addition to any other rights or
-------------------------
remedies specifically set forth herein, the Bank shall
- 36 -
<PAGE>
have available to it all rights and remedies under any of the Financing
Documents and any other rights and remedies afforded to it at law or in equity.
(f) Performance by Bank. If the Borrowers shall fail to pay any of
-------------------
the Borrowers' Obligations or the Borrowers shall otherwise fail to perform,
observe or comply with any of the conditions, covenants, terms, stipulations or
agreements contained in this Agreement or any of the other Financing Documents
and the same results in an Event of Default hereunder, the Bank, without notice
to or demand upon any Borrower, and without waiving or releasing any of the
Borrowers' Obligations or any Event of Default, and in addition to any rights or
remedies available to it under any of the other Financing Documents, may (but
shall be under no obligation to) at any time thereafter make such payment or
perform such act for the account and at the expense of the Borrowers, and may,
to the extent permitted by law, enter upon the premises of any Borrower for that
purpose and take all such action thereon as the Bank may consider necessary or
appropriate for such purpose. All sums so paid or advanced by the Bank and all
costs and expenses (including, without limitation, reasonable attorneys' fees
and expenses) incurred in connection therewith (the "Expense Payments") together
with interest thereon from the date of payment, advance or incurring until paid
in full at the rate of two percent (2%) per annum in excess of the Prime Rate
shall be paid by the Borrowers to the Bank on demand and shall constitute and
become a part of the Borrowers' Obligations.
(g) No Conditions Precedent to Exercise of Remedies. The Borrowers
-----------------------------------------------
shall not be relieved of any obligation by reason of the failure of the Bank to
comply with any request of any Borrower or of any other person to take action to
sell any of the Collateral, or otherwise to enforce any provision of the
Financing Documents, or by reason of the release, regardless of consideration,
of all or any part of the Collateral or other security for the Borrowers'
Obligations, or by reason of any agreement or stipulation between any subsequent
owner of the Collateral or other security for the Borrowers' Obligations, or the
Bank extending the time of payment or modifying the terms of the Financing
Documents without first having obtained the consent of any Borrower; and in the
latter event, the Borrowers shall continue to be liable to make payments
according to the terms of any such extension or modification agreement, unless
expressly released and discharged in writing by the Bank.
(h) Remedies Cumulative and Concurrent. No remedy herein conferred
----------------------------------
upon or reserved to the Bank is intended to be exclusive of any other remedies
provided for in the Financing Documents, and each and every such remedy shall be
cumulative, and shall be in addition to every other remedy given hereunder, or
under the Financing Documents, or now or hereafter existing at law or in equity
or by statute. Every right, power and remedy given by the Financing Documents
to the Bank shall be concurrent and may be pursued separately, successively or
together against the Borrowers or any of them, the Collateral or other security
for the Borrowers'
- 37 -
<PAGE>
Obligations or any part thereof, and every right, power and remedy given by the
Financing Documents may be exercised from time to time as often as may be deemed
expedient by the Bank.
(i) No Waiver. No delay or omission of the Bank to exercise any
---------
right, power or remedy accruing upon the happening of an Event of Default shall
impair any such right, power or remedy or shall be construed to be a waiver of
any such Event of Default or any acquiescence therein. No delay or omission on
the part of the Bank to exercise any remedy hereunder, or acceptance by the Bank
of any partial payment on account of the Borrowers' Obligations shall constitute
a waiver of any such Event of Default and each of the remedies herein provided
shall remain continuously available to the Bank.
ARTICLE XIII
MISCELLANEOUS
13.1 Notices. All communications between the parties or notices in
-------
connection with this Agreement and any of the other Financing Documents shall be
in writing (unless otherwise specified herein), hand delivered or sent by
registered airmail, postage prepaid, or by telex, telecopy or other electronic
transmission, addressed to the intended recipient at the address therefor set
forth below. All such communications and notices shall be effective upon
delivery. Either party may change its address or other information for notices
by giving notice to the other party in accordance with the provisions of this
Section.
(a) if to the Borrowers:
Production Group International, Inc.
One Courthouse Metro, Suite 200
2200 Wilson Boulevard
Arlington, Virginia 22201
Attn: Mark Sirangelo
President
Telephone: 703-528-8484
Telecopy: 703-276-1484
with a copy to:
James N. Schwarz
Dunaway and Cross
1146 19th Street, NW
Washington, DC 20036
Telephone: 202-862-9700
- 38 -
<PAGE>
(b) if to the Bank:
The First National Bank of Maryland
1800 K Street, N.W.
Washington, D.C. 20006
Attn: Mary Ann Facente
Vice President
Telephone: 202-775-4831
Telecopy: 202-775-4838
with a copy to:
Cynthia Collins Allner
Miles & Stockbridge
10 Light Street, 10th Floor
Baltimore, Maryland 21202
Telephone: (410) 385-3683
Telecopy: (410) 385-3700
13.2 Survival of Agreement; Successors and Assigns.
---------------------------------------------
(a) All covenants, agreements, representations and warranties made
herein and in the certificates delivered pursuant hereto shall survive the
extension by the Bank of any of the Credit Facilities, and the execution and
delivery to the Bank of this Agreement and all of the other Financing Documents
and shall continue in full force and effect until all of the Borrowers'
Obligations have been paid and performed in full.
(b) Whenever in this Agreement any of the parties hereto is referred
to, such reference shall be deemed to include the successors and assigns of such
party; and all covenants, promises and agreements by or on behalf of the
Borrowers which are contained in this Agreement or in the other Financing
Documents shall inure to the benefit of the successors and assigns of the Bank.
No Borrower may assign any interest that it may have under this Agreement,
including (without limitation) the right to receive the benefit of any of the
Credit Facilities to be extended hereunder, without the prior written consent of
the Bank. Any assignment made or attempted by any Borrower without the prior
written consent of the Bank shall be void and of no effect. No consent by the
Bank to an assignment by any Borrower shall release the Borrowers as the parties
primarily obligated and liable under the terms of this Agreement unless any
Borrower shall be released specifically by the Bank in writing. No consent by
the Bank to an assignment shall be deemed to be a waiver of the requirement of
prior written consent by the Bank with respect to each and every further
assignment and as a condition precedent to the effectiveness of such assignment.
13.3 Fees and Expenses of Bank. (a) Expenses. The Borrowers will pay all
------------------------- --------
out-of-pocket expenses incurred by the Bank in connection with (i) the
preparation and negotiation of this Agreement and the other Financing Documents,
(ii) the extension by the Bank of any of the Credit Facilities, (iii) the
protection of
- 39 -
<PAGE>
the Collateral and any other security for the repayment of the Borrowers'
Obligations, and (iv) the enforcement and protection of the rights of the Bank
in connection with this Agreement or any of the other Financing Documents,
including, but not limited to (A) the fees and disbursements of Miles &
Stockbridge, Baltimore, Maryland, or other counsel employed by the Bank, and (B)
the fees of the Bank's auditors.
(b) Fees Relating to Working Capital Line of Credit. (i) On December
-----------------------------------------------
1, 1995, and on the first day of each fiscal quarter thereafter prior to the
maturity of the Working Capital Line of Credit, the Borrowers shall pay to the
Bank a fee in the amount of one quarter of one percent (1/4%) of the average
daily unused portion of the Working Capital Line of Credit commitment without
regard to whether availability is constrained by the borrowing base. The unused
commitment fee shall be deemed to have been earned by the Bank for the previous
quarter at the time of billing and shall be non-refundable.
(ii) At the time of issuance of each Standby Letter of Credit, the
Borrowers shall pay the Bank an issuance fee in the amount of 1% per annum of
--- -----
the stated amount thereof, subject to a minimum issuance fee of $500. The
issuance fee for each Standby Letter of Credit shall be deemed to have been
earned by the Bank at the time of billing and shall be non-refundable.
(c) Fee Relating to the Acquisition Facility. Upon execution and
----------------------------------------
delivery of this Agreement, the Borrowers shall pay to the Bank a facility fee
in the amount of one-half of one percent (1/2%) of the Acquisition Facility
Commitment, or $25,000 [less the $12,500 paid upon acceptance of the Bank
------- -------
Commitment Letter]. This fee shall be deemed to have been earned by the Bank at
the time of billing and shall be non-refundable.
(d) Fee Relating to the Equipment Facility. Upon execution and
--------------------------------------
delivery of this Agreement, the Borrowers shall pay to the Bank a facility fee
in the amount of one-half of one percent (1/2%) of the Equipment Facility
Commitment, or $5,000. This fee shall be deemed to have been earned by the Bank
------
at the time of billing and shall be non-refundable.
13.4 Applicable Law; Jurisdiction; Consent to Service of Process. This
-----------------------------------------------------------
Agreement and all of the other Financing Documents (except where expressly
indicated therein to the contrary) shall be construed in accordance with and
governed by the laws of the State of Maryland. The Bank and the Borrower hereby
submit to the non-exclusive jurisdiction of any Maryland court or federal court
sitting in Baltimore City over any suit, action or proceeding arising out of or
relating to this Agreement. The Borrowers hereby collectively and irrevocably
appoint the President of Production Group International, Inc. at the address set
forth in Section 13.1 of this Agreement to act as agent to accept service of
------------
process for them and on their behalf in any proceeding brought pursuant to the
provisions of this subsection and to receive any notices required pursuant to or
by the terms of this Agreement.
- 40 -
<PAGE>
13.5 Waiver of Trial by Jury. Each of the Borrowers and the Bank hereby
-----------------------
waive trial by jury in any action or proceeding to which the Borrowers or any of
them and the Bank may be parties, arising out of or in any way pertaining to
this Agreement or any of the other Financing Documents. It is agreed and
understood that this waiver constitutes a waiver of trial by jury of all claims
against all parties to such actions or proceedings, including claims against
parties who are not parties to this Agreement.
This waiver is knowingly, willingly and voluntarily made by each of
the Borrowers and the Bank, and the Borrowers hereby represent that no
representations of fact or opinion have been made by any individual to induce
this waiver of trial by jury or to in any way modify or nullify its effect. The
Borrowers further represent that they have had the opportunity to be represented
in the signing of this Agreement and in the making of this waiver by independent
legal counsel, selected of their own free will, and that they have had the
opportunity to discuss this waiver with counsel.
13.6 Confession of Judgment. EACH BORROWER HEREBY AUTHORIZES ANY
----------------------
ATTORNEY DESIGNATED BY THE BANK OR ANY CLERK OF ANY COURT OF RECORD TO APPEAR
FOR THE BORROWER IN ANY COURT OF RECORD AND CONFESS JUDGMENT WITHOUT PRIOR
HEARING AGAINST THE BORROWER IN FAVOR OF THE BANK FOR AND IN THE AMOUNT OF THE
UNPAID BORROWERS' OBLIGATIONS UNDER THIS AGREEMENT AND ANY OF THE OTHER
FINANCING DOCUMENTS, COSTS OF SUIT, AND ATTORNEYS' FEES OF FIFTEEN PERCENT (15%)
OF THE UNPAID BORROWERS' OBLIGATIONS. NOTWITHSTANDING THE FACT THAT THE AMOUNT
OF THE JUDGMENT WHICH MAY BE CONFESSED AGAINST THE BORROWER MAY INCLUDE
ATTORNEYS' FEE OF FIFTEEN PERCENT (15%) OF THE UNPAID BORROWERS' OBLIGATIONS,
THE BANK SHALL BE ENTITLED TO COLLECT ONLY ITS ACTUAL ATTORNEYS' FEES, WHETHER
SUCH AMOUNT SHALL BE GREATER OR LESS THAN FIFTEEN PERCENT (15%) OF THE UNPAID
BORROWERS' OBLIGATIONS. THE AUTHORITY AND POWER TO APPEAR FOR AND ENTER
JUDGMENT AGAINST THE BORROWER SHALL NOT BE EXHAUSTED BY ONE OR MORE EXERCISES
THEREOF OR BY ANY IMPERFECT EXERCISE THEREOF AND SHALL NOT BE EXTINGUISHED BY
ANY JUDGMENT ENTERED PURSUANT THERETO. SUCH AUTHORITY MAY BE EXERCISED ON ONE
OR MORE OCCASIONS OR FROM TIME TO TIME IN THE SAME OR DIFFERENT JURISDICTIONS AS
OFTEN AS THE BANK SHALL DEEM NECESSARY OR DESIRABLE, FOR ALL OF WHICH THIS
AGREEMENT SHALL BE A SUFFICIENT WARRANT.
It is understood and agreed that this power of attorney shall be deemed to
be a power coupled with an interest which cannot be revoked. Said attorney-in-
fact shall also have the power to prosecute and defend all actions or
proceedings in connection with the Collateral and all other security for the
Borrowers' Obligations and to take such actions and to require such performance
as the Bank may deem necessary.
13.7 Modifications. No modification or waiver of any provision of this
-------------
Agreement or of any of the other Financing Documents, nor consent to any
departure by any Borrower therefrom, shall be effective unless the same shall be
in writing, and then such waiver or consent shall be effective only in the
specific
- 41 -
<PAGE>
instance and for the purpose for which it is given. No notice to or demand on
any Borrower in any case shall entitle any Borrower to any other or further
notice or demand in the same, similar or other circumstances.
13.8 No Waiver of Rights by Bank. Neither any failure nor any delay on the
---------------------------
part of the Bank in exercising any right, power or privilege hereunder or under
this Agreement or any of the other Financing Documents shall operate as a waiver
thereof, nor shall a single or partial exercise thereof preclude any other or
further exercise or the exercise of any other right, power or privilege.
13.9 No Liability of Bank. The Bank shall not be liable for any act or
--------------------
omission by it pursuant to the provisions of this Agreement in the absence of
fraud or gross negligence. The Borrowers hereby agree that the Bank shall not
be chargeable for any negligence, mistake, act or omission of any accountant,
examiner, agency or attorney employed by the Bank in making examinations,
investigations or collections, or otherwise in perfecting, maintaining,
protecting or realizing upon any lien or security interest or any other interest
in the Collateral or any other security for the Borrowers' Obligations. The
Bank shall incur no liability to any Borrower or any other party in connection
with the acts or omissions of the Bank in reliance upon any certificate or other
paper believed by the Bank to be genuine or with respect to any other thing
which the Bank may do or refrain from doing, unless such act or omission amounts
to fraud or gross negligence.
By accepting or approving anything required to be observed, performed or
fulfilled by the Borrowers or to be given to the Bank pursuant to this
Agreement, including, without limitation, any certificate, balance sheet,
statement of profit and loss or other financial statement, survey, receipt,
appraisal or insurance policy, the Bank shall not be deemed to have warranted or
represented the sufficiency, legality, effectiveness or legal effect of the
same, or of any term, provision or condition thereof and any such acceptance or
approval thereof shall not be or constitute any warranty or representation with
respect thereto by the Bank.
13.10 Indemnification. All acts, including any failure to act,
---------------
relating to the Collateral and any other security for the Borrowers' Obligations
by any agent, representative or designee of the Bank are performed solely for
the benefit of the Bank to assure repayment of the Borrowers' Obligations and
are not for the benefit of the Borrowers, or for the benefit of any other
person, including without limitation, purchasers, tenants or other occupants.
The Borrowers agree to jointly and severally indemnify the Bank and to hold the
Bank harmless against any loss or expense (including reasonable attorneys' fees)
resulting from any and all claims, actions, settlements, or liability for acts
or failure to act in connection with the Collateral and any other security for
the Borrowers' Obligations, except for those claims which directly result from
the gross negligence or wilful misconduct of the Bank's
- 42 -
<PAGE>
officers, directors or employees. In addition to all amounts payable hereunder,
the Borrowers hereby jointly and severally protect, indemnify and hold harmless
the Bank from and against, and hereby agree to defend the Bank against, any and
all claims, damages, losses, liabilities, costs or expenses whatsoever which the
Bank may, at any time, sustain or incur by reason of or in consequence of or
arising out of the extension of the Credit Facilities; it being the intention of
the parties that this Agreement shall be construed and applied to protect and
indemnify the Bank against any and all risks involved in the extension of the
Credit Facilities, including (without limitation) the issuance of the Standby
Letters of Credit, all of which risks are hereby assumed by the Borrowers,
including, without limitation, any and all risks of the acts or omissions,
whether rightful or wrongful, of any present or future de jeure or de facto
-- ----- -- -----
Governmental Authority. The provisions of this Section shall survive the
expiration of the Credit Facilities, this Agreement and the other Financing
Documents.
13.11 No Partnership. Nothing contained in this Agreement shall be
--------------
construed in a manner to create any relationship between the Borrowers and the
Bank other than the relationship of borrowers and lender, and the Borrowers and
the Bank shall not be considered partners or co-venturers for any purpose on
account of this Agreement.
13.12 Time of Essence. Time shall be of the essence for each and every
---------------
provision of this Agreement of which time is an element.
13.13 Illegality. If fulfillment of any provision hereof or any
----------
transaction related hereto or to any of the other Financing Documents, at the
time performance of such provision shall be due, shall involve transcending the
limit of validity prescribed by law, then ipso facto, the obligation to be
---- -----
fulfilled shall be reduced to the limit of such validity; and if any clause or
provisions herein contained other than the provisions hereof pertaining to
repayment of the Borrowers' Obligations operates or would prospectively operate
to invalidate this Agreement in whole or in part, then such clause or provision
only shall be void, as though not herein contained, and the remainder of this
Agreement shall remain operative and in full force and effect; and if such
provision pertains to repayment of the Borrowers' Obligations, then, at the
option of the Bank, all of the Borrowers' Obligations to the Bank shall become
immediately due and payable.
13.14 Counterparts. This Agreement may be executed in any number of
------------
counterparts, each of which shall be considered an original for all purposes;
provided, however, that all such counterparts shall together constitute one and
the same instrument.
13.15 Captions and Headings. The captions and headings contained in this
---------------------
Agreement are included herein for convenience of reference only and shall not be
considered a part hereof and are not in any way intended to limit or enlarge the
terms hereof.
- 43 -
<PAGE>
13.16 Borrowers' Obligations Absolute and Unconditional. All of the
-------------------------------------------------
Borrowers' Obligations shall be absolute and unconditional, irrespective of any
set-off or counterclaim or the genuineness, validity, priority or enforceability
of this Agreement or any of the other Financing Documents or any other
circumstance which might otherwise constitute a legal or equitable discharge.
13.17 Extension of Termination Date. The Bank shall have the option, in
-----------------------------
its sole and absolute discretion, to extend the Termination Date for additional
periods. In the event that the Bank determines to make one or more extensions
of the Termination Date, it will give written notice to Production Group
International, Inc. not more than thirty (30) and no fewer than ten (10) days
prior to the then scheduled Termination Date. If Production Group
International, Inc. does not receive written notice from the Bank, during the
time period specified in the preceding sentence, indicating that the Bank has
extended the Termination Date, the then scheduled Termination Date shall be
effective for all purposes of this Agreement.
13.18 Confidentiality. The Bank agrees that any confidential
---------------
information obtained from the Borrowers in connection with the Bank's initial
underwriting and ongoing administration of the Credit Facilities shall not be
disclosed to any Person, except for its regulators or any other Government
Authority requesting or requiring such information or any perspective
participant in the Credit Facilities, without the prior written consent of
Production Group, on behalf of the Borrowers. Notwithstanding the foreging, the
Bank shall not be required to treat as confidential any legal, marketing,
financial or technical information concerning the Borrowers which:
(a) was already in possession of the Bank prior to receipt of
such information from the Borrowers;
(b) is, or becomes, the subject of a publication, or is otherwise
made available to the public without the fault of the Bank; or
(c) is received by the Bank without restriction of
confidentiality from a third party who is not under, or in violation of any
obligation of confidentiality to the Borrowers. The Bank agrees to obtain the
written consent of Production Group, on behalf of the Borrowers, prior to
advertising the provision of the Credit Facilities.
- 44 -
<PAGE>
IN WITNESS WHEREOF, each of the Borrowers and the Bank have caused this
Financing Agreement to be duly executed, sealed and delivered by their duly
authorized officers, all as of the day and year first above written.
WITNESS: THE FIRST NATIONAL BANK OF MARYLAND
By: (SEAL)
- ------------------------- ---------------------------
Mary Ann Facente,
Vice President
ATTEST: PRODUCTION GROUP INTERNATIONAL, INC.
[SIGNATURE APPEARS HERE] By:/s/ Mark N. Sirangelo (SEAL)
- ------------------------- ---------------------------
Name: Mark N. Sirangelo
Title: President
EXECUTOURS, INC.
[SIGNATURE APPEARS HERE] By:/s/ Mark N. Sirangelo (SEAL)
- ------------------------- --------------------------
Name: Mark N. Sirangelo
Title: Chief Executive Officer
and Treasurer
SAFARIS EVENTS, INC.
[SIGNATURE APPEARS HERE] By:/s/ Mark N. Sirangelo (SEAL)
- ------------------------- --------------------------
Name: Mark N. Sirangelo
Title: Chief Executive Officer
KALEIDOSCOPE EVENTS, INC.
[SIGNATURE APPEARS HERE] By:/s/ Mark N. Sirangelo (SEAL)
- ------------------------- --------------------------
Name: Mark N. Sirangelo
Title: Chief Executive Officer
AGENDA WASHINGTON INC.
[SIGNATURE APPEARS HERE] By:/s/ Mark N. Sirangelo (SEAL)
- ------------------------- --------------------------
Name: Mark N. Sirangelo
Title: Secretary
- 45 -
<PAGE>
ATTEST: WASHINGTON, INC.
[SIGNATURE APPEARS HERE] By:/s/ Mark N. Sirangelo (SEAL)
- ------------------------- --------------------------
Name: Mark N. Sirangelo
Title: Chief Executive Officer,
Secretary and Treasurer
C.H.L. VENTURES, INC.
[SIGNATURE APPEARS HERE] By:/s/ Mark N. Sirangelo (SEAL)
- ------------------------- --------------------------
Name: Mark N. Sirangelo
Title: Secretary
PGI ACQUISITION COMPANY E
[SIGNATURE APPEARS HERE] By:/s/ Mark N. Sirangelo (SEAL)
- ------------------------- --------------------------
Name: Mark N. Sirangelo
Title: Secretary
- 46 -
<PAGE>
Exhibit 10.5
Contract of Employment
For
Executive Management
This Contract, made and entered into this 22nd day of November, 1994 by and
between Production Group International, Inc., hereinafter called "Employer,"
and Douglas Ducate, hereinafter called "Employee";
Witness:
--------
That Whereas, the Employer desires to provide executive management services
pursuant to contracts which the Employer has or will have with current and
prospective clients and;
Whereas, the Employer does desire to employ the Employee to provide these
services;
Now Therefore; in consideration of the mutual covenants and agreements
contained herein, the parties hereby agree as follows:
1. Position and Term
-----------------
a) The Position is that of Group President, Meetings, Exposition and
Publishing Group, Production Group International, Inc.
b) The term of this contract shall begin on January 1, 1995, and be for a
period of two years. The contract will be automatically renewed on the
anniversary date for an additional period of two years unless the
contract has been terminated pursuant to the provisions under Paragraph
5. This contract supersedes any and all contracts that may have
previously been negotiated between Employer and Employee, either written
or oral.
2. Employee Duties
---------------
a) The duties and responsibilities of the Employee shall be those
established by the Employer. The duties shall include but not be limited
to the following:
i) Perform any duties as assigned by Chief Executive Officer
ii) Provide executive management of the designated business group
iii) Chair or be a member of any company project or focus team as
assigned
iv) Perform duties as CEO designate representative where required and
assigned
<PAGE>
Contract of Executive Employment for Douglas Ducate
---------------------------------------------------
3. Trade and Business
------------------
a) The Employee hereby acknowledges that during the term of this contract,
he will have access to various trade secrets of the Employer. Therefore:
i) The Employee recognizes and acknowledges that such trade secrets
and other information defined herein as confidential, including,
but not limited to the following, is a valuable, special and
unique asset of the Employer's business: procedures, practices,
records, methods, systems, software, lists of clients, and
prospective clients, marketing and operational plans, contracts,
ideas, and policy manuals.
All such information remains the property of the Employer, and the
Employee, except as required in his duties to the Employer, hereby
covenants and agrees that he will never, directly or indirectly,
during his employment or after termination thereof, use,
disseminate, disclose, lecture on, or in any manner publish any
confidential information without the Employer's permission given
in writing.
ii) The Employee agrees that all documents, records, manuals,
notebooks, software, writings of any kind, containing confidential
information relating to the business of the Employer or its
affiliated companies, including copies thereof, then in the
Employee's possession, whether prepared by the Employee, the
Employer, or others, shall be the property of the Employer. Upon
termination of Employment, the Employee agrees to deliver all of
this property to the Employer.
b) The Employee acknowledges that part of his salary is in return for
entering into the following agreement:
i) The Employee agrees that during his employment and for a period of
two (2) years following termination he will not seek to induce, by
any method whatsoever, any other employees of the Employer to
leave their employment with the Employer.
ii) The Employee further agrees that he shall not during the term of
this agreement, or for a period of one (1) year following the
termination of this agreement, directly or indirectly, persuade or
induce or seek to persuade or induce any of the Clients of the
Employer to purchase services in competition with PGI from any
other business or person.
Page 2
<PAGE>
Contract of Executive Employment for Douglas Ducate
---------------------------------------------------
iii) The Employee further agrees not to utilize any list of clients
which they had access or knowledge of while employed by the
Employer to try to solicit such clients for any other company.
iv) The Employee further agrees that during the term of this contract
and for a period of one (1) year following termination of
employment with the Employer that he will not be employed in a
role providing services substantially similar to what the Employer
provides to any client to which the Employer presently provides
its services to or to any client to which the Employee provided
services during the term of this agreement or for a period of one
(1) year following the termination of this agreement.
v) The Employee also agrees that for a period of one (1) year
following termination of this agreement, he will not work for, or
provide services for any other organization in competition with
PGI.
4. Compensation, Benefits and Expense Reimbursement
------------------------------------------------
a) All wages shall be paid in accordance with the Employer's procedures and
are subject to withholdings as required by local, state and federal law.
b) The Employee will receive benefits 11/29/94 provided by the Employer to
the Employee in accordance with the policy and procedures manual as
adopted by the Employer.
c) In addition to the standard benefit package, the Employee is entitled
11/29/94 to specific compensation and benefits as outlined in
Addendum A.
d) The Employee shall receive expense reimbursement as outlined in the
policy and procedures manual unless modified as set forth in Addendum A.
5. Termination
-----------
a) Either party may terminate this contract upon the giving of ninety (90)
days' written notice to the other party. In the event this ninety days'
notice is given by the Employer and no other provisions of this
agreement are violated, the Employee shall be entitled to all salary and
benefits as specified in this contract. In the event this ninety days'
notice is given by the Employee and no other provisions of this
agreement are violated, the Employer shall have the option of
immediately terminating this agreement without further compensation or
accepting the notice period and continuing employment. If the Employer
accepts the notice period then Employee shall be entitled to all salary
and benefits as
Page 3
<PAGE>
Contract of Executive Employment for Douglas Ducate
---------------------------------------------------
specified in this contract during the notice period or the remaining
time of the contract whichever is less.
b) If either party intends not to exercise the renewal of this contract
they are required to provide sixty (60) days notice to the other party.
c) In the event that the Employee violates any corporate policies or any of
the provisions as may be adopted and set forth in the PGI Policy and
Procedures Manual, is convicted of any criminal offense involving moral
turpitude; abuses alcohol or drugs to such an extent that it has an
adverse impact on the Employee's ability to perform his or her job, then
the Employee shall be subject to immediate termination, with all salary
and benefits to cease upon termination.
6. Miscellaneous
-------------
a) The Employee shall not have the right to enter into a contract with any
third party on behalf of the Employer nor shall the Employee sign any
agreement with any other party on behalf of the Employer without the
express written consent of the Employer.
b) In the event any provisions of this contract shall be deemed
unenforceable, then all remaining provisions shall remain in full force
and effect and the contract shall be construed as if the invalid
provisions had been omitted.
c) In the event that either party fails to take action when the other party
does not abide by the terms of this agreement, such failure to act shall
not prevent the party from taking action for any future violations of
this agreement.
d) This contract shall be construed in accordance with the laws of the
State of Virginia and all parties agree that the State of Virginia shall
be the proper jurisdiction and the County of Arlington shall be the
proper venue regarding any dispute relating to this contract.
e) This contract shall be the sole agreement between the Employer and the
Employee, and no representative of the employer other than the CEO has
any authority to enter into or amend an employment contract, or to make
any agreement contrary to the foregoing.
f) Because this agreement supersedes any and all previous employment
contracts or discussions between the parties and because this agreement
is the sole agreement in effect between them each party forever releases
and covenants not to sue the other for any liability arising up to the
date of execution of this agreement. This knowing and voluntary release
and covenant not to sue, mutually given and
Page 4
<PAGE>
Contract of Executive Employment for Douglas Ducate
---------------------------------------------------
effective, includes any and all claims under federal, state, and local
laws, regulations and common law.
g) The Employee will notify the Employer of any non Employer related
activities which may conflict with the Employee's job performance.
h) All written notices to be given pursuant to this contract shall be sent
as follows:
(1) To Employer:
Mark N. Sirangelo, CEO
Production Group International, Inc.
Suite 200
2200 Wilson Boulevard
Arlington, VA 22201
(2) To Employee:
Douglas Ducate
4 Lundy's Lane
Richardson, TX 75080
7. Signatures
a) This employment agreement is agreed to by both parties this 22nd day of
November 1994.
/s/ Mark N. Sirangelo
---------------------------
Mark N. Sirangelo
Chief Executive Officer
Production Group International, Inc.
/s/ Douglas L. Ducate
---------------------------
Douglas Ducate
Page 5
<PAGE>
Contract of Executive Employment for Douglas Ducate
---------------------------------------------------
Addendum A
Compensation and Benefits
-------------------------
Position: Group President, Meetings, Exposition and Publishing Group
1. Base Annual Salary
a) Base salary is set at $175,000 and is payable semi-monthly. The Employer
offers direct deposit services at its expense. Base salary will be
reviewed annually and a draw on potential bonus will be considered after
the first year if a bonus can be reasonably anticipated.
2. Annual Performance Bonus
a) An annual bonus of 10% of the increase in Net Income before tax of the
Meetings, Exposition and Publishing Group over previous company fiscal
year. The Employer, after discussion with Employee will either adjust
base targets or segregate any mid-year acquisitions and mergers that may
have an impact on the Group.
3. Equity participation
a) A stock grant of 5,000 shares pursuant to the Employer's restricted
stock plan will be granted at the end of the first year of employment
and 2,500 each annual contract anniversary date thereafter. Additional
awards for performance available.
4. Expense Reimbursement
a) All reasonable expenses such as approved travel, hotel, short term
residence, parking, tolls, etc., incurred by the Executive during the
performance of his job will be reimbursed.
b) In addition, to normal business expenses in (1), during the first twelve
months of this agreement the Employer will pay directly or reimburse
Employee for up to a total of $20,000 for the twelve month period, for
temporary housing and living expenses incurred by Employee to reside in
Washington, DC. The Employee has the option of submitting actual
expenses or of taking an allowance to be paid in equal monthly
installments and reconciled every three months, with any overages or
shortages being adjusted in the following period.
Page 6
<PAGE>
Contract of Executive Employment for Douglas Ducate
---------------------------------------------------
5. Insurance and Health
In addition to the Employer's standard health care plan the following will
be provided and is agreed to by the Employer and Employee:
1. The Employer intends to apply for Key Executive Life Insurance on the
Employee in the amount of $1,000,000, to be paid for at its expense. The
Employee will agree to support this applications and any medical or
informational requirements reasonably requested by the potential
insurance companies. In the event the Employer does secure such a
policy, it will either designate $500,000 of such policy to the
beneficiary of the Employee's choosing or acquire two $500,000 policies
and assign one to the Employee.
2. The Employer will also request on behalf of the Employee additional
levels of insurance under these policies to be paid for by the Employee.
3. The Employee will agree to participate in a full annual physical, which
results will be shared with the Employer and which will be paid for in
full by the Employer.
/s/ Mark N. Sirangelo
---------------------------
Mark N. Sirangelo
Chief Executive Officer
Production Group International, Inc.
/s/ Douglas L. Ducate
---------------------------
Douglas Ducate
Page 7
<PAGE>
Contract of Executive Employment for Douglas Ducate
---------------------------------------------------
Addendum B
Compensation and Benefits
-------------------------
This addendum to the employment contract, made and entered into the 22nd day of
November, 1994 by and between Production Group International, Inc., hereinafter
called "Employer," and Douglas Ducate, hereinafter called "Employee" adopts the
following changes, deletions and additions. All other terms of the above
contract remain in effect.
Position: President, PGI Exhibition Company
1. Annual Performance Bonus
This section will be deleted for the remainder of the term. No bonus was
earned to the point of this addendum.
2. Equity Participation
A stock grant of 25,000 shares pursuant to the Employer's stock plan will be
granted effective as of hire date and 2,500 each annual contract anniversary
date thereafter. Additional awards for performance will remain available.
3. Expense Reimbursement
Expense allowance for temporary housing will be extended to May 31, 1996.
Agreed this 5th day of February 1996.
/s/ Mark N. Sirangelo
- ------------------------------------
Mark N. Sirangelo
Chief Executive Officer
Production Group International, Inc.
/s/ Douglas Ducate
- --------------------------------
Douglas Ducate
<PAGE>
Contract of Executive Employment for Douglas Ducate
---------------------------------------------------
Addendum C
Compensation and Benefits
-------------------------
This addendum to the employment contract, made and entered into the 22nd day of
November 1994 by and between Production Group International, Inc., hereinafter
called "Employer," and Douglas Ducate, hereinafter called "Employee" adopts the
following changes, deletions and additions. All other terms of the above
contract remain in effect.
Position: President, PGI Exhibition Company
1. Base Salary
Effective July 1, 1996 base salary will increase to $195,000 per annum for
the duration of the agreement.
Agreed this 1st day of July 1996.
/s/ Mark N. Sirangelo
- ------------------------------------
Mark N. Sirangelo
Chief Executive Officer
Production Group International, Inc.
/s/ Douglas L. Ducate
- ------------------------------------
Douglas Ducate
<PAGE>
Exhibit 10.6
Contract of Employment
For
Executive Management
This Contract, made and entered into this 28th day of December, 1994 by and
between Production Group International, Inc., hereinafter called "Employer,"
and Cyril Wismar, hereinafter called "Employee";
Witness:
--------
That Whereas, the Employer desires to provide executive management services
pursuant to contracts which the Employer has or will have with current and
prospective clients and;
Whereas, the Employer does desire to employ the Employee to provide these
services;
Now Therefore; in consideration of the mutual covenants and agreements
contained herein, the parties hereby agree as follows:
1. Position and Term
-----------------
a) The Position is that of Senior Vice President, Corporate Marketing and
Major Accounts, Production Group International, Inc.
b) The term of this contract shall begin on January 1, 1995, and be for a
period of two years. The contract will be automatically renewed on
the anniversary date for an additional period of two years unless the
contract has been terminated pursuant to the provisions under
Paragraph 5. This contract supersedes any and all contracts that may
have previously been negotiated between Employer and Employee, either
written or oral.
2. Employee Duties
---------------
a) The duties and responsibilities of the Employee shall be those
established by the Employer. The duties shall include but not be
limited to the following:
i) Perform any duties as assigned by Chief Executive Officer or his
designated representative.
ii) Provide executive management of the assigned business function
which currently includes managing the Employer's major account
sales effort and overseeing the Employer's corporate marketing
function.
<PAGE>
Contract of Executive Employment for Cyril Wismar
-------------------------------------------------
iii) Chair or be a member of any company project or focus team as
assigned.
iv) Perform duties as CEO's designated representative where required
and assigned.
3. Trade and Business
------------------
a) The Employee hereby acknowledges that during the term of this
contract, he will have access to various trade secrets of the
Employer. Therefore:
i) The Employee recognizes and acknowledges that such trade secrets
and other information defined herein as confidential, including,
but not limited to the following, is a valuable, special and
unique asset of the Employer's business: procedures, practices,
records, methods, systems, software, lists of clients, and
prospective clients, marketing and operational plans, contracts,
ideas, and policy manuals.
All such information remains the property of the Employer, and
the Employee, except as required in his duties to the Employer,
hereby covenants and agrees that he will never, directly or
indirectly, during his employment or after termination thereof,
use, disseminate, disclose, lecture on, or in any manner publish
any confidential information without the Employer's permission
given in writing.
ii) The Employee agrees that all documents, records, manuals,
notebooks, software, writings of any kind, containing
confidential information relating to the business of the Employer
or its affiliated companies, including copies thereof, then in
the Employee's possession, whether prepared by the Employee, the
Employer, or others, shall be the property of the Employer. Upon
termination of Employment, the Employee agrees to deliver all of
this property to the Employer.
b) The Employee acknowledges that part of his salary is in return for
entering into the following agreement:
i) The Employee agrees that during his employment and for a period
of two (2) years following termination he will not seek to
induce, by any method whatsoever, any other employees of the
Employer to leave their employment with the Employer.
ii) The Employee further agrees that he shall not during the term of
this agreement, or for a period of eighteen (18) months following
the termination of this agreement, directly or indirectly,
persuade or induce or seek to persuade or induce any of the
Clients of the Employer to purchase services in competition with
PGI from any other business or person.
Page 2
<PAGE>
Contract of Executive Employment for Cyril Wismar
-------------------------------------------------
iii) The Employee further agrees not to utilize any list of clients
that he had access or knowledge of while employed by the Employer
to try to solicit such clients for any other company.
iv) The Employee further agrees that during the term of this contract
and for a period of eighteen (18) months following termination of
employment with the Employer that he will not be employed in a
role providing services substantially similar to what the
Employer provides to any client to which the Employer presently
------
provides its services to or to any client to which the Employee
provided services during the term of this agreement or for a
period of one (1) year following the termination of this
agreement.
v) The Employee also agrees that for a period of one (1) year
following termination of this agreement by the Employee or for
cause by the Employer as defined in Section 5, he will not work
for, or provide services for any other organization in direct
competition with PGI.
4. Compensation, Benefits and Expense Reimbursement
------------------------------------------------
a) All wages shall be paid in accordance with the Employer's procedures
and are subject to withholdings as required by local, state and
federal law.
b) The Employee will receive benefits will be provided by the Employer to
the Employee in accordance with its current policies and procedures or
as may adopted by the Employer during the term of this agreement.
c) In addition to the standard benefit package, the Employee is to
specific compensation and benefits as outlined in Addendum A.
d) The Employee shall receive expense reimbursement as outlined in the
policy and procedures manual unless modified as set forth in Addendum
A.
5. Termination
-----------
a) Either party may terminate this contract upon the giving of ninety
(90) days' written notice to the other party.
b) In the event this ninety days' notice is given by the Employer and no
other provisions of this agreement are violated, the Employee shall be
entitled to, as severance, a continuation of the base salary as
specified in this contract for three months from the date notice is
given as well as any bonus fully earned but not yet paid.
Page 3
<PAGE>
Contract of Executive Employment for Cyril Wismar
-------------------------------------------------
c) In the event this ninety days' notice is given by the Employee and no
other provisions of this agreement are violated, the Employer shall
have the option of immediately terminating this agreement without
further compensation or accepting the notice period and continuing
employment. If the Employer accepts the notice period then Employee
shall be entitled to all salary and benefits as specified in this
contract during the notice period or the remaining time of the
contract whichever is less.
d) If either party intends not to exercise the renewal of this contract
they are required to provide sixty (60) days notice to the other
party.
e) In the event that the Employee violates any adopted and stated
corporate policies or any of the provisions as may be adopted and set
forth in a PGI Policy and Procedures Manual, is convicted of any
criminal offense involving moral turpitude; abuses alcohol or drugs to
such an extent that it has an adverse impact on the Employee's ability
to perform his or her job, then the Employee shall be subject to
immediate termination, with all salary and benefits to cease upon
termination.
6. Miscellaneous
-------------
a) The Employee shall not have the right to enter into a contract with
any third party on behalf of the Employer nor shall the Employee sign
any agreement with any other party on behalf of the Employer without
the express written consent of the Employer.
b) In the event any provisions of this contract shall be deemed
unenforceable, then all remaining provisions shall remain in full
force and effect and the contract shall be construed as if the invalid
provisions had been omitted.
c) In the event that either party fails to take action when the other
party does not abide by the terms of this agreement, such failure to
act shall not prevent the party from taking action for any future
violations of this agreement.
d) This contract shall be construed in accordance with the laws of the
State of Virginia and all parties agree that the State of Virginia
shall be the proper jurisdiction and the County of Arlington shall be
the proper venue regarding any dispute relating to this contract.
e) This contract shall be the sole agreement between the Employer and the
Employee, and no representative of the employer other than the CEO has
any authority to enter into or amend an employment contract, or to
make any agreement contrary to the foregoing.
Page 4
<PAGE>
Contract of Executive Employment for Cyril Wismar
-------------------------------------------------
f) Because this agreement supersedes any and all previous employment
contracts, written agreements or discussions between the parties and
because this agreement is the sole agreement in effect between them,
each party forever releases and covenants not to sue the other for any
liability from any cause arising up to the date of execution of this
agreement. This knowing and voluntary release and covenant not to
sue, mutually given and effective, includes any and all claims under
federal, state, and local laws, regulations and common law.
g) The Employee will notify the Employer of any non-Employer related
activities that may conflict with the Employee's job performance.
h) All written notices to be given pursuant to this contract shall be
sent as follows:
(1) To Employer:
Mark N. Sirangelo, CEO
Production Group International, Inc.
2200 Wilson Boulevard, Suite 200
Arlington, VA 22201
(2) To Employee:
Cyril Wismar
209 Wilkes Street
Alexandria, VA 22314
7. Signatures
a) This employment agreement is agreed to by both parties this 28th day
of December 1994.
/s/ Mark N. Sirangelo
___________________________
Mark N. Sirangelo
Chief Executive Officer
Production Group International, Inc.
/s/ Cyril Wismar
___________________________
Cyril Wismar
Employee
Page 5
<PAGE>
Contract of Executive Employment for Cyril Wismar
-------------------------------------------------
Addendum A
Compensation and Benefits
-------------------------
Position: Senior Vice President, Corporate Marketing and Major Accounts
1. Base Annual Salary
a) Base salary is set at $150,000 for the duration of this agreement and
is payable semi-monthly. The Employer offers direct deposit services
at its expense. Base salary will be review annually thereafter, if
contract is extended. A draw on potential bonus will be considered
after the first year if a bonus can be reasonably anticipated.
2. Major Account Group Profit Performance Bonus
a) An annual bonus of 10% of the increase in total Gross Profit of the
Major Account Group (Base Gross Profit) over the Employer's previous
fiscal year's total for the Group. Base Gross Profit, as defined by
the Employer's auditors, is Net Revenue less all direct costs of the
production of the revenue, of the accounts assigned to Major Account
Group of the Company. Bonus is available only on revenue collected by
the Employer and then only on the amount collected. For the purpose
of the first Base Gross Profit, the amount for Fiscal Year 1994 was
$________________ .
b) The Employer, after discussion with Employee will adjust the Group's
base target as a result of any mid-year additions or changes to the
Group or for any acquisitions or mergers that may have an impact on
the Group.
3. Corporate Marketing Project Performance Bonus
The Employee would be eligible for a project based performance program for
timely and thorough completion of assigned projects.
a) The Employer and Employee will in a reasonable period after the start
of this agreement, mutually agree upon five initial projects which
relate to the Employee's position with the Employer. This listing
shall then be attached as Addendum B to this contract.
b) Each project will have a detailed timeline and a performance standard
for completion. The Employee's direct supervisor will be the
evaluator for the
Page 6
<PAGE>
Contract of Executive Employment for Cyril Wismar
-------------------------------------------------
successful completion of the project. In the event of a disagreement,
the Employer's CEO will be the sole and final judge of the
performance.
c) The Bonus that will be award for the successful completion of each
project is 10% of the Employee's then base salary, payable within 30
days of the completion of the assignment.
d) Upon the completion of the originally assigned projects, additional
projects will be developed and assigned.
4. Equity participation
A stock grant of 2,000 shares pursuant to the Employer's restricted
stock plan will be granted at the end of the first year of employment
and 2,000 each annual contract anniversary date thereafter. Additional
awards for performance available.
5. Expense Reimbursement
All reasonable expenses such as approved travel, hotel, short term
residence, parking, tolls, etc., incurred by the Executive during the
performance of his job will be reimbursed.
6. Insurance and Health
In addition to the Employer's standard health care plan the following
will be provided and is agreed to by the Employer and Employee:
a) The Employer intends to apply for Key Executive Life Insurance on the
Employee in the amount of up to $1,000,000, to be paid for at its
expense. The Employee will agree to support this applications and any
medical or informational requirements reasonably requested by the
potential insurance companies.
b) The Employer will also request on behalf of the Employee additional
levels of insurance under these policies to be paid for by the
Employee, at Employee's request.
c) The Employee will agree to participate in a full annual physical,
which results will be shared with the Employer and which will be paid
for in full by the Employer.
Page 7
<PAGE>
Contract of Executive Employment for Cyril Wismar
-------------------------------------------------
Agreed this 28th day of December, 1994:
/s/ Mark N. Sirangelo
___________________________
Mark N. Sirangelo
Chief Executive Officer
Production Group International, Inc.
/s/ Cyril Wismar
___________________________
Cyril Wismar
Employee
Page 8
<PAGE>
Contract of Executive Employment for Cyril Wismar
-------------------------------------------------
Addendum B
Carry-Over Accounts
-------------------
The following accounts previously handled by Employee through December
31,1994 will be commissioned as per Employee's previous agreement:
. MCI 3rd and 4th Quarter 1994 activity
. Mobil Oil Dealers Meeting of 9/94, including speaker support projects
. networkMCI Services Meeting (December/Phoenix) entertainment, video and
extras
. CONCERT Meeting and Corporate Video
. American Legislative Exchange Council Meeting 12/94
The following accounts sold in 1994 but not yet produced will not be
eligible for commissions as per Employee's previous agreement
. networkMCI Services, Cary North Carolina (2/95) and San Diego meetings
(3/95)
. Mobil Distributors Meeting in Phoenix (2/95)
. Mobil Kick-off Video (1/95, 2/95)
. ALEC Annual Meeting (8/95)
Agreed this 28th day of December, 1994:
/s/ Mark N. Sirangelo
___________________________
Mark N. Sirangelo
Chief Executive Officer
Production Group International, Inc.
/s/ Cyril Wismar
___________________________
Cyril Wismar
Employee
Page 9
<PAGE>
Contract of Employment
For
Executive Management Exhibit 10.7
This contract, made and entered into this 11th day of October, 1995 by and
between Production Group International, Inc., hereinafter called "Employer", and
Robert Kirkland, hereinafter called "Employee";
Witness:
-------
That Whereas, the Employer desires to provide executive management services
pursuant to contracts which the Employer has or will have with current and
prospective clients and;
Whereas, the Employer does desire to employ the Employee to provide these
services;
Now Therefore; in consideration of the mutual covenants and agreements contained
herein, the parties hereby agree as follows:
1. Position and Term
-----------------
a) The Position is that of Senior Vice President, Sales, Production Group
International, Inc.
b) The term of this contract shall begin on November 1 ,1995, and end on
August 31, 1997. The contract will be automatically renewed on the
anniversary date for an additional period of two years unless the
contract has terminated pursuant to the provisions under Paragraph 5.
This contract supersedes any and all contracts that may have
previously been negotiated between the Employer and Employee, either
written oral.
2. Employee Duties
---------------
a) The duties and responsibilities of the Employee shall be those
established by the Employer. The duties shall include but not be
limited to the following:
i) Perform any duties as assigned by Chief Executive Officer or his
designated representative.
ii) Provide executive management of the assigned business function.
iii) Chair or be a member of any company project or focus team as
assigned.
Page 1
<PAGE>
Contract for Employment for Executive Management - Robert Kirkland
------------------------------------------------------------------
iv) Perform duties as CEO's designated representative where required
and assigned.
3. Trade and Business
------------------
a) The Employee hereby acknowledges that during the term of this contract,
he will have access to various trade secrets of the Employer.
Therefore:
i) The Employee recognizes and acknowledges that such trade secrets
and other information, whether written, computer based or oral,
defined herein as confidential, including, but not limited to the
following, is a valuable, special and unique asset of the
Employer's business: financial information, executive briefings
or procedures, management discussions, business practices,
records, methods, systems, software, lists of clients, and
prospective clients, marketing and operational plans, contracts,
ideas and policy manuals.
All such information remains the property of the Employer, and
the Employee, except as required in his duties to the Employer,
hereby covenants and agrees that he will never, directly and
indirectly, during his employment or after termination thereof,
use, disseminate, disclose, lecture on, or in any manner publish
any confidential information without the Employer's permission
given in writing.
ii) The Employee agrees that all documents, records, manuals,
notebooks, software, writings of any kind, containing
confidential information relating to the business of the Employer
or it's affiliated companies, including copies thereof, then in
the Employee's possession, whether prepared by the Employee,
Employer or others, shall be the property of the Employer. Upon
termination of Employment, the Employee agrees to deliver all of
this property to the Employer.
b) The Employee acknowledges that part of his salary is in return for
entering into the following agreement:
i) The Employee agrees that during his employment and for a period
of two (2) years following termination he will not seek to
induce, by any method whatsoever, any other employees of the
Employer to leave their employment with the Employer.
ii) The Employee further agrees that he shall not during the term of
this agreement, for a period of eighteen (18) months following
the termination of this agreement, directly or indirectly,
persuade or induce or seek to persuade or induce any of the
Clients of the Employer to purchase services in competition with
PGI from any
Page 2
<PAGE>
Contract for Employment for Executive Management - Robert Kirkland
------------------------------------------------------------------
other business or person.
iii) The Employee further agrees not to utilize any list of clients
that he had access or knowledge of while employed by the
Employer to try and solicit such clients for any other company.
iv) The Employee further agrees that during the term of this
contract and for a period of eighteen (18) months following
termination of employment with the Employer that he will not be
employed in a role providing services substantially similar to
what the Employer provides to any client to which the Employer
------
presently provides its services to or to any client to which the
Employee provided services during the term of this agreement or
for a period of one (1) year following the termination of this
agreement.
v) The Employee also agrees that for a period of one (1) year
following termination of this agreement by the Employee or for
cause by the Employer as defined in Section 5, he will not work
for, or provide services for any other organization in direct
competition with PGI in any geographic area in which PGI or its
affiliates has a bona-fide office.
4. Compensation, Benefits and Expense Reimbursement
------------------------------------------------
a) All wages shall be paid in accordance with the Employer's procedures
and are subject to withholdings as required by local, state, and
federal law.
b) Benefits will be provided to the Employee by the Employer in accordance
with its current policies and procedures or as may be adopted by the
Employer during the term of this agreement.
c) In addition to the standard benefits package, the Employee is to be
provided specific compensation and benefits listed in Addendums A & B.
d) The Employee shall receive expense reimbursement outlined in the policy
and procedures manual unless modified as set forth in Addendum A.
5. Termination
-----------
a) Either party may terminate this contract upon giving of sixty (60)
day's written notice to the other party.
b) In the event this sixty day's notice is given by the Employer and no
other provisions of this agreement are violated, the Employee shall be
entitled to, as severance, a continuation of the base salary as
specified in this contract for three months from the date notice is
given as well as any
Page 3
<PAGE>
Contract for Employment for Executive Management - Robert Kirkland
------------------------------------------------------------------
bonus fully earned not yet paid.
c) In the event this sixty day's notice is given by the Employee and no
other provisions of this agreement are violated, the Employer shall
have the option of immediately terminating this agreement without
further compensation or accepting the notice period and continuing
employment. If the Employer accepts the notice period then the
Employee shall be entitled to all salary and benefits as specified in
this contract during the notice period or the remaining time of the
contract whichever is less.
d) If either party intends not to exercise the renewal of this contract
they are required to provide sixty days (60) days notice to the other
party.
e) In the event that the Employee violates any provision of Section 3 of
this contract or any adopted and stated corporate policies or any
provisions as may be adopted by the Company for its employees; is
convicted of any criminal offense involving moral turpitude; abuses
alcohol or drugs to such an extent that it has an adverse impact on
the Employee's ability to perform his or her job, then the Employee
shall be subject to immediate termination, with all salary and
benefits to cease upon termination.
6. Miscellaneous
-------------
a) The Employee shall not have the right to enter into a contract with any
third party on behalf of the Employer nor shall the Employee sign any
agreement with any other party on behalf of the Employer without the
express written consent of the Employer.
b) In the event any provisions of this contract shall be deemed
unenforceable, then all remaining provisions shall remain in full
force and effect and the contract shall be construed as if the invalid
provisions had been omitted.
c) In the event that either party fails to take action when the other
party does not abide by the terms of this agreement, such failure to
act shall not prevent the party from taking action for any future
violations of this agreement.
d) This contract shall be construed in accordance with the laws of the
State of Virginia and all parties agree that the State of Virginia
Shall be the proper jurisdiction and the County of Arlington shall be
the proper venue regarding any dispute relating to this contract.
e) This contract shall be the sole agreement between the Employer and the
Employee, and no representative of the employer other than the CEO has
any authority to enter into or amend an employment contract, or to
make any agreement contrary to the foregoing.
Page 4
<PAGE>
Contract for Employment for Executive Management - Robert Kirkland
------------------------------------------------------------------
f) Because this agreement supersedes any and all previous employment
contracts, written agreements or discussions between the parties and
because this agreement is the sole agreement in effect between them,
each party forever releases and covenants not to sue the other for any
liability form any cause arising up to the date of execution of this
agreement. This knowing and voluntary release and covenants not to
sue, mutually given and effective, includes any and all claims under
federal, state, and local laws, regulations and common law.
g) The Employee will notify the Employer of any non-Employer related
activities that may conflict with the Employee's job performance.
h) All written notices to be given pursuant to this contract shall be sent
as follows:
(1) To Employer:
Mark N. Sirangelo, CEO
Production Group International, Inc.
2200 Wilson Boulevard, Suite 200
Arlington, VA 22201
(2) To Employee:
Robert Kirkland
13115 Thornhill Drive
St. Louis, MO 63131
7. Signatures
This employment agreement is agreed to by both parties this 11th day of October,
1995.
/s/Mark N. Sirangelo
-----------------------------------
Mark N. Sirangelo
Chief Executive Officer
Production Group International, Inc.
/s/Robert Kirkland
------------------------------------
Robert Kirkland
Employee
Page 5
<PAGE>
Contract for Employment for Executive Management - Robert Kirkland
------------------------------------------------------------------
Addendum A
Compensation and Benefits
-------------------------
Position: Senior Vice President, Sales
1. Base Annual Salary
Base Salary is set at $125,000 and will increase to $150,000 on September
1, 1996 for the duration of this agreement and is payable semi-monthly. The
Employer offers direct deposit services at its expense.
2. Corporate Project Performance Bonus
The Employee would be eligible for a project based performance program for
timely and thorough completion of assigned projects.
a) The Employer and Employee will, in a reasonable period after the start
of this agreement, mutually agree upon projects that relate to the
Employee's position with the Employer. This listing will be attached
as Addendum B to this contract.
b) Each project will have a detailed timeline and a performance standard
for completion. The Employee's direct supervisor will be the
evaluator for the successful completion of the project. In the event
of a disagreement, the Employer's CEO will be the sole and final judge
of the performance.
c) The Bonus available will be $25,000 for the first group of projects and
upon completion additional projects of the originally assigned
projects, additional projects will be developed and assigned, with
additional bonus available.
3. Equity Participation
A stock grant of 15,000 shares pursuant to the Employer's Employee stock
option/issuance plan will be granted on January 1, 1996, and an additional
award of 5,000 shares will be granted at the end of the each year of
employment under this agreement and thereafter, provided that both parties
have agreed to extend this contract for an additional period.
4. Expense Reimbursement
All reasonable expenses such as approved travel, hotel, parking, tolls,
etc., incurred by the Executive during the performance of his job will be
reimbursed. During the twelve months after employment or until the Employee
relocates to Washington, the Employer will reimburse Employee for temporary
living and
Page 6
<PAGE>
Contract for Employment for Executive Management - Robert Kirkland
------------------------------------------------------------------
travel expenses to a maximum of $20,000, payable upon submission of expense
receipts. Further, should the Employer require a permanent relocation of
the Employee, Employer will reimburse Employee for the costs of a moving
service to move personal belongings.
5. Insurance and Health
In addition to the Employer's standard health care plan the following will
be provided and is agreed by the Employer and Employee:
a) The Employer may apply for Key Executive Life Insurance on the Employee
in the amount of up to $1,000,000, to be paid for at its expense. If
the Employer applies for such a policy the Employee will agree to
support these applications and any medical or informational
requirements reasonably requested by the potential insurance
companies.
b) The Employer will also request on the behalf of the Employee additional
levels of insurance under these policies to be paid for by the
Employee, at the Employee's request.
c) The Employee will agree to participate in a full annual physical, which
results will be shared with the Employer and which will be paid in
full by the Employer.
6. Other
a) The start date of employment will be November 1, 1995
Agreed this 11th day of October, 1995:
/s/Mark N. Sirangelo
-----------------------------------------
Mark N. Sirangelo
Chief Executive Officer
Production Group International, Inc.
/s/Robert Kirkland
------------------------------------------
Robert Kirkland
Employee
Page 7
<PAGE>
Contract for Employment for Executive Management - Robert Kirkland
------------------------------------------------------------------
Addendum B
Compensation and Benefits
-------------------------
This addendum to the employment contract, made and entered into this 11th day of
October, 1995 by and between Production Group International, inc., hereinafter
called "Employer," and Robert Kirkland, hereinafter called "Employee" adopts the
following changes, deletions and additions. All other terms of the above
contract remain in effect.
Position: President, PGI Event Company
1. Base Salary
Effective February 1, 1996 base salary will increase to $150,000
per annum for the duration of the agreement.
2. Corporate Project Performance Bonus
This section will be deleted for the remainder of the term. No
bonus was earned to the point of this addendum.
3. Equity Participation
A stock grant of 20,000 shares pursuant to the Employer's
restricted stock plan will be granted and 5,000 each annual
contract anniversary date thereafter. Additional awards for
performance will remain available.
/s/ Mark N. Sirangelo
-----------------------
Mark N. Sirangelo
Chief Executive Officer
Production Group International, Inc.
/s/ Robert C. Kirkland
-----------------------
Robert Kirkland
Page 8
<PAGE>
Exhibit 10.8
Contract of Employment
For
Executive Management
This contract, made and entered into this 21st day of November, 1995 by and
between Production Group International, Inc., hereinafter called "Employer", and
John M. Green, hereinafter called "Employee";
Witness:
-------
That Whereas, the Employer desires to provide executive management services
pursuant to contracts which the Employer has or will have with current and
prospective clients and;
Whereas, the Employer does desire to employ the Employee to provide these
services;
Now Therefore; in consideration of the mutual covenants and agreements contained
herein, the parties hereby agree as follows:
1. Position and Term
-----------------
a) The Position is that of Chief Financial Officer & Executive Vice
President, Production Group International, Inc.
b) The term of this contract shall begin on November 21, 1995, and end on
August 31, 1997. The contract will be automatically renewed on the
anniversary date for an additional period of two years unless the
contract has terminated pursuant to the provisions under Paragraph 5.
This contract supersedes any and all contracts that may have
previously been negotiated between the Employer and Employee, either
written oral.
2. Employee Duties
---------------
a) The duties and responsibilities of the Employee shall be those
established by the Employer. The duties shall include but not be
limited to the following:
i) Perform any duties as assigned by Chief Executive Officer or his
designated representative.
ii) Provide executive management of the assigned business function.
iii) Chair or be a member of any company project or focus team as
assigned.
Page 1
<PAGE>
Contract for Employment for Executive Management - John M. Green
----------------------------------------------------------------
iv) Perform duties as CEO's designated representative where required
and assigned.
3. Trade and Business
------------------
a) The Employee hereby acknowledges that during the term of this
contract, he will have access to various trade secrets of the
Employer. Therefore:
i) The Employee recognizes and acknowledges that such trade secrets
and other information, whether written, computer based or oral,
defined herein as confidential, including, but not limited to the
following, is a valuable, special and unique asset of the
Employer's business: financial information, executive briefings
or procedures, management discussions, business practices,
records, methods, systems, software, lists of clients, and
prospective clients, marketing and operational plans, contracts,
ideas and policy manuals.
All such information remains the property of the Employer, and
the Employee, except as required in his duties to the Employer,
hereby covenants and agrees that he will never, directly and
indirectly, during his employment or after termination thereof,
use, disseminate, disclose, lecture on, or in any manner publish
any confidential information without the Employer's permission
given in writing.
ii) The Employee agrees that all documents, records, manuals,
notebooks, software, writings of any kind, containing
confidential information relating to the business of the Employer
or it's affiliated companies, including copies thereof, then in
the Employee's possession, whether prepared by the Employee,
Employer or others, shall be the property of the Employer. Upon
termination of Employment, the Employee agrees to deliver all of
this property to the Employer.
b) The Employee acknowledges that part of his salary is in return for
entering into the following agreement:
i) The Employee agrees that during his employment and for a period
of two (2) years following termination he will not seek to
induce, by any method whatsoever, any other employees of the
Employer to leave their employment with the Employer.
ii) The Employee further agrees that he shall not during the term of
this agreement, for a period of eighteen (18) months following
the termination of this agreement, directly or indirectly,
persuade or induce or seek to persuade or induce any of the
Clients of the Employer to purchase services in competition with
PGI from any
Page 2
<PAGE>
Contract for Employment for Executive Management - John M. Green
----------------------------------------------------------------
other business or person.
iii) The Employee further agrees not to utilize any list of clients
that he had access or knowledge of while employed by the Employer
to try and solicit such clients for any other company.
iv) The Employee further agrees that during the term of this contract
and for a period of eighteen (18) months following termination of
employment with the Employer that he will not be employed in a
role providing services substantially similar to what the
Employer provides to any client to which the Employer presently
------
provides its services to or to any client to which the Employee
provided services during the term of this agreement or for a
period of one (1) year following the termination of this
agreement.
v) The Employee also agrees that for a period of one (1) year
following termination of this agreement by the Employee or for
cause by the Employer as defined in Section 5, he will not work
for, or provide services for any other organization in direct
competition with PGI.
4. Compensation, Benefits and Expense Reimbursement
------------------------------------------------
a) All wages shall be paid in accordance with the Employer's procedures
and are subject to withholdings as required by local, state, and
federal law.
b) Benefits will be provided to the Employee by the Employer in
accordance with its current policies and procedures or as may be
adopted by the Employer during the term of this agreement.
c) In addition to the standard benefits package, the Employee is to be
provided specific compensation and benefits listed in Addendums A & B.
d) The Employee shall receive expense reimbursement outlined in the
policy and procedures manual unless modified as set forth in
Addendum A.
5. Termination
-----------
a) Either party may terminate this contract upon giving of sixty (60)
day's written notice to the other party.
b) In the event this sixty day's notice is given by the Employer and no
other provisions of this agreement are violated, the Employee shall be
entitled to, as severance, a continuation of the base salary as
specified in this contract for twelve months from the date notice is
given as well as any
Page 3
<PAGE>
Contract for Employment for Executive Management - John M. Green
----------------------------------------------------------------
bonus fully earned not yet paid.
c) In the event this sixty day's notice is given by the Employee and no
other provisions of this agreement are violated, the Employer shall
have the option of immediately terminating this agreement without
further compensation or accepting the notice period and continuing
employment. If the Employer accepts the notice period then the
Employee shall be entitled to all salary and benefits as specified in
this contract during the notice period or the remaining time of the
contract whichever is less.
d) If either party intends not to exercise the renewal of this contract
they are required to provide sixty days (60) days notice to the other
party.
e) In the event that the Employee violates any provision of Section 3 of
this contract or any adopted and stated corporate policies or any
provisions as may be adopted by the Company for its employees; is
convicted of any criminal offense involving moral turpitude; abuses
alcohol or drugs to such an extent that it has an adverse impact on
the Employee's ability to perform his or her job, then the Employee
shall be subject to immediate termination, with all salary and
benefits to cease upon termination.
6. Miscellaneous
-------------
a) The Employee shall not have the right to enter into a contract with
any third party on behalf of the Employer nor shall the Employee sign
any agreement with any other party on behalf of the Employer without
the express written consent of the Employer.
b) In the event any provisions of this contract shall be deemed
unenforceable, then all remaining provisions shall remain in full
force and effect and the contract shall be construed as if the invalid
provisions had been omitted.
c) In the event that either party fails to take action when the other
party does not abide by the terms of this agreement, such failure to
act shall not prevent the party from taking action for any future
violations of this agreement.
d) This contract shall be construed in accordance with the laws of the
State of Virginia and all parties agree that the State of Virginia
Shall be the proper jurisdiction and the County of Arlington shall be
the proper venue regarding any dispute relating to this contract.
e) This contract shall be the sole agreement between the Employer and the
Employee, and no representative of the employer other than the CEO has
any authority to enter into or amend an employment contract, or to
make any agreement contrary to the foregoing.
Page 4
<PAGE>
Contract for Employment for Executive Management - John M. Green
----------------------------------------------------------------
f) Because this agreement supersedes any and all previous employment
contracts, written agreements or discussions between the parties and
because this agreement is the sole agreement in effect between them,
each party forever releases and covenants not to sue the other for any
liability form any cause arising up to the date of execution of this
agreement. This knowing and voluntary release and covenants not to
sue, mutually given and effective, includes any and all claims under
federal, state, and local laws, regulations and common law.
g) The Employee will notify the Employer of any non-Employer related
activities that may conflict with the Employee's job performance.
h) All written notices to be given pursuant to this contract shall be
sent as follows:
(1) To Employer:
Mark N. Sirangelo, CEO
Production Group International, Inc.
2200 Wilson Boulevard, Suite 200
Arlington, VA 22201
(2) To Employee:
John M. Green
______________________
Washington, DC
7. Signatures
This employment agreement is agreed to by both parties this 21st of November,
1995.
/s/ Marck N. Sirangelo
-----------------------------------------
Mark N. Sirangelo
Chief Executive Officer
Production Group International, Inc.
/s/ John M. Green
-----------------------------------------
John M. Green
Employee
Page 5
<PAGE>
Contract for Employment for Executive Management - John M. Green
----------------------------------------------------------------
Addendum A
Compensation and Benefits
-------------------------
Position: Chief Financial Officer
1. Base Annual Salary
Base Salary is set at $180,000 for the duration of this agreement and is
payable semi-monthly. The Employer offers direct deposit services at its
expense.
2. Corporate Project Performance Bonus
The Employee would be eligible for a project based performance program for
timely and thorough completion of assigned projects.
a) The Employer and Employee will, in a reasonable period after the start
of this agreement, mutually agree upon projects that relate to the
Employee's position with the Employer. This listing will be attached
as Addendum B to this contract.
b) Each project will have a detailed timeline and a performance standard
for completion. The Employee's direct supervisor will be the
evaluator for the successful completion of the project. In the event
of a disagreement, the Employer's CEO will be the sole and final judge
of the performance.
c) The Bonus available will be $90,000 for the first group of six
projects and upon completion additional projects of the originally
assigned projects, additional projects will be developed and assigned,
with additional bonus available.
3. Equity Participation
A stock grant of 50,000 shares pursuant to the Employer's Employee stock
option/issuance plan will be granted sixty days after first full day of
employment, and an additional award of 5,000 shares will be granted at the
end of the each year of employment under this agreement and thereafter,
provided that both parties have agreed to extend this contract for an
additional period.
4. Expense Reimbursement
All reasonable expenses such as approved travel, hotel, short term
residence, parking, tolls, etc., incurred by the Executive during the
performance of his job will be reimbursed.
<PAGE>
Contract for Employment for Executive Management - John M. Green
----------------------------------------------------------------
5. Insurance and Health
In addition to the Employer's standard health care plan the following will
be provided and is agreed by the Employer and Employee:
a) The Employer may apply for Key Executive Life Insurance on the
Employee in the amount of up to $1,000,000, to be paid for at its
expense. If the Employer applies for such a policy the Employee will
agree to support these applications and any medical or informational
requirements reasonably requested by the potential insurance
companies.
b) The Employer will also request on the behalf of the Employee
additional levels of insurance under these policies to be paid for
by the Employee, at the Employee's request.
c) The Employee will agree to participate in a full annual physical,
which results will be shared with the Employer and which will be paid
in full by the Employer.
6. Other
a) The provisions of the employment contract 5(b) regarding termination
by the Employer will be modified to provide for twelve months of
separation.
b) The Employer will conduct a evaluation of the Employee regarding the
potential advancement into the position of President at the time the
position is made available by the Board of Directors.
c) The Employer will apply for IATA travel privileges for the Employee
and will issue such to the extent that they are available to be and
can validly be issued to the Employee.
d) The Employee will start full time on January 15, 1996 and will begin
on payroll on that date.
Agreed this 21st of November, 1995:
/s/ Mark N. Sirangelo
----------------------------------
Mark N. Sirangelo
Chief Executive Officer, Production Group International, Inc.
/s/ John M. Green
----------------------------------
John M. Green
Employee
Page 7
<PAGE>
EXHIBIT 10.9
Contract of Employment
For
Executive Management
This contract, made and entered into this 19th day of January, 1996 by and
between Production Group International, Inc., hereinafter called "Employer", and
Richard S. Bartell, hereinafter called "Employee";
Witness:
-------
That Whereas, the Employer desires to provide executive management services
pursuant to contracts which the Employer has or will have with current and
prospective clients and;
Whereas, the Employer does desire to employ the Employee to provide these
services;
Now Therefore; in consideration of the mutual covenants and agreements contained
herein, the parties hereby agree as follows:
1. Position and Term
-----------------
a) The Position is that of Senior Vice President & Chief Financial
Officer, Production Group International, Inc.
b) The term of this contract shall begin on February 19, 1996, and end on
December 31, 1997. The contract will be automatically renewed on the
anniversary date for an additional period of two years unless the
contract has terminated pursuant to the provisions under Paragraph 5.
This contract supersedes any and all contracts that may have
previously been negotiated between the Employer and Employee, either
written oral.
2. Employee Duties
---------------
a) The duties and responsibilities of the Employee shall be those
established by the Employer. The duties shall include but not be
limited to the following:
i) Reports to and performs any executive duties as assigned by Chief
Executive Officer or his designated representative.
ii) Provide executive management of the assigned business function.
iii) Chair or be a member of any company project or focus team as
assigned.
Agreement of 1/19/96
Page 1
<PAGE>
Contract for Employment for Executive Management - Richard Bartell
------------------------------------------------------------------
iv) Perform duties as CEO's designated representative where required
and assigned.
3. Trade and Business
------------------
a) The Employee hereby acknowledges that during the term of this
contract, he will have access to various trade secrets of the
Employer. Therefore:
i) The Employee recognizes and acknowledges that such trade secrets
and other information, whether written, computer based or oral,
defined herein as confidential, including, but not limited to the
following, is a valuable, special and unique asset of the
Employer's business: financial information, executive briefings
or procedures, management discussions, business practices,
records, methods, systems, software, lists of clients, and
prospective clients, marketing and operational plans, contracts,
ideas and policy manuals.
All such information remains the property of the Employer, and
the Employee, except as required in his duties to the Employer,
hereby covenants and agrees that he will never, directly and
indirectly, during his employment or after termination thereof,
use, disseminate, disclose, lecture on, or in any manner publish
any confidential information without the Employer's permission
given in writing.
ii) The Employee agrees that all documents, records, manuals,
notebooks, software, writings of any kind, containing
confidential information relating to the business of the Employer
or it's affiliated companies, including copies thereof, then in
the Employee's possession, whether prepared by the Employee,
Employer or others, shall be the property of the Employer. Upon
termination of Employment, the Employee agrees to deliver all of
this property to the Employer.
b) The Employee acknowledges that part of his salary is in return for
entering into the following agreement:
i) The Employee agrees that during his employment and for a period
of two (2) years following termination he will not seek to
induce, by any method whatsoever, any other employees of the
Employer to leave their employment with the Employer.
ii) The Employee further agrees that he shall not during the term of
this agreement, for a period of eighteen (18) months following
the termination of this agreement, directly or indirectly,
persuade or induce or seek to persuade or induce any of the
Clients of the
Agreement of 1/19/96
Page 2
<PAGE>
Contract for Employment for Executive Management - Richard Bartell
------------------------------------------------------------------
Employer to purchase services in competition with PGI from any
other business or person.
iii) The Employee further agrees not to utilize any list of clients
that he had access or knowledge of while employed by the
Employer to try and solicit such clients for any other company.
iv) The Employee further agrees that during the term of this contract
and for a period of eighteen (18) months following termination of
employment with the Employer that he will not be employed in a
role providing services substantially similar to what the
Employer provides to any client to which the Employer presently
------
provides its services to or to any client to which the Employee
provided services during the term of this agreement or for a
period of one (1) year following the termination of this
agreement.
v) The Employee also agrees that for a period of one (1) year
following termination of this agreement by the Employee or for
cause by the Employer as defined in Section 5, he will not work
for, or provide services for any other organization in direct
competition with PGI.
4. Compensation, Benefits and Expense Reimbursement
------------------------------------------------
a) All wages shall be paid in accordance with the Employer's procedures
and are subject to withholdings as required by local, state, and
federal law.
b) Benefits will be provided to the Employee by the Employer in accordance
with its current policies and procedures or as may be adopted by the
Employer during the term of this agreement.
c) In addition to the standard benefits package, the Employee is to be
provided specific compensation and benefits listed in Addendums A & B.
d) The Employee shall receive expense reimbursement outlined in the policy
and procedures manual unless modified as set forth in Addendum A.
5. Termination
-----------
a) Either party may terminate this contract upon giving of sixty (60)
day's written notice to the other party.
b) In the event this sixty day's notice is given by the Employer and no
other provisions of this agreement are violated, the Employee shall be
entitled to, as severance, a continuation of the base salary as
specified in this
Agreement of 1/19/96
Page 3
<PAGE>
Contract for Employment for Executive Management - Richard Bartell
------------------------------------------------------------------
contract for nine months from the date notice is given as well as any
bonus fully earned not yet paid.
c) In the event this sixty day's notice is given by the Employee and no
other provisions of this agreement are violated, the Employer shall
have the option of immediately terminating this agreement without
further compensation or accepting the notice period and continuing
employment. If the Employer accepts the notice period then the
Employee shall be entitled to all salary and benefits as specified in
this contract during the notice period or the remaining time of the
contract whichever is less.
d) If either party intends not to exercise the renewal of this contract
they are required to provide sixty days (60) days notice to the other
party.
e) In the event that the Employee violates any provision of Section 3 of
this contract or any adopted and stated corporate policies or any
provisions as may be adopted by the Company for its employees; is
convicted of any criminal offense involving moral turpitude; abuses
alcohol or drugs to such an extent that it has an adverse impact on
the Employee's ability to perform his or her job, then the Employee
shall be subject to immediate termination, with all salary and
benefits to cease upon termination.
6. Miscellaneous
-------------
a) The Employee shall not have the right to enter into a contract outside
of current job responsibilities with any third party on behalf of the
Employer nor shall the Employee sign any agreement with any other party
on behalf of the Employer without the express written consent of the
Employer.
b) In the event any provisions of this contract shall be deemed
unenforceable, then all remaining provisions shall remain in full
force and effect and the contract shall be construed as if the invalid
provisions had been omitted.
c) In the event that either party fails to take action when the other
party does not abide by the terms of this agreement, such failure to
act shall not prevent the party from taking action for any future
violations of this agreement.
d) This contract shall be construed in accordance with the laws of the
State of Virginia and all parties agree that the State of Virginia
Shall be the proper jurisdiction and the County of Arlington shall be
the proper venue regarding any dispute relating to this contract.
e) This contract shall be the sole agreement between the Employer and the
Employee, and no representative of the employer other than the CEO has
Agreement of 1/19/96
Page 4
<PAGE>
Contract for Employment for Executive Management - Richard Bartell
------------------------------------------------------------------
any authority to enter into or amend an employment contract, or to
make any agreement contrary to the foregoing.
f) Because this agreement supersedes any and all previous employment
contracts, written agreements or discussions between the parties and
because this agreement is the sole agreement in effect between them,
each party forever releases and covenants not to sue the other for any
liability form any cause arising up to the date of execution of this
agreement. This knowing and voluntary release and covenants not to
sue, mutually given and effective, includes any and all claims under
federal, state, and local laws, regulations and common law.
g) The Employee will notify the Employer of any non-Employer related
activities that may conflict with the Employee's job performance.
h) All written notices to be given pursuant to this contract shall be sent
as follows:
(1) To Employer:
Mark N. Sirangelo, CEO
Production Group International, Inc.
2200 Wilson Boulevard, Suite 200
Arlington, VA 22201
(2) To Employee:
Richard S. Bartell
853 Rockbridge
Napersville, IL 60540
7. Signatures
This employment agreement is agreed to by both parties this 19th day of January,
1996.
/s/ Mark N. Sirangelo
---------------------------
Mark N. Sirangelo
Chief Executive Officer, Production Group International, Inc.
/s/ Richard S. Bartell
---------------------------
Richard S. Bartell
Employee
Agreement of 1/19/96
Page 5
<PAGE>
Contract for Employment for Executive Management - Richard Bartell
------------------------------------------------------------------
Addendum A
Compensation and Benefits
-------------------------
Position: Chief Financial Officer
1. Base Annual Salary
Base Salary is set at $150,000 per annum from the beginning of the term
through December 31, 1996 and then at $175,000 for the duration of this
agreement and is payable semi-monthly. The Employer offers direct deposit
services at its expense.
2. Corporate Project Performance Bonus
The Employee would be eligible for a project based bonus program for timely
and thorough completion of assigned projects.
a) The annual bonus available will be $50,000 for the first group of five
projects and upon completion of the originally assigned projects,
additional projects will be developed and assigned, with additional
bonus available.
b) The Employer and Employee will, in a reasonable period after the start
of this agreement, mutually agree upon projects that relate to the
Employee's position with the Employer. This listing will be attached
as Addendum B to this contract.
c) Each project will have a timeline and a performance standard for
completion. The Employee's direct manager will be the evaluator for
the successful completion of the project. In the event of a
disagreement, the Employer's CEO will be the sole and final judge of
the performance.
3. Equity Participation
a) A stock option grant of 25,000 shares pursuant to the Employer's
Employee stock option/issuance plan will be granted sixty days after
first full day of employment
b) An additional award of 5,000 shares will be granted at the end of the
each year of employment under this agreement and thereafter, provided
that both parties have agreed to extend this contract for an
additional period.
Agreement of 1/19/96
Page 6
<PAGE>
Contract for Employment for Executive Management - Richard Bartell
------------------------------------------------------------------
4. Expense Reimbursement & Relocation
a) All reasonable expenses such as approved travel, hotel, parking, tolls,
etc., incurred by the Executive during the performance of his job will
be reimbursed.
b) Employer will reimburse Employee for the direct costs of relocating the
Employee.
i) These direct costs include reasonable moving services to move
personal belongings. It also includes reimbursement for travel
relating to the move, temporary living expenses, relocation
services, and other such expenses such as selling commissions
points. Employee to be required to obtain competitive bids where
practical and to use lowest bid meeting a reasonable standard of
quality.
ii) All such expenses to be reimbursed to a maximum of $50,000,
payable upon submission of expense receipts or other substantive
documentation. The Employer will provide advances towards this
amount upon request.
5. Insurance and Health
In addition to the Employer's standard health care plan the following will
be provided and is agreed by the Employer and Employee:
a) The Employer may apply for Key Executive Life Insurance on the Employee
in the amount of up to $1,000,000, to be paid for at its expense. If
the Employer applies for such a policy the Employee will agree to
support these applications and any medical or informational
requirements reasonably requested by the potential insurance
companies.
b) The Employer will also request on the behalf of the Employee additional
levels of insurance under these policies to be paid for by the
Employee, at the Employee's request.
c) The Employee will agree to participate in a full annual physical, which
results will be shared with the Employer and which will be paid in
full by the Employer.
Agreement of 1/19/96
Page 7
<PAGE>
Contract for Employment for Executive Management - Richard Bartell
------------------------------------------------------------------
6. Other
a) The Employee will start full time on or about February 19, 1996 and
will begin on payroll on that date.
b) Employer will reimburse Employee for Employee's Cobra coverage on
family until such time family will be eligible for complete coverage
under Employer's health care coverage.
Agreed this 19th day of January, 1996
/s/ Mark N. Sirangelo
--------------------------------
Mark N. Sirangelo
Chief Executive Officer, Production Group International, Inc.
/s/ Richard S. Bartell
--------------------------------
Richard S. Bartell
Employee
Agreement of 1/19/96
Page 8
<PAGE>
Exhibit 10.10
Contract of Employment
For
Executive Management
This contract, made and entered into this 21st day of March, 1996 by and
between Production Group International, Inc., hereinafter called "Employer",
and Ed Doody, hereinafter called "Employee";
Witness:
-------
That Whereas, the Employer desires to provide executive management services
pursuant to contracts which the Employer has or will have with current and
prospective clients and;
Whereas, the Employer does desire to employ the Employee to provide these
services;
Now Therefore; in consideration of the mutual covenants and agreements contained
herein, the parties hereby agree as follows:
1. Position and Term
-----------------
a) The Position is that of President, PGI International
b) The term of this contract shall begin on the contract date, and end on
December 31, 1997. The contract will be automatically renewed on the
anniversary date for an additional period of two years unless the
contract has terminated pursuant to the provisions under Paragraph 5.
This contract supersedes any and all contracts that may have
previously been negotiated between the Employer and Employee, either
written oral.
2. Employee Duties
---------------
a) The duties and responsibilities of the Employee shall be those
established by the Employer. The duties shall include but not be
limited to the following:
i) Perform any duties as assigned by Chief Executive Officer or his
designated representative.
ii) Provide executive management of the assigned business function.
iii) Chair or be a member of any company project or focus team as
assigned.
Page 1
<PAGE>
Contract for Employment for Executive Management - Edward Doody
---------------------------------------------------------------
iv) Perform duties as CEO's designated representative where required
and assigned.
3. Trade and Business
------------------
a) The Employee hereby acknowledges that during the term of this
contract, he will have access to various trade secrets of the
Employer. Therefore:
i) The Employee recognizes and acknowledges that such trade secrets
and other information, whether written, computer based or oral,
defined herein as confidential, including, but not limited to
the following, is a valuable, special and unique asset of the
Employer's business: financial information, executive briefings
or procedures, management discussions, business practices,
records, methods, systems, software, lists of clients, and
prospective clients, marketing and operational plans, contracts,
ideas and policy manuals.
All such information remains the property of the Employer, and
the Employee, except as required in his duties to the Employer,
hereby covenants and agrees that he will never, directly and
indirectly, during his employment or after termination thereof,
use, disseminate, disclose, lecture on, or in any manner publish
any confidential information without the Employer's permission
given in writing.
ii) The Employee agrees that all documents, records, manuals, note-
books, software, writings of any kind, containing confidential
information relating to the business of the Employer or it's
affiliated companies, including copies thereof, then in the
Employee's possession, whether prepared by the Employee,
Employer or others, shall be the property of the Employer.
Upon termination of Employment, the Employee agrees to deliver
all of this property to the Employer.
b) The Employee acknowledges that part of his salary is in return for
entering into the following agreement:
i) The Employee agrees that during his employment and for a period
of two (2) years following termination he will not seek to
induce, by any method whatsoever, any other employees of the
Employer to leave their employment with the Employer.
ii) The Employee further agrees that he shall not during the term of
this agreement, for a period of eighteen (18) months following
the termination of this agreement, directly or indirectly,
persuade or induce or seek to persuade or induce any of the
Clients of the Employer to purchase services in competition with
PGI from any
Page 2
<PAGE>
Contract for Employment for Executive Management - Edward Doody
---------------------------------------------------------------
other business or person.
iii) The Employee further agrees not to utilize any list of clients
that he had access or knowledge of while employed by the
Employer to try and solicit such clients for any other company.
iv) The Employee further agrees that during the term of this
contract and for a period of eighteen (18) months following
termination of employment with the Employer that he will not be
employed in a role providing services substantially similar to
what the Employer provides to any client to which the Employer
------
presently provides its services to or to any client to which the
Employee provided services during the term of this agreement or
for a period of one (1) year following the termination of this
agreement.
v) The Employee also agrees that for a period of one (1) year
following termination of this agreement by the Employee or for
cause by the Employer as defined in Section 5, he will not work
for, or provide services for any other organization in direct
competition with PGI.
4. Compensation, Benefits and Expense Reimbursement
------------------------------------------------
a) All wages shall be paid in accordance with the Employer's procedures
and are subject to withholdings as required by local, state, and
federal law.
b) Benefits will be provided to the Employee by the Employer in
accordance with its current policies and procedures or as may be
adopted by the Employer during the term of this agreement.
c) In addition to the standard benefits package, the Employee is to be
provided specific compensation and benefits listed in Addendums A & B.
d) The Employee shall receive expense reimbursement outlined in the
policy and procedures manual unless modified as set forth in
Addendum A.
5. Termination
-----------
a) Either party may terminate this contract upon giving of sixty (60)
day's written notice to the other party.
b) In the event this sixty day's notice is given by the Employer and no
other provisions of this agreement are violated, the Employee shall be
entitled to, as severance, a continuation of the base salary as
specified in this contract for six months from the date notice is
given as well as any bonus
Page 3
<PAGE>
Contract for Employment for Executive Management - Edward Doody
---------------------------------------------------------------
fully earned not yet paid.
c) In the event this sixty day's notice is given by the Employee and no
other provisions of this agreement are violated, the Employer shall
have the option of immediately terminating this agreement without
further compensation or accepting the notice period and continuing
employment. If the Employer accepts the notice period then the
Employee shall be entitled to all salary and benefits as specified in
this contract during the notice period or the remaining time of the
contract whichever is less.
d) If either party intends not to exercise the renewal of this contract
they are required to provide sixty days (60) days notice to the other
party.
e) In the event that the Employee violates any provision of Section 3 of
this contract or any adopted and stated corporate policies or any
provisions as may be adopted by the Company for its employees; is
convicted of any criminal offense involving moral turpitude; abuses
alcohol or drugs to such an extent that it has an adverse impact on
the Employee's ability to perform his or her job, then the Employee
shall be subject to immediate termination, with all salary and
benefits to cease upon termination.
6. Miscellaneous
-------------
a) The Employee shall not have the right to enter into a contract with
any third party on behalf of the Employer nor shall the Employee sign
any agreement with any other party on behalf of the Employer without
the express written consent of the Employer.
b) In the event any provisions of this contract shall be deemed
unenforceable, then all remaining provisions shall remain in full
force and effect and the contract shall be construed as if the invalid
provisions had been omitted.
c) In the event that either party fails to take action when the other
party does not abide by the terms of this agreement, such failure to
act shall not prevent the party from taking action for any future
violations of this agreement.
d) This contract shall be construed in accordance with the laws of the
State of Virginia and all parties agree that the State of Virginia
Shall be the proper jurisdiction and the County of Arlington shall be
the proper venue regarding any dispute relating to this contract.
e) This contract shall be the sole agreement between the Employer and the
Employee, and no representative of the employer other than the CEO has
any authority to enter into or amend an employment contract, or to
make any agreement contrary to the foregoing.
Page 4
<PAGE>
Contract for Employment for Executive Management - Edward Doody
---------------------------------------------------------------
f) Because this agreement supersedes any and all previous employment
contracts, written agreements or discussions between the parties and
because this agreement is the sole agreement in effect between them,
each party forever releases and covenants not to sue the other for any
liability form any cause arising up to the date of execution of this
agreement. This knowing and voluntary release and covenants not to
sue, mutually given and effective, includes any and all claims under
federal, state, and local laws, regulations and common law.
g) The Employee will notify the Employer of any non-Employer related
activities that may conflict with the Employee's job performance.
h) All written notices to be given pursuant to this contract shall be
sent as follows:
(1) To Employer:
Mark N. Sirangelo, CEO
Production Group International, Inc.
2200 Wilson Boulevard, Suite 200
Arlington, VA 22201
(2) To Employee:
Edward Doody
517 Sunset Drive
------------------
Hurst, TX 76054
------------------
7. Signatures
This employment agreement is agreed to by both parties this 21st day of March,
----
1995.
/s/ Mark N. Sirangelo
------------------------------------
Mark N. Sirangelo
Chief Executive Officer
Production Group International, Inc.
/s/ Edward Doody
------------------------------------
Edward Doody
Employee
Page 5
<PAGE>
Contract for Employment for Executive Management - Edward Doody
---------------------------------------------------------------
Addendum A
Compensation and Benefits
-------------------------
Position: President, PGI International
1. Base Annual Salary
Base Salary is set at $170,000 from the beginning of the term through
December 31, 1996 and then at $180,000 for the duration of this agreement
and is payable semi-monthly. The Employer offers direct deposit services at
its expense.
2. Equity Participation
A stock grant of 30,000 shares pursuant to the Employer's Employee stock
option will be granted with an effective date of the Employee first date of
hire, and an additional award of 2,500 shares will be granted at the end of
the each year of employment under this agreement and thereafter, provided
that both parties have agreed to extend this contract for an additional
period.
3. Expense Reimbursement & Relocation
All reasonable expenses such as approved travel, hotel, parking, tolls,
etc., incurred by the Executive during the performance of his job will be
reimbursed.
4. Insurance and Health
In addition to the Employer's standard health care plan the following will
be provided and is agreed by the Employer and Employee:
a) The Employer may apply for Key Executive Life Insurance on the
Employee in the amount of up to $1,000,000, to be paid for at its
expense. If the Employer applies for such a policy the Employee will
agree to support these applications and any medical or informational
requirements reasonably requested by the potential insurance
companies.
b) The Employer will also request on the behalf of the Employee
additional levels of insurance under these policies to be paid for by
the Employee, at the Employee's request.
c) The Employee will agree to participate in a full annual physical,
which results will be shared with the Employer and which will be paid
in full by the Employer.
Page 6
<PAGE>
Contract for Employment for Executive Management - Edward Doody
---------------------------------------------------------------
5. Other
a) This agreement supersedes and replaces all previous agreements between
the parties, whether written or oral and both parties hereby waive any
claims of any type arising from or out of such employment
understandings.
Agreed this 21st day of March, 1996:
----
/s/ Mark N. Sirangelo
-------------------------------------
Mark N. Sirangelo
Chief Executive Officer, Production Group International, Inc.
/s/ Ed Doody
-------------------------------------
Ed Doody
Employee
Page 7
<PAGE>
Exhibit 10.11
Contract of Employment
For
Executive Management
This contract, made and entered into this 1st day of September, 1996 by and
---
between Production Group International, Inc., hereinafter called "Employer", and
Mark N. Sirangelo, hereinafter called "Employee";
Witness:
-------
That Whereas, the Employer desires to provide executive management services
pursuant to contracts which the Employer has or will have with current and
prospective clients and;
Whereas, the Employer does desire to employ the Employee to provide these
services;
Now Therefore; in consideration of the mutual covenants and agreements contained
herein, the parties hereby agree as follows:
1. Position and Term
-----------------
a) The Position is that of Chairman, Chief Executive Officer &
President, Production Group International, Inc.
b) The term of this contract shall begin on September 1, 1996, and end
on August 31, 1998. The contract will be automatically renewed on the
anniversary date for an additional period of two years unless the
contract has terminated pursuant to the provisions under Paragraph 5.
This contract supersedes any and all contracts that may have
previously been negotiated between the Employer and Employee, either
written oral.
2. Employee Duties
---------------
The Executive shall serve in the position of Chairman, Chief
Executive Officer & President. The Executive shall also render such other
additional executive level services and duties as may be assigned to him
from time-to-time by the Board of Directors. The Executive shall be
subject to the supervision, advice and direction of the Board of Directors.
The Executive shall well and faithfully serve PGI, and shall at all times
devote his full time, attention and best efforts on behalf of PGI, and
shall perform all services, acts and duties connected with his position in
such manner as PGI from time-to-time shall direct.
Page 1
<PAGE>
3. Trade and Business
------------------
a) The Employee hereby acknowledges that during the term of this
contract, he will have access to various trade secrets of the
Employer. Therefore:
i) The Employee recognizes and acknowledges that such trade
secrets and other information, whether written, computer based or
oral, defined herein as confidential, including, but not limited
to the following, is a valuable, special and unique asset of the
Employer's business: financial information, executive briefings
or procedures, management discussions, business practices,
records, methods, systems, software, lists of clients, and
prospective clients, marketing and operational plans, contracts,
ideas and policy manuals.
All such information remains the property of the Employer, and
the Employee, except as required in his duties to the Employer,
hereby covenants and agrees that he will never, directly and
indirectly, during his employment or after termination thereof,
use, disseminate, disclose, lecture on, or in any manner publish
any confidential information without the Employer's permission
given in writing.
ii) The Employee agrees that all documents, records, manuals,
notebooks, software, writings of any kind, containing
confidential information relating to the business of the Employer
or it's affiliated companies, including copies thereof, then in
the Employee's possession, whether prepared by the Employee,
Employer or others, shall be the property of the Employer. Upon
termination of Employment, the Employee agrees to deliver all of
this property to the Employer.
b) The Employee acknowledges that part of his salary is in return for
entering into the following agreement:
i) The Employee agrees that during his employment and for a
period of eighteen (18) months following termination he will not
seek to induce, by any method whatsoever, any other employees of
the Employer to leave their employment with the Employer.
ii) The Employee further agrees that he shall not during the term
of this agreement, for a period of eighteen (18) months following
the termination of this agreement, directly or indirectly,
persuade or induce or seek to persuade or induce any of the
Clients of the Employer to purchase services in competition with
PGI from any other business or person.
Page 2
<PAGE>
iii) The Employee further agrees not to utilize any list of clients
that he had access or knowledge of while employed by the Employer
to try and solicit such clients for any other company.
iv) The Employee further agrees that during the term of this
contract and for a period of eighteen (18) months following
termination of employment with the Employer that he will not be
employed in a role providing services substantially similar to
what the Employer provides to any client to which the Employer
------
presently provides its services to or to any client to which the
Employee provided services during the term of this agreement or
for a period of one (1) year following the termination of this
agreement.
4. Compensation, Benefits and Expense Reimbursement
------------------------------------------------
a) All wages shall be paid in accordance with the Employer's procedures
and are subject to withholdings as required by local, state, and
federal law.
b) Benefits will be provided to the Employee by the Employer in
accordance with its current policies and procedures or as may be
adopted by the Employer during the term of this agreement.
c) In addition to the standard benefits package, the Employee is to be
provided specific compensation and benefits listed in Addendum A.
d) The Employee shall receive expense reimbursement outlined in the
policy and procedures manual unless modified as set forth in Addendum
A.
5. Termination
------------
a) If either party intends not to exercise the automatic renewal of this
contract they are required to provide ninety days (90) days notice to
the other party.
b) In the event that the Employee violates any provision of Section 2 or
Section 3 of this agreement or any adopted and stated corporate
policies or any provisions as may be adopted by the Company for its
employees; is convicted of any criminal offense involving moral
turpitude; abuses alcohol or drugs to such an extent that it has an
adverse impact on the Employee's ability to perform his or her job,
then the Employee shall be subject to immediate termination, with all
salary and benefits to cease upon termination.
c) In the event that the Employer terminates this agreement for reasons
other than in 5(b), the Employee shall be entitled to, as severance, a
lump sum payment equal to the two years annual salary, the pro-rata
amount of any bonus earned and not yet paid as well as continuation of
all benefits
Page 3
<PAGE>
provided in Addendum A for a period of two years from the date of
termination. In addition, the provisions contained in Section 3 of
this agreement shall be waived in full by the Employer and cease to
apply to the Employee as of the date of termination and all of the
Employee's stock options in the Employer shall become fully vested as
of the date of termination.
d) A sale, merger or change of control of the Employer in which the
Employee does not retain his titles, roles and duties in the Employer
as well as in any new, merged or parent entity shall give the Employee
the right to terminate this agreement within 60 days of the happening
of such event and receive as severance all the compensation, benefits
and rights as outlined in section 5c above.
6. Miscellaneous
-------------
a) In the event any provisions of this contract shall be deemed
unenforceable, then all remaining provisions shall remain in full
force and effect and the contract shall be construed as if the invalid
provisions had been omitted.
b) In the event that either party fails to take action when the other
party does not abide by the terms of this agreement, such failure to
act shall not prevent the party from taking action for any future
violations of this agreement.
c) This contract shall be construed in accordance with the laws of the
State of Virginia and all parties agree that the State of Virginia
shall be the proper jurisdiction and the County of Arlington shall be
the proper venue regarding any dispute relating to this contract.
d) This contract shall be the sole agreement between the Employer and
the Employee, and no representative of the Employer other than the
Compensation Committee of the Board of Directors has any authority to
amend this employment contract or to make any agreement contrary to
the foregoing. All such changes must be in writing and signed by both
parties.
e) Because this agreement supersedes any and all previous employment
contracts, written agreements or discussions between the parties and
because this agreement is the sole agreement in effect between them,
each party forever releases and covenants not to sue the other for any
liability from any cause arising up to the date of execution of this
agreement. This knowing and voluntary release and covenants not to
sue, mutually given and effective, includes any and all claims under
federal, state, and local laws, regulations and common law.
f) The Employee will notify the Employer of any non-Employer related
activities that may conflict with the Employee's job performance.
Page 4
<PAGE>
g) All written notices to be given pursuant to this contract shall be
sent as follows:
(1) To Employer:
Peter Wendell, Director
Production Group International, Inc.
c/o Sierra Ventures
Building Four, Suite 210
3000 Sand Hill Road
Menlo Park, CA 94025
Robert McCormack, Director
Production Group International, Inc.
c/o Trident Capital
Suite 2760
190 LaSalle Street
Chicago, IL 60603
(2) To Employee:
Mark N. Sirangelo
P.O. Box 40690
Washington, DC 20016
1. Signatures
----------
This employment agreement is agreed to by both parties this September 1,
1996.
/s/ Mark N. Sirangelo
----------------------------
Mark N. Sirangelo
Employee
/s/ Peter C. Wendell
----------------------------
Peter C. Wendell
Director
Production Group International, Inc.
/s/ Robert McCormack
----------------------------
Robert McCormack
Director
Production Group International, Inc.
Page 5
<PAGE>
Addendum A
Compensation and Benefits
-------------------------
1. Position: Chairman, Chief Executive Officer & President
2. Base Annual Salary
Base Salary is set at $275,000 and will increase to $300,000 on September 1,
1997 for the duration of this agreement and is payable semi-monthly. The
Employer offers direct deposit services at its expense.
3. Corporate Performance Bonus
The Employee would be eligible for a corporate performance bonus. The Employer
and Employee will, in a reasonable period, such period being no longer than 120
days after the start of this agreement, mutually agree upon the targeted
performance goals and bonus structure that relate to the Employee's position
with the Employer. This plan will be attached as Addendum B to this contract.
4. Equity Participation
A stock grant of 120,000 shares pursuant to the Employer's Employee stock option
plan has been granted. Additional awards will be considered at the end of the
each year of employment under this agreement and thereafter, provided that both
parties have agreed to extend this contract for an additional period.
5. Expense Reimbursement
All reasonable expenses such as approved travel, hotel, short term residence,
parking, tolls, etc., incurred by the Executive during the performance of his
job will be reimbursed.
6. Other Benefits
. Company will pay 100% of the costs of major medical and other health benefits
as provided for in the Company's medical plan.
. Company will pay the cost of maintaining a disability income policy which
provides for continuation of current base salary in the event of long term.
disability.
Page 6
<PAGE>
. Company will pay the cost of providing a $1,000,000 term life insurance
policy payable to the Executive's designated beneficiary.
. The Executive shall be entitled to four (4) weeks paid vacation annually.
. The Company will lease a vehicle, up to an annualized lease cost of
$12,000 and pay for the all the costs of operating such vehicle during
the Employee's employment.
Agreed this 1st day of September, 1996:
/s/ Mark N. Sirangelo
----------------------------
Mark N. Sirangelo
Employee
/s/ Peter C. Wendell
----------------------------
Peter C. Wendell
Director
Production Group International, Inc.
/s/ Robert McCormack
----------------------------
Robert McCormack
Director
Production Group International, Inc.
Page 7
<PAGE>
Exhibit 10.12
SHARE ACQUISITION AGREEMENT
Date: 5th September 1995
Parties:
1 `The Vendors': the persons whose names and addresses are set out in
column 1 of Schedule 1.
2 `The Purchaser': PGI Acquisition Company E (a Virginia Corporation)
whose principal place of business is at 2200 Wilson Boulevard, Suite
200, Arlington, Virginia 22201, USA.
Recitals:
(A) This is an agreement providing for the sale and purchase of
the entire issued share capital of Spearhead Communications
Limited, a company incorporated in England and Wales and
registered under Company No. 3056668 ("the Company").
(B) Brief particulars of the Company are set out in Part I of
Schedule 2 and particulars of each of the subsidiaries of the
Company are set out in Part II of Schedule 2 ("the
Subsidiaries").
(C) The Company is the holding company for the Subsidiaries, which
carry on the business of, inter alia, arranging conferences
and exhibitions. The Subsidiaries are the only subsidiaries
and they are all wholly-owned, save for Aberdeen Exhibition
and Conference Centre Limited, in which the Company holds
28.8% in nominal value of the entire issued share capital of
that company.
(D) Prior to the Date hereof the Vendors undertook a
reorganization of the Group of Companies then including the
Subsidiaries, as part of which the Company received a
distribution on liquidation from Interprize Limited (formerly
known as Spearhead Communications Limited) ("SCL") of the
entire issued share capital of Spearhead Exhibitions Limited
following the liquidation of SCL (pursuant to Section 110 of
the Insolvency Act 1986).
(E) Following the reorganization the Vendors have retained an
interest through Stowemar Investments Limited (formerly known
as Stowemar Publications Limited and as Gladecharm Limited) in
the former subsidiaries of SCL, Spearhead Publications Inc.
and its subsidiary International Exhibitions Incorporated,
which carry on the business of publishers and exhibition
organizers and which do not form part of the sale and purchase
pursuant to this Agreement.
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(F) The parties are and, throughout the negotiations leading to
this Agreement, have been aware that in determining to proceed
with the purchase of the Shares for the consideration and upon
the payment/settlement terms provided herein, the Purchaser
will have regard to a number of factors, but in particular
would rely on, inter alia, the Warranties (as qualified by the
Disclosure Letter); the indemnities in the Deed of Indemnity,
the covenants in Clause 7 and, inter alia, David Stott and
Christopher Marke continuing to manage the business of the
Group on a full-time basis and Bryan Weavers continuing to
provide consultancy services to the Group after completion,
each in accordance with the terms of their respective service
or consultancy agreements.
Operative provisions:
1. Interpretation
1.1 In this agreement, including the Recitals and Schedules (which form
part of this agreement ("this Agreement"):
1.1.1 the following words and expressions have the following
meanings, unless they are inconsistent with the context:
`AGREED FORM' the form agreed between the parties on or prior
to the date of this agreement and initialled for the purposes
of identification by their respective solicitors;
`CA' Companies Act 1985;
`COMPANIES ACTS' CA, the former Companies Acts (within the
meaning of CA s 735(1)) and the Companies Act 1989;
`COMPANY' Spearhead Communications Limited;
`COMPANY'S AUDITORS' Kingston Smith, 146 Bishopsgate, London,
EC2M 4JX;
`COMPLETION' completion of the purchase of the Shares in
accordance with clause 4;
`COMPLETION DATE' the date of Completion;
`COMPUTER KNOW-HOW' all computer software
and all information not at present in the public domain
(including, without limitation, that comprised in or derived
from data, disks, tapes, manuals, source codes, flow-charts
and specifications) relating to the use, manufacture,
maintenance or programming of any computer in whatever form
held;
`DEED OF INDEMNITY' a deed in the form set out in Schedule 4;
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`DISCLOSURE LETTER' the disclosure letter of the same date as
this agreement from the Vendors' Solicitors to the Purchaser's
Solicitors;
`GUARANTEE and MORTGAGE OF SHARES' the guarantee and mortgage
over shares in the agreed form to be granted by the Company in
favour of the Vendors on Completion.
`GROUP'/`GROUP COMPANIES' the Company and the Subsidiaries;
`FRS' a financial reporting standard issued by The Accounting
Standards Board Limited or an SSAP;
`INDUSTRIAL PROPERTY RIGHTS' all patents, trade marks and
service marks, rights in designs, trade names, copyrights and
topography rights (whether or not any of them is registered
and including applications for registration of any of them)
and rights under licenses and consents in relation to any such
thing and all rights or forms of protection of a similar
nature or having equivalent or similar effect to any of them
which may subsist in any part of the world;
`KNOW HOW' all information not at present in the public domain
(including, without limitation, that comprised in or derived
from formulae, designs, specifications, drawings, component
lists, manuals, instructions and catalogues) in whatever form
held relating to the business or affairs of any member of the
Group including, without limitation, the production of goods
or the provision of services;
`LAST ACCOUNTS DATE' 31 March, 1994 (being the date to which
the Principal Accounts have been prepared);
`LOAN NOTES' the (pound)1,360,018.47, 1st April 1997 PGI
Acquisition Company E Guaranteed Loan Notes in the agreed
form, to be issued to each of the Vendors, other than R R
Williams, J L Williams, the Espagnol Trust and the Espagna
Trust;
`MARKETING INFORMATION' all information not at present in the
public domain relating to the marketing of any products or
services (including customer names and lists, sales targets,
sales statistics, market share statistics, market surveys and
reports, market research and any advertising or other
promotional material);
`MANAGEMENT ACCOUNTS' the draft audited Group Financial
Statements of Spearhead Exhibitions Limited for the year ended
31st March 1995, of Spearhead Exhibitions Limited in the form
of the copy annexed to the Disclosure Letter;
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<PAGE>
`PGI, Inc. GUARANTEE' the guarantee in the agreed form to be
granted by Production Group International, Inc. (the
Purchaser's parent company) in favour of the Vendors on
Completion;
`PLANNING ACTS' as defined in the Town and Country Planning
Act 1990, s 336;
`PRINCIPAL ACCOUNTS' the audited balance sheet as at the Last
Accounts Date and audited profit and loss account for the year
ended on the Last Accounts Date of each Subsidiary and the
directors' report and notes thereon;
`PROPERTIES' the property of the Group Companies shortly
described in Schedule 5;
`PURCHASER'S SOLICITORS' Morgan, Lewis & Bockius, of 4,
Carlton Gardens, Pall Mall, London, SW1Y 5AA;
`RETAINED SUM' the sum of (pound)1,139,981.52 to be retained
from the consideration payable for the Shares to certain of
the Vendors in accordance with clause 3;
`SHARES' the 19,474 Ordinary shares of (pound)1 each in the
capital of the Company comprising the whole of its issued and
allotted share capital;
`STOCK EXCHANGE' The International Stock Exchange of the
United Kingdom and the Republic of Ireland Limited;
`SUBSIDIARY' a subsidiary as defined in CA, s 736;
`SUBSIDIARIES' the companies named in Part 2 of Schedule 2 and
any other Subsidiary of the Company from time to time;
`TAXATION' all forms of taxation including:
4
<PAGE>
(a) any charge, tax, duty or levy upon income, profits,
chargeable gains or development value, land, any
interest in land or in any other property, or
documents or supplies or other transactions;
(b) income tax, corporation tax, advance corporation tax,
capital gains tax, inheritance tax, value added tax,
stamp duty, stamp duty reserve tax, capital duty,
customs and other import duties, national insurance
contributions, local authority rates and charges or
water rates;
(c) any liability for sums equivalent to any such charge,
tax, duty, levy or rates or for any related penalty,
charge or interest;
`TAXES ACT' Income & Corporation Taxes Act 1988;
`TCGA' Taxation of Chargeable Gains Act 1992;
`TMA' Taxes Management Act 1970;
`TRUSTEE VENDORS' Jorvik Limited and D Moorhouse, for and on
behalf of each of the Espagnol Trust and the Espagna Trust;
`VENDORS' SOLICITORS' Gregory, Rowcliffe & Milners, of 1
Bedford Row, London, WC1R 4BZ;
`WARRANTIES' the warranties and undertakings of the Vendors
contained in clause 5 and Schedule 3;
`WARRANTORS/COVENANTORS' each of Mr David Stott, Mr Bryan
Weavers, Mr Christopher Marke, Mr Robert Munton and Mrs Susan
Crouch;
`WARRANTY CLAIM' any claim made by the Purchaser for breach of
any of the Warranties or any claim made by the Purchaser under
the Deed of Indemnity.
1.2 General Construction
1.2.1 All references to a statutory provision shall be
construed as including references to:
(a) any statutory modification, consolidation or re-enactment
(whether before or after the date of this agreement) for
the time being in force;
(b) all statutory instruments or orders made pursuant to a
statutory provision;
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<PAGE>
(c) any statutory provisions of which a statutory provision
is a consolidation, re-enactment or modification;
1.2.2 Any reference to the Vendors includes, where
appropriate, their personal representatives;
1.2.3 A reference to an SSAP is a reference to a statement of
standard accounting practice adopted by The Accounting
Standards Board Limited;
1.2.4 Except where the context otherwise requires words
denoting the singular include the plural and vice versa;
words denoting any one gender include all genders; words
denoting persons include firms and corporations and vice
versa;
1.2.5 Unless otherwise stated, a reference to a clause or sub-
clause or a Schedule is a reference to a clause or a
sub-clause of or a Schedule to this agreement;
1.2.6 Clause headings in this agreement and in the Schedules
are for ease of reference only and do not affect the
construction of any provision;
1.2.7 A document referred to as being in "the agreed terms"
will be in the form of the draft thereof for
identification initialled by the Vendors' Solicitors and
the Purchaser's Solicitors;
1.2.8 Each of the Warranties and each of the guarantees,
indemnities and obligations which is expressed to be an
obligation of the Vendors or the Warrantors or the
Covenantors or of more than one of the Vendors or the
Warrantors or the Covenantors (as the case may be) shall
be a joint and several obligation unless it is expressed
to be an obligation of each of the Vendors or the
Warrantors or the Covenantors (as the case may be) or of
each of one or more of the Vendors or the Warrantors or
the Covenantors (as the case may be), in which case it
shall be a several obligation;
1.2.9 Any of the Warranties which is qualified by the
expression "to the best of the Warrantors' knowledge and
belief" or "so far as the Warrantors' are aware" or any
similar expression shall be deemed to include an
additional statement that the Warrantors have first made
due and careful enquiry;
1.2.10 A person shall be deemed to be connected with another if
that person is connected with another within the meaning
of section 839 of the Taxes Act.
2. Agreement for sale
2.1 Subject to the terms and conditions of this Agreement, the Vendors
(other than the Trustee Vendors) shall sell as beneficial owners and
the Trustee Vendors shall sell as legal owners and registered holders
and the Purchaser shall purchase the Shares free from all liens,
charges and encumbrances and with all rights now or hereafter attaching
accrued or accruing thereto or arising therefrom, with effect from the
date of this Agreement.
2.2 The Purchaser shall be entitled to all dividends and distributions
declared, paid or made by the Company on or after the date hereof.
2.3 Each of the Vendors hereby waives any pre-emption rights he or she may
have in relation to any of the Shares under the articles of association
of the Company or otherwise.
2.4 The Purchaser need not complete the purchase of any of the Shares
unless the purchase of all the Shares is completed simultaneously.
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<PAGE>
3. The Consideration and Set-Off
3.1 Subject to adjustment pursuant to this clause 3, the consideration for
the Shares will be the sum of (pound)5,400,000, which will be
apportioned between the Vendors in the manner set out in columns 2, 3
and 4 of Schedule 1 and payable to them as follows:-
3.1.1 (pound)2,900,000 will be paid in cash on the Completion Date
by telegraphic transfer to Vendors' Solicitor's Client
Account.
3.1.2 the Retained Sum will be paid in cash on 1st April 1997 (or on
such later date as may be specified by the Vendors (other than
the Warrantors) giving not less than 14 days prior notice in
writing) by telegraphic transfer to the Vendors (other than
the Warrantors) (in the amounts indicated against each such
Vendor's name in column 3 of Schedule 1) by payment to the
Vendors' Solicitor's Client Account, or such other accounts of
the relevant Vendors as shall be notified to the Purchaser in
writing from time to time.
3.1.3 the Loan Notes will be issued to the Warrantors/Covenantors on
the Completion Date by the Purchaser (in the amounts indicated
against each such person's name in column 4 of Schedule l).
3.3 Without prejudice to any other remedy available to the Purchaser, the
Purchaser shall be entitled to a right of set-off in accordance with
this Clause 3 against any amount payable to the Warrantors pursuant to
the Loan Notes in respect of any Warranty Claims arising on or before
the date for payment under the Loan Notes. The Loan Notes shall include
a right of set-off by the Purchaser in respect of any such Warranty
Claims. Any amount set-off against any payments under the Loan Notes
shall be made pro rata against the amount of the Loan Notes then
outstanding.
3.4 If any claim arises or circumstances come to the notice of the
Purchaser which could give rise to a Warranty Claim, the Purchaser
shall forthwith give notice thereof to the Warrantors or Covenantors
(as the case may be) (specifying in reasonable detail the basis of the
claim and the amount claimed) ("a Loss Notice"). Without prejudice to
the Purchaser's right to issue proceedings or seek injunctive relief in
respect of any Warranty Claim, the Purchaser and the Warrantors shall
use their respective reasonable endeavors to reach an amicable
settlement of each such claim as soon as reasonably practicable
following the issue of any Loss Notice.
3.5 The Purchaser shall be entitled to deduct from any payment under the
Loan Notes an amount equal to the aggregate of:
3.5.1 the amount of any liability relating to any Warranty Claim in
respect of which quantum has been agreed between the parties
or determined in accordance
with clause 3.4 or judgment has been issued in any proceedings
instituted in respect of any Warranty Claim, but in either
case payment has not been made prior to the date scheduled for
payment under the Loan Notes ("an Agreed
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<PAGE>
Loss"); and
3.5.2 an amount equal to the Purchaser's reasonable estimate of the
quantum of liability (including reasonable costs and expenses)
for any Warranty Claim in respect of which a Loss Notice has
been served on the Warrantors or Covenantors (as the case may
be) but liability and/or quantum has not been determined prior
to the date scheduled for payment under the Loan Notes ("a
Loss"). Subject always to clause 3.6, the Purchaser shall be
entitled to retain the aggregate amount of any Loss(es) and
shall not be required to make payment to the extent of the
same unless and until such Warranty Claim has been agreed or
determined by judicial process.
3.6 In the event that the Warrantors/Covenantors dispute any Warranty Claim
and/or Loss, subject to the Warrantors/Covenantors producing an opinion
of counsel of not less than five years call (with appropriate
experience in the subject matters of the claim) that the
Warrantors/Covenantors have a valid defence to such Warranty Claim(s)
and/or that the Loss(es) estimated by the Purchaser is/are in excess of
the amount which such counsel reasonably considers would be recoverable
by the Purchaser, the amount of Loss(es) shall be paid into an escrow
account to be held by the Purchaser's Solicitors pending agreement or
determination by judicial process of such Warranty Claim.
3.7 Upon a Warranty Claim being agreed or determined by judicial process
the purchase price for the Shares shall be deemed to have been reduced
by the amount thereof and whichever of the following adjustments as
shall be appropriate will be made:-
3.7.1 if on or after the date for payment under the Loan Notes it is
determined that the amount of a Loss exceeds the Agreed Loss
in respect thereof, the Purchaser will forthwith pay to the
Warrantors/Covenantors the amount of the excess together with
the interest thereon pursuant to clause 3.8, such interest to
be payable in respect of the period from the dated scheduled
for payment under the Loan Notes to the date of actual payment
and to be shared between the Warrantors/Covenantors in
proportion to their respective shares of such excess; or
3.7.2 if the amount of an Agreed Loss (when aggregated with other
Agreed Losses or otherwise) exceeds the amount payable under
the Loan Notes the Warrantors/Covenantors will immediately
repay to the Purchaser the amount of excess together with
interest thereon pursuant to clause 3.7, such interest to be
payable in respect of the period from the Completion Date to
and including the date of actual receipt of such payment
(including such interest) by the Purchaser.
3.8 Subject to clause 3.9, interest payable under clause 3.7 will be paid
by the Purchaser or the Warrantors/Covenantors, as the case may be, in
respect of the relevant period referred to in clause 3.7.1 or clause
3.7.2 at the rate of 1 percentum (1%) over the base rate of Midland
Bank Plc ruling from time to time, the certificate of a duly authorized
officer of such bank as to such base rate to be final and binding on
the parties.
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<PAGE>
3.9 If any amount in respect of Loss(es) has been paid into an escrow
account in accordance with clause 3.6, the interest rates referred to
in clause 3.8 shall not apply to such sums. Interest accruing on any
amount held in such escrow account (if any) shall be at the rate
actually earned or such sums whilst in the escrow account will, subject
to deduction of any bank charges and interest follow the principal pro
rata.
4. Completion
4.1 Completion shall take place at the offices of the Purchaser's
Solicitors on the date hereof, as soon as practicable after executing
this Agreement when all the transactions mentioned in the following
sub-clauses shall take place.
4.2 The Vendors shall deliver to the Purchaser:
4.2.1 duly completed and signed stock transfer forms in
favour of the Purchaser or as it may direct in
respect of the Shares together with the relative
share certificates;
4.2.2 duly completed and signed stock transfer forms in
favour of the Purchaser, or as the Purchaser may
direct in respect of any nominee shareholdings in the
subsidiary together with the relative share
certificates;
4.2.3 the Deed of Indemnity duly executed by the
Covenantors;
4.2.4 the statutory books of each Group Company complete
and up-to-date and their certificates of
incorporation and confirmation of the location of the
common seals;
4.2.5 the title deeds relating to the Property;
4.2.6 the appropriate forms to amend the mandates given by
each Group Company to its bankers;
4.2.7 written confirmation from the Vendors (as evidenced
by their execution of this Agreement) that there are
no subsisting guarantees given by any Group Company
in their favour and that after compliance with clause
4.3 none of the Vendors will be indebted to any group
9
<PAGE>
Company or vice versa;
4.2.8 written confirmation from the Vendors (as evidenced
by their execution of this Agreement) and from
Spearhead Publications Inc, International Exhibitions
Incorporated and Aberdeen Exhibitions and Conference
Centre Limited that all inter-company loan accounts
have been settled and there are no amounts
outstanding due by the Company or any of the
Subsidiaries to such companies; and
4.2.9 written confirmation from Midland Bank Plc of the
balances on each of the Company's and the
Subsidiaries bank accounts made up to a date not more
than seven days prior to Completion together with
reconciliation statements in respect of the same from
the date of such bank statements to the close of
business on the last business day prior to the
Completion Date.
4.3 The Vendors shall repay all monies then owing by them to any Group
Company whether due for payment or not.
4.4 A Board Meeting and Extraordinary General Meeting of the Company shall
be held approving the Company entering into the Guarantee and Mortgage
of Shares and authorizing the giving of financial assistance by the
Company by reason of granting the Company such Guarantee and Mortgage
of Shares in accordance with Sections 151-155CA.
4.5 Board meetings of each Group Company shall be held at which:
4.5.1 such persons as the Purchaser may nominate shall be
appointed additional directors; and
4.5.2 the transfers referred to in clauses 4.2.1 or 4.2.2 (as
the case may be) shall be approved (subject to stamping).
4.6 Upon completion of the matters referred to in clauses 4.2 to 4.4 the
Purchaser will:
4.6.1 transmit the sum of (pound)2,900,000 by telegraphic transfer
to the Vendors' Solicitors client account in satisfaction of
the initial purchase consideration for the Shares, whose
receipt shall constitute valid receipt by each of the Vendors;
4.6.2 issue the Loan Notes to the Warrantors/Covenantors (in the
amounts indicated against each such person's name in column 4
of Schedule 1);
4.6.3 procure that the Company delivers the Guarantee and Mortgage
of Shares to the Vendors, duly executed; and
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4.6.4 procure that Production Group International, Inc. delivers the
PGI, Inc. Guarantee to the Vendors, duly executed.
4.7 The Purchaser may in its absolute discretion waive any requirement
contained in clauses 4.2 to 4.4, and shall not be obliged to complete
the purchase of any of the Shares unless the purchase of all the Shares
is completed in accordance with this Agreement, but may instead rescind
this Agreement without prejudice to any other remedy it may have.
4.8 Following Completion, the Purchaser shall use its reasonable endeavors
to procure the release of the Vendors from all liability arising after
Completion under the guarantees given by them on behalf of the Group
Companies and listed in the Disclosure Letter.
4.9 The Vendors hereby undertake to procure that, within 30 days of the
Completion Date, Spearhead Publications, Inc. effects a change of name
to a name not including the word "Spearhead" or any colorable
alternative and to provide the Purchaser with a copy of the resolution
effecting such change of name together with the Company's restated
Certificate of Incorporation and By-Laws evidencing such change of name
within such 30 day period.
5. Warranties and undertakings by the Vendors/Warrantors
5.1 The Vendors jointly and severally warrant to the Purchaser that:
5.1.1 each of the Vendors have full power and authority to enter
into and perform this Agreement, which will constitute or when
executed will constitute binding obligations on him/her/them
in accordance with its terms;
5.1.2 the Shares constitute the whole of the issued and allotted
share capital of the Company;
5.1.3 there is no pledge, lien or other encumbrance on, over or
affecting the Shares and there is no agreement or arrangement
to give or create any such encumbrance and no claim has been
or will be made by any person to be entitled to any of the
foregoing; and
5.1.4 the Vendors are entitled to transfer the full legal and (with
the exception of the Trustee Vendors) beneficial ownership of
the Shares to the Purchaser on the terms of this Agreement
without the consent of any third party.
5.2 The Warrantors/Covenantors jointly and severally warrant to the
Purchaser that:-
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5.2.1 the information in Schedule 2 relating to the Group Companies
is true and accurate in all respects;
5.2.2 save as set out in the Disclosure Letter, the Warranties in
Schedule 3 and 6 are true and accurate in all respects;
5.2.3 the contents of the Disclosure Letter are true and accurate in
all respects and fully, clearly together with the accompanying
documents and accurately disclose every matter to which they
relate; and
5.2.4 each of the Covenantors have full power and authority to enter
into the Deed of Indemnity, which will constitute or when
executed will constitute a binding obligation on him/her/them
in accordance with its terms.
5.3 Each of the Warrantors undertakes in relation to any Warranty which
refers to the knowledge, information or belief of the Warrantors, that
he has made full enquiry into the subject matter of that Warranty.
5.4 Each of the Warranties is without prejudice to any other Warranty and,
except where expressly stated otherwise, no clause of this Agreement
shall govern or limit the extent or application of any other clause.
5.5 The rights and remedies of the Purchaser in respect of any breach of
the Warranties shall not be affected by Completion, by any
investigation made by it or on its behalf into the affairs of any Group
Company, by its inability to rescind this agreement by reason of clause
9.6, or failing to exercise or delaying the exercise of any right or
remedy, or by any other event or matter, except a specific and duly
authorized written waiver or release, and no single or partial exercise
of any right or remedy shall preclude any further or other exercise.
5.6 None of the information supplied by any Group Company or its
professional advisers to any of the Vendors or their agents,
representatives or advisers in connection with the Warranties and the
contents of the Disclosure Letter, or otherwise in relation to the
business or affairs of any Group Company, shall be deemed a
representation, warranty or guarantee of its accuracy by the Group
Company to the Vendors, and the Vendors waive any claims against the
Group Company which they might otherwise have in respect of it.
5.7 In circumstances where a Warranty Claim is capable of being made either
under the Warranties or the Deed of Indemnity the Purchaser shall be
entitled to bring each such claim, but shall not be entitled to recover
twice in respect of such Warranty Claims in respect of the same loss.
6. Pensions
12
<PAGE>
6.1 The provisions of Schedule 6 shall apply.
7. Restrictive agreement
7.1 For the purpose of assuring to the Purchaser the full benefit of the
businesses and goodwill of the Group Companies, each of the Vendors
(other than the Trustee Vendors) undertakes by way of further
consideration for the obligations of the Purchaser under this Agreement
as separate and independent agreements that he or she will not alone or
in conjunction with or on behalf of any other person, directly or
indirectly:-
7.1.1 for a period of four (4) years after the Completion Date in
relation to goods dealt in or services provided by any member
of the Group in the course of business during the two (2)
years immediately preceding the date hereof, by letter,
circulars, advertisements or other means canvass, solicit or
encourage the custom of any customer of any member of the
Group in respect of similar goods or services; nor
7.1.2 for a period of two (2) years after the Completion Date,
solicit, endeavour to entice away offer employment to, employ
or offer or conclude any contract for services with, any
person firm or company who to such Vendor's knowledge is or,
during the twelve (12) months immediately preceding the date
hereof, has been an employee (in skilled or managerial work)
of or consultant to any member of the Group; nor
7.1.3 for a period of four (4) years after the Completion Date,
(save as the holder for investment of less than three
percentum (3%) in nominal value of the voting share capital of
a company whose shares are listed on a recognized Stock
Exchange or dealt in on the Unlisted Securities Market
regulated by The Stock Exchange or as an employee or officer
or agent of the Purchaser or any member of the Group) carry on
or be engaged concerned or interested within the United
Kingdom in any business which competes with the business of
any member of the Group; nor
7.1.4 in connection with any business which competes or is likely to
compete with any business carried on by any member of the
Group at the date hereof and/or at the Completion Date, use,
or procure the use of, any business or trade name or
distinctive mark, style, or logo used by any member of the
Group at any time during the two (2) years immediately
preceding the date hereof or anything intended or likely to be
confused with any of them including, without limitation, the
word "Spearhead" or any colorable alternative; nor
7.1.5 at any time after the date hereof use any Intellectual
Property, or for four (4) years after the date hereof use any
Computer Know-How or for two (2) years after the date hereof
use any Marketing Information which, in any such case,
13
<PAGE>
is owned by or which any member of the Group is, or, during
the two (2) years immediately preceding the date hereof has
been expressly licensed to use in connection with its
business; nor
7.1.6 unless requested to do so by the Purchaser or any member of
the Group, disclose to any person any confidential information
(including, without limitation any Marketing Information used
by any member of the Group in connection with its business at
any time during the two (2) years before the date hereof and
any Computer Know-How or Know-How) which is either owned or
used by any or all of them or owned by any other person to
whom any such member owes any duty of secrecy; nor
7.1.7 knowingly do or say anything which may be harmful to the
reputation of any member of the Group or which may lead any
person not to engage in business or to cease to do or to
reduce its business with any member of the Group.
7.2 If any of the covenants in clause 7.1 is found to be against the public
interest or unlawful or in any way an unreasonable restraint of trade
despite the agreement of the parties (all of whom have been
professionally advised in respect thereof) that such covenants
(considered separately or together) are no greater in duration, extent
and application than is necessary to protect the goodwill of the Group
and the value of the Purchaser's investment in the Company resulting
from the purchase of the Shares pursuant to this Agreement; then:
7.2.1 such covenant shall be modified (and shall be deemed to have
been modified ab initio) as necessary to render it valid and
effective; and
7.2.2 the remaining covenants in clause 7.1 shall continue to bind
each of the Vendors as each such covenant is to be construed
as a separate and independent covenant.
8. Warrantors'/Covenantors' protection
8.1 The provisions of Schedule 7 shall apply.
9. General
9.1 No announcement shall be made in respect of the subject matter of this
Agreement unless specifically agreed between the parties or it is an
announcement required by law or the Stock Exchange issued after prior
consultation with the Vendors.
9.2 If this Agreement ceases to have effect the Purchaser will release and
return to each Group Company all documents concerning it provided to
the Purchaser or its advisers in connection with this agreement and
will not use or make available to any other
14
<PAGE>
person any information which it or its advisers have been given in
respect of any Group Company and which is not in the public domain.
9.3 If any of the Shares shall at any time be sold or transferred, the
benefit of each of the Warranties may be assigned to the purchaser or
transferee who shall accordingly be entitled to enforce each of the
Warranties against the Warrantors as if he, she, or it were named in
this Agreement as the Purchaser provided always that any such assignee
acknowledges acceptance of the limitations on the Warrantors' liability
in respect of the Warranties.
9.4 This Agreement shall be binding upon each party's successors and
assigns and personal representatives (as the case may be) but, except
as expressly provided, none of the rights of the parties under this
Agreement or the Warranties may be assigned or transferred.
9.5 Subject to clause 9.6, all expenses incurred by or on behalf of the
parties, including all fees of agents, representatives, solicitors,
accountants and actuaries employed by any of them in connection with
the negotiation, preparation or execution of this Agreement or
transactions contemplated by or referred to in this Agreement, shall be
borne solely by the party who incurred the liability and no Group
Company shall have any liability in respect of them.
9.6 The Purchaser's rights to rescind this Agreement are hereby excluded.
9.7 Time shall be of the essence of this Agreement, both as regards the
dates and periods specifically mentioned and as to any dates and
periods which may be substituted by agreement in writing between or on
behalf of the Vendors and the Purchaser.
9.8 No purported variation of this Agreement will be effective unless made
in writing and signed by or on behalf of the Purchaser and on behalf of
the Vendors.
9.9 Any liability to the Purchaser under this Agreement may be released,
compounded or compromised in whole or in part by the Purchaser without
in any way prejudicing or affecting its rights against any other
Vendors or any other liability or obligation of the Vendor in question.
9.10 This Agreement and the other documents referred to herein or in any
such other document together comprise the entire agreement and
understanding between the Parties in connection with the sale and
purchase of the Shares and each of the Parties hereby confirm that it
has not relied on any representation or warranty which is not expressly
stated in this Agreement or in any such other document.
9.11 If any provision of this Agreement is or becomes, illegal, invalid or
unenforceable under the law of jurisdiction, neither the legality,
validity or enforceability of any other provision of this Agreement
under such law nor the legality, validity or
15
<PAGE>
enforceability of such provision under the law of any other
jurisdiction will in any way be affected or impaired thereby.
9.12 If this Agreement or any documents forming part of the arrangements
contemplated by this Agreement is subject to registration under the
Restrictive Trade Practices Acts
1976 and 1977 the provisions which render it registrable will not come
into effect until such time as a copy and particulars of this Agreement
and such other documents forming part of the arrangements are furnished
to the Director General of Fair Trading for registration under and
pursuant to such Acts, but all other rights and obligations of the
Parties hereunder will become effective on the date hereof.
9.13 This Agreement may be entered into in any number of counterparts and by
the Parties on separate counterparts each of which when so executed and
delivered shall be an original, but all the counterparts shall together
constitute one and the same instrument.
9.14 Save for an obligation fully performed before or at Completion, this
Agreement will continue in full force and effect after the Completion
Date notwithstanding Completion. Completion shall not constitute a
waiver of any of the Purchaser's rights.
9.15 The Schedules form part of this Agreement and will be as effective as
if they had been set out in the body of this Agreement.
10. Notices
10.1 To be effective all notices, consents, approvals, waivers and requests,
relating to this Agreement must be in writing but may be delivered
personally or sent by first class recorded delivery post, facsimile
transmission or telex to the party to be served at its registered
office for the time being in the case of a company or at his address as
herein stated or as notified from time to time in the case of an
individual PROVIDED THAT any such notice, consent, approval, waiver or
request may instead be delivered to the Solicitors representing the
person to be served. Copies of any notice given by or on behalf of the
Purchaser will be contemporaneously copied to each of the Warrantors.
10.2 A notice, consent, approval or request will be deemed to have been
served as follows:
10.2.1 if delivered personally, at the time of delivery or, if not
delivered during normal business hours on a business day, at
9.30 am on the business day next following the day of
delivery;
10.2.2 if posted, on the second business day after the envelope
containing the same was delivered into the custody of The
Royal Mail or, if such period
16
<PAGE>
expires other than on a business day, at 9.30 am on
the next business day thereafter; and
10.2.3 if sent by facsimile transmission or telex, at the
time of despatch or, if outside normal business
hours, at 9.30 am on the business day next following
the day upon which the same was dispatched.
10.3 In proving such service, it will be sufficient to prove that the
personal delivery was made, or that the envelop containing such notice
was properly addressed as a pre-paid first class recorded delivery
letter, or that the facsimile transmission or telex was properly
addressed and dispatched.
11. Remedies
11.1 Any remedy available to the Purchaser for breach of this Agreement
(including, but without limitation, a breach of any of the Warranties)
shall be in addition and without prejudice to all other rights and
remedies available to the Purchaser and the exercise of or failure to
exercise any remedy shall not constitute a waiver by the Purchaser of
any of its rights and remedies.
11.2 If as a result of an act, event, circumstance, transaction or omission
occurring on or before Completion which gives rise, directly or
indirectly, to a breach of any of the Warranties any member of the
Group or any asset of any member of the Group is worth less than it
would otherwise have been or any member of the Group is or will be
under a liability or an increased or substituted liability which would
not have subsisted (to the extend thereof) but for such act, event,
circumstance, transaction or omission the Purchaser may by notice to
any of the Warrantors require any or all of them to make good the same
to any member of the Group or, at the Purchaser's option, to pay the
Purchaser an amount equal to the diminution in the value of the Shares
caused thereby.
17
<PAGE>
12. Governing Law
12.1 This Agreement will be governed by and construed in accordance with
English law. The Parties hereby submit to the jurisdiction of the
English Courts and the Vendors hereby irrevocably appoint the Vendors'
Solicitors as their agent to accept service of process.
IN WITNESS WHEREOF the parties have executed this Agreement the day and year
first before written:
EXECUTED by MARK )
SIRANGELO (President) for and )
on behalf of ) /s/ Mark Sirangelo
PGI ACQUISITION COMPANY E )
in the presence of:
Witness Signature : /s/ David Alexander Sheach
Witness Name : 1 East Craibstone Street
Witness Address : Aberdean
EXECUTED by DAVID )
CHARLES CHAPMAN STOTT ) /s/ David Charles Chapman Scott
in the presence of:
Witness Signature : /s/ David Alexander Sheach
Witness Name : 1 East Craibstone Street
Witness Address : Aberdean
EXECUTED by BRYAN )
MERVYN WEAVERS ) /s/ Bryan Mervyn Weavers
in the presence of:
Witness Signature : /s/ David Alexander Sheach
Witness Name : 1 East Craibstone Street
Witness Address : Aberdean
EXECUTED by CHRISTOPHER )
PHILIP LEVELIS MARKE ) /s/ Christopher Philip Levelis Marke
in the presence of:
18
<PAGE>
Witness Signature : /s/ David Alexander Sheach
Witness Name : 1 East Craibstone Street
Witness Address : Aberdean
EXECUTED by ROBERT )
DAVID MUNTON ) /s/ Robert David Munton
in the presence of:
Witness Signature : /s/ David Alexander Sheach
Witness Name : 1 East Craibstone Street
Witness Address : Aberdean
EXECUTED by SUSAN )
PATRICIA CROUCH ) /s/ Susan Patricia Crouch
in the presence of:
Witness Signature : /s/ David Alexander Sheach
Witness Name : 1 East Craibstone Street
Witness Address : Aberdean
EXECUTED by )
(duly authorized signatory for )
and on behalf of Jorvic Limited) )
and by D. Moorhouse for and on ) /s/ [SIGNATURE APPEARS HERE]
behalf of ESPAGNOL TRUST )
in the presence of:
EXECUTED by )
(duly authorized signatory for )
and on behalf of Jorvic Limited) )
and by D. Moorhouse for and on ) /s/ [SIGNATURE APPEARS HERE]
behalf of ESPAGNA TRUST )
in the presence of:
Witness Signature : /s/ David Alexander Sheach
Witness Name : 1 East Craibstone Street
Witness Address : Aberdean
19
<PAGE>
EXECUTED by )
(duly authorized attorney) )
for and on behalf of JANE ) /s/ [SIGNATURE APPEARS HERE]
LAURA WILLIAMS )
in the presence of:
Witness Signature : /s/ David Alexander Sheach
Witness Name : 1 East Craibstone Street
Witness Address : Aberdean
EXECUTED by )
(duly authorized attorney) )
for and on behalf of RICHARD ) /s/ [SIGNATURE APPEARS HERE]
RADWAY WILLIAMS )
in the presence of:
Witness Signature : /s/ David Alexander Sheach
Witness Name : 1 East Craibstone Street
Witness Address : Aberdean
20
<PAGE>
<TABLE>
<CAPTION>
====================================================================================================================================
Vendors' Name Number of Consideration
and Address Shares
- ------------------------------------------------------------------------------------------------------------------------------------
On Completion Retained Sum Loan Notes
<S> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------------------------------
David Charles Chapman Stott, 6,845 954,483.00 878,735.75
Ashleigh,
29 Ranelagh Avenue,
Barnes,
London SW13 0BN
- ------------------------------------------------------------------------------------------------------------------------------------
Jorvik Limited and D Moorhouse 2,220 341,994.40 284,995.19
(Espagnol Trust)
11 Myrtle Street, Douglas,
Isle of Man
- ------------------------------------------------------------------------------------------------------------------------------------
Jorvik Limited and D Moorhouse 2,220 341,994.40 284,995.19
(Espagna Trust)
11 Myrtle Street, Douglas,
Isle of Man
- ------------------------------------------------------------------------------------------------------------------------------------
Bryan Mervyn Weavers, Dragons, 1,388 213,823.60 178,186.25
St. Georges Lane, Hurstpierpoint,
West Sussex
- ------------------------------------------------------------------------------------------------------------------------------------
Jane Laura Williams, 3,700 569,990.80 474,992.20
56 Fairview Mansions,
84 Robinson Road,
Hong Kong
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
21
<PAGE>
<TABLE>
<CAPTION>
====================================================================================================================================
Vendors' Name Number of Consideration
and Address Shares
- ------------------------------------------------------------------------------------------------------------------------------------
On Completion Retained Sum Loan Notes
<S> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------------------------------
Richard Radway Williams 740 113,998.00 94,998.17
56 Fairview Mansions
84 Robinson Road
Hong Kong
- ------------------------------------------------------------------------------------------------------------------------------------
Christopher Philip Levelis Marke, 1,387 213,669.40 178,057.75
7, Elm Tree Avenue, Esher,
Surrey KT10 8JG
- ------------------------------------------------------------------------------------------------------------------------------------
Robert David Munton 487 72,023.20 62,519.25
Cherry Tree Cottage, Horsham Road
Holmbury, St. Mary,
Dorking, Surrey
- ------------------------------------------------------------------------------------------------------------------------------------
Susan Patricia Crouch 72,023.20 62,519.25
14 Farmview, Tilt Road,
Cobham, Surrey 487
KT11 3HZ
- ------------------------------------------------------------------------------------------------------------------------------------
Total number of Shares 19,474 2,900,000 1,139,981.75 1,360,018.25
====== ========= ============ ============
====================================================================================================================================
</TABLE>
22
<PAGE>
SCHEDULE 2
Details of group companies
Part 1: The Company
Company number: 3056668
Date of incorporation: 15 May 1995
Share capital 20,000 Ordinary Shares of(pound)1 each
Authorized: (pound)20,000
Issued (pound)19,474
Registered office: Ocean House, 50 Kingston Road,
New Malden, Surrey, KT3 3LZ
Directors: Noel Anthony Michael Eastwood
Christopher Philip Levelis Marke
David Charles Chapman Stott
Secretary: Christopher Philip Levelis Marke
23
<PAGE>
Part 2: The Subsidiaries of the Company
<TABLE>
<CAPTION>
====================================================================================================================================
Name of Subsidiary Registered Share Capital/ Registered Office Shareholders
Number Authorized
Capital
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Spearhead Exhibitions 1062758 Ordinary/ Ocean House, 50 10,549 the Company
Limited 10,5740 Kingston Road, New
Ordinary Malden, Surrey KT3 25 DCC Stott
3LU
- ------------------------------------------------------------------------------------------------------------------------------------
Spearhead Offshore 2330299 100 Ordinary/ Ocean House, 50 1 Spearhead
Europe Limited 20 Ordinary Kingston Road, New Exhibitions Limited
Malden, Surrey KT3
3LU 1 DCC Stott
- ------------------------------------------------------------------------------------------------------------------------------------
Offshore Management 2308214 100 Ordinary/ Ocean House, 50 1 Spearhead
Limited 2 Ordinary Kingston Road, New Exhibitions Limited
Malden, Surrey KT3
3LU 1 DCC Stott
- ------------------------------------------------------------------------------------------------------------------------------------
Intelec Exhibitions 2766693 100 Ordinary Ocean House, 50 60 Spearhead
Limited Kingston Road, New Exhibitions Limited
Malden, Surrey KT3
3LU 40 Strategic Events
Limited
- ------------------------------------------------------------------------------------------------------------------------------------
IMDEX Asia Limited 3073340 100 Ordinary 7 Bedford Row, 50 Spearhead
London WC1R 4BZ Exhibitions Limited
50 Roger Marriott
====================================================================================================================================
</TABLE>
24
<PAGE>
SCHEDULE 3
Warranties
1. Accounts
1.1 The principal accounts
1.1.1 The Principal Accounts were prepared in
accordance with the historical cost convention;
and the bases and policies of accounting
adopted in preparing the Principal Accounts are
the same as those adopted in preparing the
audited accounts of each Group Company in
respect of the three last preceding accounting
periods.
1.1.2 The Principal Accounts:
(a) gave a true and fair view of the assets and
liabilities of each Group Company at the Last
Accounts Date and its profits and/or losses for
the accounting period ended on that date;
(b) comply with the requirements of the Companies
Acts and other relevant statutes;
(c) comply with all FRSs applicable to a United
Kingdom company current for the period in
respect of which the Principal Accounts were
prepared;
(d) are not affected by any extraordinary,
exceptional or non-recurring item;
(e) properly reflect the financial position of each
Group Company as at that date; and
(f) fully disclose as far as material all the
assets of each Group Company as at that date.
1.1.3 As far as the Warrantors are aware no amount
included in the Principal Accounts in respect
of any asset, whether fixed or current,
materially exceeds its purchase price or
production cost (within the meaning of CA Sched
4) or (in the case of current assets) its net
realizable value on the Last Accounts Date.
1.2 Valuation of stock-in-trade and work in progress
25
<PAGE>
1.2.1 In the Principal Accounts the stock-in-trade
and work in progress of each Group Company have
been treated in accordance with SSAP 9.
1.2.2 In the Principal Accounts all redundant,
obsolete and slow-moving stock-in-trade has
been written off or written down, as
appropriate.
1.3 Depreciation of fixed assets
1.3.1 In the Principal Accounts for the three
preceding financial years, the fixed assets of
each Group Company have been depreciated in
accordance with SSAP 12.
1.4 Deferred taxation
1.4.1 Where provision for deferred taxation is not
made in the Principal Accounts, full details so
far as material of the amounts of deferred
taxation have been disclosed in the Disclosure
Letter.
1.5 Accounting reference date
1.5.1 The accounting reference date of each Group
Company for the purposes of CA s 224 is 31
March and there has not at any time been any
other date.
1.6 Book debts
1.6.1 Save as disclosed in the Disclosure Letter, no
part of the amounts included in the Principal
Accounts, or subsequently recorded in the
Management Accounts books of any Group Company,
as owing by any debtors:
(i) remains outstanding from any exhibitor in
respect of any exhibition which has been held
or
(ii) in respect of any other debtors, is overdue by
more than twenty six weeks, or has been
released on terms that any debtor pays less
than the full book value of his debt or has
been written off or has proved to any extent to
be irrecoverable or is now regarded by the
relevant Group Company as irrecoverable in
whole or in part.
1.6.2 As far as the Warrantors are aware, the amounts
due from debtors as at Completion (less the
amount of any relevant provision or
26
<PAGE>
reserve, determined on the same basis as that
applied in the Principal Accounts and disclosed
in the Disclosure Letter) will be recoverable
in full in the ordinary course of business and
in any event not later than twenty six weeks
after Completion; none of those debts is
subject to any counter-claim or set off, except
to the extent of any such provision or reserve;
and save as disclosed in the Disclosure Letter,
no Group Company has received any notice of
cancellation from the exhibitor in respect of
future exhibitions from exhibitors representing
more than 5% in aggregate of the projected
turnover from such exhibition.
1.7 Books and records
1.7.1 All the accounts, books, ledgers, financial and
other records, of whatsoever kind as required
by CA 221, of each Group Company:
(a) are in its possession;
(b) have been fully properly and accurately kept
and completed; and
(c) do not contain any material inaccuracies or
discrepancies.
1.7.2 The Management Accounts show a true and fair
view of Spearhead Exhibitions Limited's trading
transactions, and its financial, contractual
and trading position for the period for which
they are made up.
2. Corporate matters
2.1 Directors and shadow directors
2.1.1 The only directors of the Group Companies are
the persons whose names are listed in relation
to each Group Company in Schedule 2.
2.1.2 No person is a shadow director (within the
meaning of CA s 741) of a Group Company but is
not treated as one of its directors for all the
purposes of that Act.
2.2 Subsidiaries, associations and branches
2.2.1 No Group Company:
27
<PAGE>
(a) is the holder or beneficial owner of or has
agreed to acquire any share or loan capital of
any company (whether incorporated in the United
Kingdom or elsewhere) other than the
Subsidiaries listed in Schedule 2;
(b) has outside the United Kingdom any branch,
agency or place of business, or any permanent
establishment (as that expression is defined in
the relevant double taxation relief order
current at the date of this agreement).
28
<PAGE>
2.3 Options over group companies' capital
2.3.1 Except as required by this Agreement, there are
no agreements or arrangements in force which
provide for the present or future issue,
allotment or transfer of or grant to any person
the right (whether conditional or otherwise) to
call for the issue, allotment or transfer of
any share or loan capital of any Group Company
(including any option or right of pre-emption
or conversion).
2.4 New issues of capital
2.4.1 No share or loan capital has been issued or
allotted, or agreed to be issued or allotted,
by any Group Company since the Last Accounts
Date.
2.5 Commissions
2.5.1 No one is entitled to receive from any Group
Company any finder's fee, brokerage or other
commission in connection with the sale and
purchase of the Shares under this agreement.
2.6 Memoranda and articles of association, statutory books and
resolutions
2.6.1 The copy of the memorandum and articles of
association of each Group Company attached to
the Disclosure Letter is accurate and complete
in all respects and has embodied in it or
annexed to it a copy of every such resolution
as is referred to in CA s 380.
2.6.2 The register of members and other statutory
books of each Group Company have been properly
kept and contain an accurate and complete
record of the matters with which they should
deal.
2.6.3 No notice or allegation that any of the
foregoing is incorrect or should be rectified
has been received.
2.6.4 Since the Last Accounts Date no alteration has
been made to the memorandum or articles of
association of any Group Company and no
resolution of any kind of the shareholders of
any Group Company has been passed (other than
resolutions relating to routine business at
annual general meetings).
2.7 Documents filed
2.7.1 As far as the Warrantors are aware, all
returns, particulars, resolutions and documents
required by the Companies Acts or any
29
<PAGE>
other legislation to be filed with the
Registrar of Companies, or any other authority,
in respect of each Group Company have been duly
filed and were correct; and due compliance has
been made with all the provisions of the
Companies Acts and other legal requirements in
connection with the formation of each Group
Company, the allotment or issue of shares,
debentures and other securities, the payment of
dividends and the conduct of its business.
2.7.2 All charges in favour of any Group Company have
(if appropriate) been registered in accordance
with the provisions of CA ss 395, 409, 410 and
424.
2.8 Possession of documents
2.8.1 All title deeds relating to the assets of each
Group Company, and an executed copy of all
agreements in force to which any Group Company
is a party, and the original copies of all
other documents which are owned by or which
ought to be in the possession of any Group
Company are in its possession.
2.9 Investigations
2.9.1 No investigations or enquiries by, or on behalf
of, any governmental or other body in respect
of the affairs of any Group Company are pending
or taking place.
2.10 Information disclosed to purchaser correct
2.10.1 All written information given by any of the
Vendors, Vendors' Solicitors or Vendors'
Accountants to the Purchaser, the Purchaser's
Solicitors or the Purchaser's Accountants
relating to the business, activities, affairs,
or assets or liabilities of any Group Company
was, when given, and is now accurate and
comprehensive in all material respects and not
misleading.
2.10.2 There are no material facts or circumstances,
in relation to the assets, business or
financial condition of any Group Company, which
have not been fully and fairly disclosed in
writing to the Purchaser or the Purchaser's
Solicitors, and which, if disclosed, might
reasonably have been expected to affect the
decision of a purchaser to enter into an
agreement substantially on the same terms as
are contained in this Agreement.
3. Taxation
30
<PAGE>
3.1 Last Accounts
All liabilities, whether actual, deferred, contingent or
disputed, of each Group Company for tax measured by reference
to income, profits or gains earned, accrued or received on or
before the Last Accounts Date or arising in respect of an event
occurring or deemed to occur on or before the Last Accounts
Date are properly provided for or (as appropriate) disclosed in
the Principal Accounts. All other warranties relating to
specific tax matters set out in this Schedule are made without
prejudice to the generality of this paragraph.
3.2 Position since Last Accounts Date
Since the Last Accounts Date:
3.2.1 no Group Company has been involved in any
transaction which has given or may so far as
the Warrantors are aware give rise to a
liability to tax on any Group Company (or would
have given or might give rise to such a
liability but for the availability of any
relief) other than tax in respect of normal
trading income or receipts of the Group Company
concerned arising from transactions entered
into by it in the ordinary course of business;
3.2.2 no disposal has taken place or other event
occurred which has or may have the effect of
crystallizing a liability to tax which, if such
disposal or event had been planned at the Last
Accounts Date, should have been reflected in
the provision for deferred tax contained in the
Last Accounts; and
3.2.3 no accounting period (as defined in section 12
of the Taxes Act 1988) of any Group Company has
ended as referred to in section 12(3) of that
Act.
3.3 Continuing Commitments
All sums payable under any obligation incurred by any Group
Company prior to Completion and which will continue to bind any
Group Company after Completion have been and will continue
(otherwise than pursuant to a change of law which occurs after
Completion with retrospective effect) to be deductible for the
purposes of corporation tax (or any corresponding tax on
profits in any relevant foreign jurisdiction), either in
computing the profits of any Group Company or in computing the
corporation tax or corresponding tax chargeable on it.
3.4 Returns etc.
Each Group Company has duly, and within any appropriate time
limits, made all returns, given all notices and supplied all
other information required to be supplied to all relevant tax
authorities; all such information was and remains complete and
accurate in all material respects and were made on the proper
basis and do not, and so far as the Vendors are aware are not
likely to, reveal any transactions which may be the subject of
any dispute with any tax authority.
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3.5 Disputes, investigations
No Group Company is involved in any current dispute with any
tax authority or is or has in the last six years been the
subject of any investigation, audit or non- routine visit by
any tax authority. So far as the Vendors are aware not having
made any specific enquiry of any taxation authority, in
relation to each Group Company there is no planned
investigation audit or non-routine visit by any tax authority
and there are no facts which might cause such an investigation,
audit or non-routine visit by an tax authority to be instituted
and no Group Company has been notified that any such
investigation audit or visit is planned.
3.6 Administration/Pay and File
In relation to each Group Company, the Disclosure Letter gives
full details of:
3.6.1 all determinations made under section 41A of
the Taxes Management Act 1970;
3.6.2 all directions reducing any amounts so
determined, pursuant to section 41B of that
Act;
3.6.3 all assessments to tax made by any tax
authority, and any determinations and
directions as aforesaid, which are subject to
appeal or have otherwise not become final at
the date hereof;
3.6.4 all payments of tax, and claims for repayment
of tax, made in respect of any period for which
no assessment to tax has been issued or become
final (and whether made pursuant to section 10
of the Taxes Act or otherwise);
3.6.5 all claims made to group relief which either
relate to an accounting period ended not more
than six years prior to the date hereof or
which have not been agreed or otherwise
determined, or where the losses or other
amounts to which the claim relates have not
been determined; and
3.6.6 all consents of the surrendering company to the
surrender of group relief given or to be given
in circumstances where the claim to group
relief has not become final.
3.7 Outstanding Rights
The Disclosure Letter gives details so far as material of the
rights of each Group Company which have not, at the time of
Completion, been exercised, to
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make any claim for relief or any election for a basis or method
of tax or type of relief and any rights to make an appeal
against an assessment or an application for postponement of any
tax.
3.8 Withholdings
Each Group Company has made all deductions and retentions of or
on account of tax as it was or is obliged to make and all such
payments of or on account of tax as should have been made to
any tax authority in respect of any such deductions or
retentions.
3.9 Employees/Pensions
All National Insurance contributions and sums payable to the
Inland Revenue under the P.A.Y.E. system and any amounts of a
corresponding nature payable to any foreign tax authority due
and payable by any Group Company up to the date hereof have
been paid and each Group Company has made all such deductions
and retentions as should have been made under section 203 of
the Taxes Act and all regulations made thereunder or under any
comparable laws or regulations of any relevant foreign
jurisdiction.
3.10 Capital Gains
If each Group Company disposed of each of its assets (except
trading stock and work-in-progress) for a consideration equal
to the book value of that asset as shown in or adopted for the
purposes of the Last Accounts to a person not connected with it
and by way of bargain at arm's length, no liability to tax
would arise by reference to any actual or deemed gain and no
Group Company has acquired any such asset (otherwise than from
another Group Company) except by way of bargain at arm's length
and from an unconnected person.
3.11 No allowable loss which might accrue on the disposal by any
Group Company of any asset is liable to be reduced or
eliminated and no chargeable gain is liable to be created or
increased by virtue of any depreciatory transaction or
reduction in value of that or any related asset for the
purposes of corporation tax on chargeable gains or any
corresponding tax of any relevant foreign jurisdiction.
3.12 No Group Company has ceased or could (on or after Completion)
as a result of the acquisition contemplated by this Agreement
cease to be a member of a group of companies in circumstances
in which a charge under sections 178 or 179 of the TCGA (deemed
disposal of chargeable assets) has arisen or could arise
(otherwise than as part of a merger to which section 181 of
that Act applies) could apply.
3.13 No Group Company has made any such transfer as is referred to
in section 125 of the TCGA (close company transferring assets
at under value).
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3.14 Capital Expenditure
If each Group Company disposed of each of its assets, or of any
pool of assets (that is to say all those assets expenditure
relating to which would be taken into account in computing
whether a balancing charge or corresponding tax would arise on
a disposal of any of those assets) for a consideration equal to
their book value as shown in or adopted for the purpose of the
Last Accounts, no balancing charge (or corresponding tax of any
relevant foreign jurisdiction) would arise in respect of any
such asset or pool of assets under any legislation relating to
capital allowances (or corresponding legislation of the
relevant foreign jurisdiction).
3.15 Losses - Major changes etc.
There has been no change in the ownership of any Group Company
nor any major change in the nature or conduct of any trade or
business carried on by any Group Company nor has any other
event or series of events occurred before Completion which
might cause the disallowance of the carry forward or back of
losses or excess charges or the disallowance of the carry
forward or back, set-off or surrender of advance corporation
tax under the provisions of section 768 or 768A of the Taxes
Act (change in ownership of company: disallowance of relief for
trading losses) or sections 245 to 245B (inclusive) of the
Taxes Act (ACT set off), or which might cause a trade to be
disregarded by virtue of paragraph 8 of Schedule 7A to the
TCGA.
3.16 Surrenders
The Disclosure Letter gives full details of any surrender or
claim or agreement to surrender or claim any advance
corporation tax under the provisions of section 240 of the
Taxes Act (surrender of advance corporation tax) or any amount
by way of group relief) by each Group Company, including any
receipt or payment (or any entitlement to receive or obligation
to make a payment) in respect thereof, where such surrender or
claim has not become final and determined for any reason.
3.17 Group Composition
All Group Companies resident in the United Kingdom for tax
purposes together comprise a group for the purposes of Chapter
IV of Part X of the Taxes Act and there are no circumstances or
arrangements as a result of which any Group Company might cease
to form part of such group.
3.18 Close Companies
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3.18.1 No apportionment under sections 423 to 430
(inclusive) and Schedule 19 to the Taxes Act
has been made or threatened against any Group
Company, and no action has been taken and no
event has occurred which could lead to such an
apportionment being made in relation to any
accounting period of a Group Company beginning
on or before 31 March 1989.
3.18.2 Each Group Company has obtained clearances
under Schedule 19 to the Taxes Act for each
accounting period of that Group Company
beginning on or before 31 March 1989.
3.18.3 Each Group Company has throughout each
accounting period beginning on or before 31
March 1989 been a trading company or a member
of a trading group as defined by paragraph 7 of
Schedule 19 to the Taxes Act.
3.18.5 No Group Company has made any transfers of
value within section 94 of the Inheritance Tax
Act 1984.
3.18.6 No Group Company is or has at any time been a
close investment holding company as defined in
section 13A of the Taxes Act.
3.18.7 No Group Company has since 5 April 1965 done
anything so as to give rise to an assessment or
any charge to tax under section 419 (as
extended by section 422) of the Taxes Act
(loans to participators and associates).
3.19 Distributions - General
No Group Company has on or after 6 April 1965:
3.19.1 made any distribution or deemed distribution
within the meanings of section 209, 210 or 418
of the Taxes Act (distributions and deemed
distributions) except as provided for in its
audited accounts;
3.19.2 repaid, redeemed or purchased or agreed to
repay, redeem or purchase any of its share
capital; or
3.19.3 capitalized or agreed to capitalize in the form
of shares or debentures any profits or reserves
of any class or description, or otherwise
issued or agreed to issue share capital
otherwise than wholly for new consideration (as
defined in section 254 of the Taxes Act).
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3.20 Demergers
No Group Company has been concerned in any exempt distribution
within section 213 to the Taxes Act within the period of six
years preceding Completion (demergers: exempt distributions).
3.21 Residence
Each Group Company is and has at all times been resident in the
United Kingdom for tax purposes and is not and has not been
treated as resident in any other jurisdiction for any tax
purpose (including any double taxation arrangement).
3.22 Treasury Consents
No Group Company has carried out or caused or permitted to be
carried out any of the transactions specified at the relevant
time in section 765(1) of the Taxes Act otherwise than with the
prior consent of H.M. Treasury (and in the case of a special
consent, full particulars of any conditions subject to which
such consent was given are set out in the Disclosure Letter) or
specified at the relevant time in section 765A of the Taxes Act
without having duly provided the required information to the
Inland Revenue.
3.23 Value Added Tax
For the purposes of this section the expression VAT legislation
shall include the Value Added Tax Act 1994, the Finance Act
1985 and all other enactments in relation to value added tax
and all notices, provisions and conditions made or issued
thereunder including the terms of any agreement reached with
H.M. Commissioners of Customs and Excise or any concession
referred to in the Disclosure Letter.
3.24 In relation to each Group Company:
3.24.1 it is registered for the purposes of value
added tax, has been so registered at all times
that it has been required to be registered by
VAT legislation, and such registration is not
subject to any conditions imposed by or agreed
with H.M. Customs and Excise;
3.24.2 it has complied fully with and observed in all
material respects the terms of VAT legislation;
3.24.3 it has maintained and obtained at all times
complete, correct and up-to-date records,
invoices and other documents (as the case may
be) appropriate or requisite for the purposes
of VAT legislation and has preserved such
records, invoices and other documents in such
form and for such periods as are required by
VAT legislation;
3.24.4 it obtains credit for all input tax (as defined
by Section 24(1) of the Value Added Tax Act
1994) paid or suffered by it;
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3.24.5 it is not and has not been treated as a member
of a group for the purposes of VAT legislation,
and has not applied for such treatment;
3.24.6 it is not required to make payments on account
of value added tax for which it may become
liable in a prescribed accounting period
(pursuant to The Value Added Tax (Payments on
Account) No.2 Regulations 1992); and
3.24.7 it is not and has not been subject under VAT
legislation to any penalty liability notice,
written warning of failure to comply, surcharge
liability notice or requirement to give
security as a condition of making taxable
supplies.
3.25 In respect of each of the assets of each Group Company (if any)
which is a capital item for the purpose of Part VA of the VAT
(General) Regulations 1985, the Disclosure Letter sets out
accurately:
3.25.1 the capital item affected;
3.25.2 the amount of the total input tax (within the
meaning of the said Regulations) which is
subject to adjustment;
3.25.3 the percentage of that input tax which was
reclaimable on the capital item in the first
interval applicable to it and any adjustments
made or to be made having regard to events
which have occurred up to the date hereof;
3.25.4 the date of acquisition of the capital item and
the number of intervals in the adjustment
period remaining from the date of this
Agreement;
3.25.5 full particulars of all material matters to
date relevant in determining any adjustments.
3.26 Anti-avoidance provisions
No Group Company has been a party to nor otherwise involved in
any transaction, scheme or arrangement to which:
3.26.1 any of the following provisions apply:
(a) section 125 of the Taxes Act (annual payments
for non-taxable consideration);
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(b) section 341 of the Taxes Act (payments of
interest etc. between related companies);
(c) section 729 to 746 (inclusive) of and Schedule
23A to the Taxes Act (tax avoidance: transfers
of securities, manufactured dividends and
transfer of assets abroad);
(d) sections 770 or 771 of the Taxes Act (sales,
etc. at undervalue or overvalue);
(e) section 786 of the Taxes Act (transactions
associated with loans or credit: connected
persons);
(f) sections 22, 42, 75 or 76 of the Capital
Allowance Act 1990 (capital allowances: first
year allowances, assets leased outside the UK,
effect of sales between connected persons, sale
and lease-back, etc);
(g) sections 29 to 34 (inclusive) of the TCGA
(value shifting);
(h) section 106 of the TCGA (disposal of shares and
securities within prescribed period of
acquisition); or
(i) sections 176 or 177 of the TCGA (depreciatory
transactions).
3.26.2 any of the following provisions could apply,
other than where clearances or consents, as
appropriate, have been obtained:
(a) sections 703 to 709 (inclusive) of the Taxes
Act (cancellation of tax advantages from
certain transactions in securities);
(b) section 776 of the Taxes Act (transactions in
land; taxation of capital gains);
(c) section 135 to 139 (inclusive) of the TCGA
(company reconstructions and amalgamations); or
(d) sections 213 to 218 (inclusive) of the Taxes
Act and section 192 of the TCGA (demergers).
4. Finance
4.1 Capital commitments
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4.1.1 There were no commitments in excess
of(pound)10,000 on capital account outstanding
at the Last Accounts Date and since the Last
Accounts Date no Group Company has made or
agreed to make any capital expenditure, or
incurred or agreed to incur any capital
commitments (in either case exceeding
(pound)10,000) or disposed of or realized any
capital assets or any interest in capital
assets.
4.2 Dividends and distributions
4.2.1 Since the Last Accounts Date no Group Company
has, or is treated as having, declared or paid
any dividend or other distribution (as defined
in Taxes Act Part VI Ch II as extended by Taxes
Act s418).
4.2.2 All dividends or distributions declared, made
or paid by each Group Company have been
declared, made or paid in accordance with its
articles of association and the applicable
provisions of the Companies Acts.
4.3 Bank and other borrowings
4.3.1 Full details of all limits on each Group
Company's bank overdraft facilities are
accurately set out in the Disclosure Letter.
4.3.2 The total amount borrowed by each Group Company
from each of its bankers does not exceed its
respective overdraft facilities.
4.3.3 The total amount borrowed by each Group Company
(as determined under the relevant instrument)
does not exceed any limitation on its borrowing
powers contained in its articles of
association, or in any debenture or other
relevant document.
4.3.4 No Group Company has outstanding, or has agreed
to create or issue, any loan capital; nor has
it factored any of its debts, or engaged in
financing of a type which would not require to
be
shown or reflected in the Last Accounts, or
borrowed any money which it has not repaid,
save for borrowings not exceeding the amounts
shown in the Last Accounts.
4.3.5 No Group Company has since the Last Accounts
Date repaid or become liable to repay any loan
or indebtedness in advance of its stated
maturity.
4.3.6 No Group Company has received notice (whether
formal or informal) from any lenders of money,
requiring repayment or
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intimating the enforcement of any security; and
there are no circumstances likely to give rise
to any such notice.
4.4 Loans by and debts due to group companies
4.4.1 No Group Company has lent any money which has
not been repaid to it, or owns the benefit of
any debt (whether or not due for payment),
other than debts which have arisen in the
ordinary course of its business.
4.4.2 No Group Company has made any loan or quasi-
loan contrary to the Companies Acts.
4.5 Liabilities
4.5.1 There are no liabilities (including contingent
liabilities) of any Group Company which are
outstanding other than those liabilities
disclosed in the Last Accounts or incurred in
the ordinary and proper course of trading since
the Last Accounts Date.
4.5.2 There has been no exercise, purported exercise
or claim for any charge, lien, encumbrance or
equity over any of the fixed assets of any
Group Company which remains outstanding; and
there is no dispute directly or indirectly
relating to any of its fixed assets.
4.5.3 No Group Company has been the tenant of, or a
guarantor in respect of, any leasehold property
other than the Properties.
4.5.4 The Company has not traded since the date of
its incorporation and has not incurred any
liability (contingent or otherwise) other than
the inter-company debt of (pound)169,160
assumed by it from Interprize Limited.
4.6 Bank accounts
An accurate and complete statement of the bank accounts of each Group Company
made up to a date not more than seven days prior to Completion together with
reconciliation statements in respect of the same have been supplied to the
Purchaser.
4.7 Working capital
Having regard to existing bank and other facilities, each Group Company has
sufficient working capital for the purposes of continuing to carry on its
business in its present form and at its present level of turnover for the period
of twelve months after Completion and for the
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purposes of executing, carrying out and fulfilling, in accordance with their
terms, all orders, projects and contractual obligations which are binding upon
it and remain outstanding.
4.8 Continuation of facilities
In relation to all debentures, acceptance credits, overdrafts, loans or other
financial facilities outstanding or available to any Group Company (referred to
in this clause as `facilities'):
4.8.1 the Disclosure Letter sets out full details of,
and there are attached to it, accurate copies
of all documents relating to the facilities;
4.8.2 there has been no contravention of or non-
compliance with any provision of any of those
documents;
4.8.3 no steps for the early repayment of any
indebtedness have been taken or threatened;
4.8.4 there have not been nor are there any
circumstances known to the Warrantors whereby
the continuation of any of the facilities might
be prejudiced, or which might give rise to any
alteration in the terms and conditions of any
of the facilities;
4.8.5 none of the facilities is dependent on the
guarantee or indemnity of or any security
provided by a third party other than a Group
Company;
4.8.6 no Warrantor has any knowledge, information or
belief that, as a result of the acquisition of
the Shares by the Purchaser or any other thing
contemplated in this agreement, any of the
facilities might be terminated or mature prior
to its stated maturity.
4.9 Government grants
4.9.1 Full details of all grants, subsidies or
financial assistance applied for or received by
the Group Companies from any governmental
department or agency or any local or other
authority are set out in the Disclosure Letter.
4.9.2 No Group Company has done or omitted to do any
act or thing which could result in all or any
part of any investment grant, employment
subsidy or other similar payment made, or due
to be made, to it becoming repayable or being
forfeited or withheld in whole or in part.
5. Trading
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5.1 Changes since last accounts date
5.1.1 Since the Last Accounts Date:
(a) the business of each Group Company has been
continued in the ordinary and normal course;
(b) there has been no deterioration in the turnover
or the financial or trading position or
prospects of any Group Company;
(c) no part of the business of any Group Company
has been materially and adversely affected by
any abnormal factor not affecting similar
businesses to a like extent;
(d) each Group Company has paid its creditors in
accordance with its normal practice; and there
are no amounts owing by any Group Company which
have been due for more than three months.
5.1.2 The net realizable assets of each Group Company
are not now less than at the Last Accounts
Date.
5.1.3 The trading prospects of each Group Company
have not been adversely affected as a result of
any event or circumstance arising since the
Last Accounts Date.
5.2 Vendors' other interests and liabilities to group companies
5.2.1 The Vendors do not have any rights or
interests, directly or indirectly, in any
business other than those now carried on by the
Group Companies which are or are likely to be
or become competitive with the businesses of
the Group Companies, save as registered holder
or beneficial owner of any class of securities
of any company which is normally listed on the
Stock Exchange or dealt in on the unlisted
securities market of the Stock Exchange, and in
respect of which a Vendor holds and is
beneficially interested in less than 5 per cent
of any single class of the securities in that
company.
5.2.2 There is no outstanding indebtedness of any
Vendor to a Group Company.
5.3 Effect of sale of shares
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5.3.1 The Warrantors have no knowledge, information
or belief that after Completion (whether by
reason of an existing agreement or arrangement
or otherwise) or as a result of the proposed
acquisition of the Company by the Purchaser:
(a) any supplier of any Group Company will cease or
be entitled to cease supplying it or may
substantially reduce its supplies to it;
(b) any customer of any Group Company will cease or
be entitled to cease to deal with it or may
substantially reduce its existing level of
business with it;
(c) any Group Company will lose the benefit of any
right or privilege which it enjoys;
(d) any officer or senior employee of a Group
Company will leave and so far as the Warrantors
are aware (not having made any specific
enquiry), no such officer or senior employee
has indicated any intention to do so.
5.3.2 Compliance with the terms of this Agreement
does not and will not:
(a) conflict with, or result in the breach of, or
constitute a default under any agreement or
document to which any Group Company is a party,
or any provision of the memorandum or articles
of association of any Group Company or any
encumbrance, lease, contract, order, judgment,
award, injunction, regulation or other
restriction or obligation of any kind by which
or to which any asset of any Group Company is
bound or subject;
(b) relieve any person from any obligation to any
Group Company, or enable any person to
determine any such obligation or any right or
benefit enjoyed by any Group Company, or to
exercise any right, whether under an agreement
with or otherwise in respect of any Group
Company;
(c) result in the creation, imposition,
crystallization or enforcement of any
encumbrance on any of the assets of any Group
Company;
(d) result in any present or future indebtedness of
any Group Company becoming due and payable or
capable of being declared due and payable prior
to its stated maturity.
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5.4 Conduct of businesses in accordance with memoranda and articles
of association
5.4.1 Each Group Company has at all times carried on
business and conducted its affairs in
accordance with its memorandum and articles of
association for the time being in force or any
other documents or arrangements relating to the
constitution of each Group Company.
5.4.2 Each Group Company is empowered and duly
qualified to carry on business in all
jurisdictions in which it carries on business.
5.5 Joint ventures and partnership
No Group Company is or has agreed to become a member of any joint venture,
consortium, partnership or other unincorporated association; and no Group
Company is or has agreed to become a party to any agreement or arrangement for
sharing commissions or other income.
5.6 Agreements relating to the management and business
There are no agreements, arrangements or understandings between a Group Company
and any person who is a shareholder or the beneficial owner of any interest in
it, or in any company in which any Group Company is interested, or any Associate
of any such person, relating to the management of any Group Company's business,
or the appointment or removal of directors of any Group Company, or the
ownership or transfer of ownership or the letting of any of the assets of any
Group Company, or the provision, supply or purchase of finance, goods, services
or other facilities to, by or from any Group Company, or in any other respect
relating to its affairs.
5.7 Agency agreements and agreements restricting business
5.7.1 No Group Company is a party to any agency,
distributorship, marketing, purchasing,
manufacturing or licensing agreement or
arrangement, or any restrictive trading or
other agreement or
arrangement pursuant to which any part of its
business is carried on, or which in any way
restricts its freedom to carry on the whole or
any part of its business in the United Kingdom
or elsewhere in such manner as it thinks fit.
5.7.2 No Group Company is bound by any undertaking or
assurances given to any court or governmental
agency.
5.8 Unfair trade and restrictive practices
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5.8.1 As far as the Warrantors are aware, no Group
Company has committed or omitted to do any act
or thing which could give rise to any fine or
penalty; nor is a Group Company a party to any
agreement, practice or arrangement which:
(a) contravenes the provisions of the Trade
Descriptions Acts 1968 and 1972;
(b) would or might result in a reference of a
consumer trade practice, within the meaning of
the Fair Trading Act 1973 s 13, or be liable to
reference to the Consumer Protection Advisory
Committee under Part II of the said Act;
(c) contravenes the provisions of the Consumer
Credit Act 1974;
(d) contravenes or is invalidated (in whole or in
part) by or is subject to registration under
the Restrictive Trade Practices Acts 1976 and
1977;
(e) contravenes any provisions of the Treaty of
Rome;
(f) contravenes any other anti-trust, anti-monopoly
or anti-cartel legislation or regulations.
5.8.2 No Group Company has engaged in any anti-
competitive practice as defined in the
Competition Act 1980.
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5.9 Litigation, disputes and winding up
5.9.1 No Group Company is engaged in any litigation
or arbitration proceedings as plaintiff or
defendant; there are no proceedings pending or
threatened either by or against any Group
Company; and there are no circumstances which
are likely to give rise to any litigation or
arbitration.
5.9.2 There is no dispute with any revenue or other
official department in the United Kingdom or
elsewhere, in relation to the affairs of any
Group Company, and there are no facts which may
(in the reasonable opinion of the Warrantors,
having taken all due professional advice) give
rise to any dispute.
5.9.3 There are no claims pending or threatened or
capable of arising against any Group Company by
an employee or workman or third party, in
respect of any accident or injury, which are
not fully covered by insurance.
5.9.4 No order has been made or petition presented or
resolution passed for the winding up of any
Group Company; no distress, execution or other
process has been levied in respect of any Group
Company which remains undischarged; and there
is no unfulfilled or unsatisfied judgment or
court order outstanding against any Group
Company.
5.10 Compliance with statutes
5.10.1 As far as the Warrantors are aware, each Group
Company has conducted and is conducting its
business in accordance with all applicable laws
and regulations whether of the United Kingdom
or elsewhere.
5.10.2 No Group Company carries on (or has, at any
time when not an authorized person under
Chapter III, Financial Services Act l986,
carried on) investment business in the United
Kingdom within the meaning of Financial
Services Act 1986, s 1.
5.11 Data protection
No Group Company has received any enforcement or deregistration notice or
transfer prohibition notice under the Data Protection Act 1984 and no individual
has claimed compensation or is entitled to claim from any Group Company under
the Data Protection Act 1984.
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5.12 Documents stamped
All documents which affect the right, title or interest of any Group Company in
or to any of its property, undertaking or assets, or to which a Group Company is
a party, and which attract stamp duty have been duly stamped and no such
documents which are outside the United Kingdom would attract stamp duty if they
were brought into the United Kingdom.
5.13 Business names
No Group Company uses a name for any purpose other than its full corporate name.
5.14 Transactions involving directors
No Group Company has been a party to any transaction to which any of the
provisions of CA s 320 or s 330 may apply.
5.15 Powers of attorney and authority
5.15.1 No power of attorney given by any Group Company
is in force.
5.15.2 No authorities (express or implied) by which
any person may enter into any contract or
commitment to do anything on behalf of a Group
Company are outstanding.
5.16 Licenses and consents
5.16.1 Each Group Company has obtained all necessary
licenses and consents for the proper carrying
on of its business (short particulars of each
license and consent being set out in the
Disclosure Letter) and all the licenses and
consents are valid and subsisting.
5.16.2 No Group Company is in breach of any of the
terms or conditions of any of the licenses or
consents; and there are no factors that might
in any way prejudice the continuation or
renewal of any of them.
5.17 Subsisting contracts
5.17.1 No Group Company is a party to any contract,
transaction or liability which:
(a) is of an unusual or abnormal nature or outside
the ordinary and proper course of business;
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(b) is of a long-term nature (that is, unlikely to
have been fully performed in accordance with
its terms more than six months after the date
on which it was entered into or undertaken);
(c) is incapable of termination by it in accordance
with its terms on sixty days' notice or less;
(d) is of a loss-making nature (that is, known to
be likely to result in a loss to it on
completion of performance);
(e) cannot readily be fulfilled or performed by it
on time without undue or unusual expenditure or
commitment of money, effort or personnel;
(f) involves or is likely to involve the supply of
goods the aggregate sales value of which will
represent in excess of 10 per cent of its
turnover for the preceding financial year;
(g) is a contract for hire or rent, hire purchase
or purchase by way of credit sale or periodical
payment;
(h) involves or is likely to involve obligations or
liabilities which by reason of their nature or
magnitude ought reasonably to be made known to
an intending purchaser of the Shares.
5.17.3 There is not now outstanding in respect of any
Group Company any agreement for the supply of
services or for agency.
5.18 Defaults by group company
5.18.1 No Group Company is or will by reason of any
event or circumstance which has occurred on or
before Completion with the lapse of time become
(a) in default under any agreement, obligation or
arrangement to which it is a party or in
respect of any other obligations or
restrictions binding upon it being a default
which would be material in the context of its
financial or trading position;
(b) in default under any obligations existing by
reason of membership of any association or
body;
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(c) liable in respect of any representation or
warranty (whether express or implied) or any
matter giving rise to a duty of care on its
part.
5.18.2 No threat or claim of default under any
agreement, obligation or arrangement has been
made and is outstanding against any Group
Company; and there is nothing whereby any
right, benefit or entitlement may be
prematurely terminated by any other party or
whereby the terms of any agreement, obligation
or arrangement may be worsened.
5.19 Other party's defaults
As far as the Warrantors are aware no party to any agreement with or under an
obligation to any Group Company is in default under it, being a default which
would be material in the context of the Group Company's financial or trading
position; and there are no circumstances likely to give rise to a default.
5.20 Outstanding offers
No offer, tender or the like is outstanding which may be converted into an
obligation of any Group Company by acceptance or other act of some other person.
5.21 Purchases and sales from or to one party
Neither more than 25 per cent of the aggregate amount of all the purchases, nor
more than 25 per cent of the aggregate amount of all the sales, of any Group
Company are obtained or made from or to the same supplier or customer (including
any person in any way connected with such supplier or customer) nor is any
material source of supply to any Group Company, or any material outlet for the
sales of any Group Company, in jeopardy or likely to be in jeopardy.
5.22 Guarantees and indemnities
No guarantee, or agreement for indemnity or for suretyship, given by or for the
accommodation of, a Group Company is outstanding.
5.23 Insider contracts
5.23.1 No contract or arrangement to which any Group
Company is a party and in which any Vendor or
any director of any Group Company is or has
been interested, whether directly or
indirectly, is outstanding or was outstanding
during the past three years.
5.23.2 No Group Company is a party to, and its profits
or financial position during the past three
years have not been affected by, any contract
or arrangement which is not of an entirely
arm's length nature.
5.24 Management reports
There have been no reports, concerning any Group Company, by financial or
management consultants during the past three years.
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6. Employment
6.1 Employees and terms of employment
6.1.1 Full particulars of the identities, dates of
commencement of employment, or appointment to
office, and terms and conditions of employment
of all the employees and officers of each Group
Company, including without limitation profit
sharing, commission or discretionary bonus
arrangements, are fully and accurately set out
in the Disclosure Letter.
6.1.2 There are no agreements or arrangements
(whether or not legally binding) between any
Group Company and any trade union or other body
representing employees.
6.1.3 No contract of service exists between any Group
Company and a director or employee in relation
to which any relevant requirements of CA s 319
have not been fulfilled.
6.2 Bonus schemes
6.2.1 There are no schemes in operation under which
any employee of any Group Company is entitled
to a commission or remuneration, calculated by
reference to the whole or part of the turnover,
profits or sales of any Group Company.
6.2.2 No Group Company has registered a
profit-related pay scheme under Taxes Act Part
V Chapter III.
6.3 Changes in remuneration
6.3.1 During the period to which the Principal
Accounts relate and since the Last Accounts
Date or (where employment or holding of office
commenced after the beginning of such period)
since the commencing date of the employment or
holding of office:
(a) no change has been made in the rate of
remuneration, emoluments or pension benefits,
of any officer, ex-officer or senior executive
of any Group Company (a senior executive being
a person in receipt of remuneration in excess
of (pound)25,000 per annum);
(b) no change has been made in any other terms of
employment of any officer or senior executive.
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6.3.2 No Group Company is bound or accustomed to pay
any moneys other than in respect of
remuneration or pension benefits to or for the
benefit of any officer or employee of any Group
Company.
6.3.3 No negotiations for any increase in the
remuneration or benefits of any officer or
employee of any Group Company are current or
likely to take place within six months after
the date of Completion.
6.4 Termination of contracts of employment
6.4.1 All subsisting contracts of service to which
any Group Company is a party are determinable
at any time on three months' notice or less
without compensation (other than compensation
in accordance with the Employment Protection
(Consolidation) Act 1978, as amended by the
Employment Act 1982).
6.4.2 No executive of any Group Company, who is in
receipt of remuneration in excess of
(pound)25,000 per annum, and no officer of any
Group Company has given or received notice
terminating his employment, except as expressly
contemplated in this agreement, and no such
executive or officer will be entitled to give
such notice as a result of this agreement.
6.5 Industrial disputes and negotiations
6.5.1 None of the Group Companies or their respective
employees is involved in any industrial
dispute, and there are no facts known or which
would on reasonable enquiry be known to any
Group Company or its directors or to the
Vendors which might suggest that there may be
any industrial dispute involving a Group
Company or that this agreement may lead to any
such industrial dispute.
6.6 Industrial relations agreements
No Group Company has entered into any recognition agreement with a trade union
nor has it done any act which might be construed as recognition.
6.7 Redundancies
No employee will become redundant and be entitled to a redundancy payment as a
result of this Agreement.
6.8 Pensions
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6.8.1 Apart from the pension scheme referred to in
Schedule 6 (`the Scheme') no Group Company is
under any legal or moral liability or
obligation or a party to any ex-gratia
arrangement or promise to pay pensions,
gratuities, super-annuation allowances or the
like, or otherwise to provide `relevant
benefits' within the meaning of Taxes Act s 612
to or for any of its past or present officers
or employees or their dependents; and there are
no retirement benefit, or pension or death
benefit, or similar schemes or arrangements in
relation to or binding on any Group Company or
to which any Group Company contributes.
6.8.2 Full particulars of the Scheme are contained in
or annexed to the Disclosure Letter including
without limitation true copies of the trust
deeds and latest actuarial report and full and
accurate details of the assets, funding
arrangements and current membership.
6.8.3 The assets, investments or policies held by the
trustees of the Scheme are sufficient to
satisfy the liabilities and obligations (both
current and contingent) which the Scheme has to
its members.
6.8.4 The Scheme is an exempt approved scheme within
the meaning of Taxes Act s 592 and there is no
reason why approval may be withdrawn.
7. Assets
7.1 Ownership of assets
7.1.1 The Group Companies owned at the Last Accounts
Date and had good and marketable title to all
the assets included in the Principal Accounts
and (except for current assets subsequently
sold or realized in the ordinary course of
business) still own and have good and
marketable title to all assets included in the
Principal Accounts (excluding the Properties)
and to all assets acquired since the Last
Accounts Date.
7.1.2 No Group Company has created or granted or
agreed to create or grant any security interest
or other encumbrance in respect of any of the
fixed assets included in the Principal Accounts
(excluding the Properties) or acquired or
agreed to be acquired since the Last Accounts
Date, otherwise than in the ordinary course of
its business.
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7.1.3 Except as disclosed in the Principal Accounts,
none of the property, assets, undertaking,
goodwill or uncalled capital of any Group
Company (excluding the Properties) is subject
to, and no Group Company has agreed to grant,
any option, charge, lien or encumbrance, or
right of pre-emption.
7.2 Assets sufficient for the business
The assets owned by each Group Company together with assets held under the hire
purchase, leasing or rental agreements listed in the Disclosure Letter comprise
all assets necessary for the continuation of its business substantially in the
same manner as now carried on.
7.3 Insurance
7.3.1 All the stock-in-trade and the assets and
undertakings of each Group Company of an
insurable nature (excluding the Property) are,
and have at all material times been, insured in
amounts representing their full replacement or
reinstatement value against fire and other
risks normally insured against by persons
carrying on the same business as that carried
on by it.
7.3.2 Each Group Company is now and has at all
material times been adequately covered against
accident, damage, injury, third party loss
(including product liability), loss of profits
and other risks normally insured against by
persons carrying on the same business.
7.3.3 All insurance is currently in full force and
effect, and nothing has been done or omitted to
be done which could make any policy of
insurance void or voidable and the Warrantors
have received no intimation from the insurers
that an increase of premium will result from
circumstances occurring prior to Completion.
7.3.4 None of the policies is subject to any special
or unusual terms or restrictions or to the
payment of any premium in excess of the normal
rate.
7.3.5 No claim is outstanding or may be made under
any of the policies and no circumstances exist
which are likely to give rise to such a claim.
7.4 Leased assets
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No circumstance has arisen or is likely to arise in relation to any asset held
by a Group Company under a lease or similar agreement whereby the rental payable
has been or is likely to be increased.
7.5 Plant in working order
7.5.1 The plant, machinery, vehicles and other
equipment used in connection with the business
of each Group Company:
(a) are in a good and safe state of repair and
condition and satisfactory working order and
have been regularly and properly maintained;
(b) are in its possession and control, and are its
absolute property, save for those items the
subject of the hire purchase, leasing or rental
agreements listed in the Disclosure Letter, or
in respect of which the outstanding payments do
not exceed (pound)2,500;
(c) are not expected to require replacements or
additions at a cost in excess of (pound)5,000
within the next six months;
(d) are all capable and (subject to normal wear and
tear) will remain capable throughout the
respective periods of time during which they
are each written down to a nil value in the
accounts of the Group Companies (in accordance
with normal recognized accountancy principles)
of doing the work for which they were designed
or purchased.
7.5.2 Maintenance contracts are in full force and
effect in respect of all assets of the Group
Companies which it is normal or prudent to have
maintained by independent or specialist
contractors and in respect of all assets which
any Group Company is obliged to maintain or
repair under any leasing or similar agreement;
and all those assets have been regularly
maintained to a good technical standard and in
accordance with safety regulations usually
observed in relation to assets of that
description and in accordance with the terms
and conditions of any applicable leasing or
similar agreement.
7.6 Industrial property rights and trade secrets
7.6.1 All Industrial Property Rights used or required
by any Group Company in connection with its
business are in full force and effect and are
vested in and beneficially owned by it.
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7.6.2 The Group Companies are the sole beneficial
owners of the Industrial Property Rights listed
in the Disclosure Letter and (where
registration is possible) a Group Company has
been and is registered as proprietor, and each
of those Rights is valid and enforceable, and
none of them is being used, claimed, opposed or
attached by any other person.
7.6.3 No right or license has been granted to any
person by any Group Company to use in any
manner or to do anything which would or might
otherwise infringe any of the Industrial
Property Rights referred to above; and no act
has been done or omission permitted by any
Group Company whereby they or any of them have
ceased or might cease to be valid and
enforceable.
7.6.4 The business of each Group Company (and of any
licensee under a license granted by any Group
Company) as now carried on does not and is not
likely to infringe any Industrial Property
Right of any other person (or would not do so
if the same were valid) or give rise to a
liability to pay compensation pursuant to the
Patents Act 1977 ss 40 and 41 and all licenses
to any Group Company in respect of any such
right are in full force and effect.
7.6.5 No Group Company has (otherwise than in the
ordinary and normal course of business)
disclosed or permitted to be disclosed or
undertaken or arranged to disclose to any
person other than the Purchaser any of its
know-how, trade secrets, confidential
information, price lists or lists of customers
or suppliers.
7.6.6 No Group Company is subject to any secrecy
agreement or agreement which may restrict the
use of disclosure of information.
7.6.7 Nothing has been done or omitted by any Group
Company which would enable any licensee under a
license granted by a Group Company to be
terminated or which in any way constitutes a
breach of the terms of any license.
8. Property
8.1 Title
8.1.1 The Property comprises the only property owned,
occupied or otherwise used in connection with
their businesses by the Group Companies. None
of the Group Companies has any liability
(whether actual or contingent) in respect of
any former property occupied by such Company.
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8.1.2 The Property is occupied or otherwise used by
the Group Companies in connection with their
businesses is occupied or used by right of
ownership or under lease or license, the terms
of which permit the occupation or use.
8.1.3 The Group Companies are the legal and
beneficial owners of the Property.
8.1.4 The information contained in Schedule 5 as to
the tenure of the Property, the principal terms
of the leases or licenses held by the Group
Companies, and the principal terms of the
tenancies and licenses subject to and with the
benefit of which the Property are held is
accurate in all respects.
8.1.5 The Group Companies have a good and marketable
title to the Property.
8.1.6 Any lease of the Property granted for more than
twenty-one years and less than forty years is
either registered at HM Land Registry or not
registered because the reversion to it was not
registered at the time of grant.
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8.2 Encumbrances
8.2.1 The Property is free from any mortgage,
debenture, charge, rent-charge, lien or any
other encumbrance securing the repayment of
monies or other obligation or liability of any
of the Group Companies or any other person.
8.2.2 The Property is not subject to any outgoings
other than business rates, water rates and
insurance premiums and in the case of leasehold
properties rent and service charges.
8.2.3 The Property is not subject to any restrictive
covenants, stipulations, easements, profits a
prendre, wayleaves, licenses, grants,
restrictions, overriding interests or other
similar rights vested in third parties save as
provided in the lease referred to in
Schedule 5.
8.2.4 Where any of the matters referred to in clauses
8.2.1, 8.2.2 and 8.2.3 have been disclosed in
the Disclosure Letter, the obligations and
liabilities imposed and arising under them have
been observed and performed in all material
respects and any payments in respect of them
due and payable have been duly paid and no
notices have been received specifying any
breach in respect thereof.
8.2.5 The Property is not subject to any option,
right of pre-emption or right of first refusal.
8.3 Planning matters
8.3.1 The use of the Property is the permitted use
for the purposes of the Planning Acts.
8.3.2 Planning permission has been obtained or is
deemed to have been granted for the purposes of
the Planning Acts with respect to the
development of the Property, no permission has
been suspended or called in and no application
for planning permission is awaiting decision.
8.3.3 Building regulation consents have been obtained
with respect to all development, alterations
and improvements to the Property.
8.3.4 The Group Companies have complied and are
complying in all material respects with:
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(a) planning permissions, orders, and regulations
issued under the Planning Acts, the London
Building Acts and building regulation consents
and by-laws for the time being in force with
respect to the Property;
(b) all agreements under the Town and Country
Planning Act 1971 s 52 made or planning
obligations under the Town and Country Planning
Act 1990 s 106 undertaken with respect to the
properties; and
(c) all agreements made under the Highways Act 1980
s 38 with respect to the Property and no notice
has been received by any Group Company that
such Company has contravened any such
regulation, permission, order or agreement or
is required to take any steps in order to
comply.
8.3.5 The Property is not listed as being of special
historic or architectural importance or located
in a conservation area.
8.3.6 All claims and liabilities under the Planning
Acts or any other legislation have been
discharged and the Warrantors are not aware of
any claim or liability, contingent or otherwise
which is outstanding.
8.4 Statutory obligations
8.4.1 As far as the Warrantors are aware, the Group
Companies have complied and are complying with
all applicable statutory and by-law
requirements with respect to the Property, and
in particular (but without limitation) with the
requirements as to fire precautions and under
the Public Health Acts and the Offices, Shops
and Railway Premises Act 1963.
8.4.2 There is no outstanding and unobserved or
unperformed obligation with respect to the
Property necessary to comply with the
requirements (whether formal or informal) of
any competent authority exercising statutory or
delegated powers.
8.4.3 No licenses are required whether under the
Licensing Act 1988 or otherwise in relation to
the Property.
8.5 Adverse orders
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8.5.1 There are no compulsory purchase notices,
orders or resolutions affecting any of the
Property and there are no circumstances likely
to lead to any being made.
8.5.2 There are no closing, demolition or clearance
orders, enforcement notices or stop notices
affecting the Property and there are no
circumstances likely to lead to any being made.
8.6 Condition of the property
8.6.1 The buildings and other structures on the
Property are in good and substantial repair and
fit for the purposes for which they are used.
8.6.2 There are no disputes with any neighboring
owner with respect to boundary walls and fences
or with respect to any easement or right over
or means of access to the Property.
8.6.3 The principal means of access to the Property
is over roads which have been taken over by the
local or other highway authority and which are
maintainable at the public expense and no means
of access to the Property is shared with any
other party nor subject to rights of
determination by any other party.
8.6.4 The Property enjoys the main services of water,
drainage, electricity and gas.
8.6.5 The Property is not located in an area or
subject to circumstances particularly
susceptible to flooding.
8.7 Insurance
8.7.1 The Property is insured for its full
reinstatement values for not less than two
years' loss of rent and against third party and
public liabilities to an adequate extent.
8.7.2 All premiums payable in respect of insurance
policies with respect to the Property which
have become due have been duly paid and no
circumstances have arisen which would vitiate
or permit the insurers to avoid the policies.
8.7.3 The information in the Disclosure Letter with
respect to the insurance policies is accurate
in all respects.
8.8 Leasehold property
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8.8.1 The relevant Group Company has paid the rent
and observed and performed the covenants on the
part of the tenant and the conditions contained
in any lease (which expressions in this clause
8.8 includes underleases) under which the
Property is held, in all material respects (and
no Group Company has received any notice of non
performance, payment or compliance in respect
of the same) and the last demand (or receipts
for rent if issued) were unqualified, and all
the leases are valid and in full force.
8.8.2 All licenses, consents and approvals required
from the landlords and any superior landlords
under any lease of the Property has been
obtained and the covenants on the part of the
tenant contained in the licenses, consents and
approvals have been duly performed and observed
in all material respects (and no Group Company
has received any notice of non performance,
payment or compliance in respect of the same).
8.8.3 There is no rent review under the lease of the
Property in progress.
8.8.4 No obligation necessary to comply with any
notice or other requirement given by the
landlord under any lease of the Property is
outstanding and unobserved or unperformed.
8.8.5 There is no obligation to reinstate the
Property by removing or dismantling any
alteration made to it by any Group Company or
any predecessor in title to the Group
Companies.
8.9 Tenancies
8.9.1 The Property is not held subject to and with
the benefit of any tenancies (which expression
in this clause 8.9 includes subtenancies) as
set out in Schedule 5 and no others.
8.10 Pollution
8.10.1 None of the Group Companies have permitted or
allowed any hazardous material (including but
not limited to "controlled waste" within the
meaning of Section 61 of the Environmental
Protection Act 1990 ("EPA") ("Hazardous
Material") to be kept on or at the Property,
the presence of which may require work to be
undertaken to restore the property or clean-up
under any applicable law whether on or off the
Premises or the presence of which causes or
threatens to cause nuisance (whether public or
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private) or which in an uncontained form may
cause pollution of the environment or harm to
human health or detriment to the amenities of
the locality or which is otherwise toxic,
explosive, corrosive, radio-active,
carcinogenic or mutagenic.
8.11 Aberdeen Exhibition and Conference Centre Limited ("AECCL")
8.11.1 Spearhead Exhibitions Limited is the registered
holder and beneficial owner of 28.8% of the
issued share capital of AECCL, free from any
charges, liens or encumbrances, and all of such
shares have been fully paid up. The Company has
not exercised any option to acquire any further
shares in AECCL, nor is it obliged to do so or
will it be obliged to do so with the passage of
time.
8.11.2 In accordance with any Articles of Association
or agreement existing between the shareholders
of AECCL, all consents have been obtained in
respect of the acquisition of the Shares
contemplated by this Agreement.
8.11.3 The Company has not given any guarantee nor
does it act as surety nor will it have any
liability or obligation in respect of or
relating to any liability or obligation
(whether future, actual or contingent) of AECCL
or as a shareholder or by virtue of being
construed as shadow director of AECCL.
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SCHEDULE 4
Deed of Indemnity
Date: 1995
Parties:
1 `The Covenantors': the persons whose names and
addresses are set out in the Schedule; and
2 `The Purchaser': PGI Acquisition Company E (a
Virginian Corporation) whose principle place of
business is at 2200 Wilson Boulevard, Suite
200, Arlington, Virginia 22201.
Recital:
This Deed is entered into pursuant to an agreement made between the Covenantors
(and others) and the Purchaser relating to the sale of all the ordinary share
capital of Spearhead Communications Limited (a company incorporated in England
and Wales under registered no. 3056668), whose registered office is at Ocean
House, 50 Kingston Road, New Malden, Surrey, KT3 3LZ ("the Company") ("the
Agreement").
Operative provisions:
1 Definitions
In this deed:
1.1 Words and expressions defined in the Agreement shall, except
where otherwise provided or expressly defined below, have the
same meaning in this Deed.
1.2 `TAXATION' means all forms of taxation, duties, imposts and
levies whatsoever and whenever imposed and whether of the
United Kingdom or elsewhere, and without prejudice to the
generality of that expression includes:
1.2.1 income tax, corporation tax, advance
corporation tax, capital gains tax, inheritance
tax, stamp duty, stamp duty reserve tax, rates,
value added tax, customs and other import
duties and national insurance contributions,
any payment whatsoever which the Company may be
or become bound to make to any person as a
result of any enactment relating to taxation
and any other taxes, duties or levies
supplementing or replacing any of the above;
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1.2.2 all costs, charges, interest, fines, penalties
and expenses incidental, or relating, to any
Taxation.
1.3 Where the context admits, `COMPANY' includes each Group
Company, so that this Deed shall apply to each Group Company as
if it were the Company, and the covenants given by the
Covenantors are expressly given to each Group Company and may
be enforced against the Covenantors by each and every Group
Company acting jointly or severally.
1.4 `RELIEF' includes any relief, allowance, exemption, set-off or
deduction in computing or against profits, income or gains of
any description or from any source, or credit against Taxation.
1.5 `LIABILITY TO TAXATION' means:
(a) any liability to make a payment in respect of
Taxation; and
(b) the use or set-off of any Relief in
circumstances where but for such use or set-
off, the Company would have had an actual
liability to tax in respect of which the
Purchaser would have been able to make a claim
against the Covenantors under this Deed (the
amount of the tax liability for these purposes
being deemed to be equal to the amount of that
actual liability to tax);
1.6 `CLAIM FOR TAXATION' includes any notice, demand, assessment,
letter or other document issues, or action taken, by or on
behalf of the Inland Revenue or Customs and Excise authorities
or any other statutory or governmental authority or body
whatsoever in any part of the world, whereby it appears that
the Company is subject to a liability to Taxation (whether or
not it is primarily payable by the Company and whether or not
the Company has or may have any right of reimbursement).
2 Indemnity
2.1 The Covenantors jointly and severally covenant with the
Purchaser (for itself and as trustee for its successors in
title) to pay the Purchaser an amount equivalent to:
2.1.1 any Liability to Taxation arising in respect
of, by reference to or in consequence of:
(a) any income profits or gains earned accrued or
received on or before Completion; and
(b) any event which occurs or occurred on or before
Completion;
2.1.2 any costs incurred by the Purchaser or the
Company in relation to any demands, actions,
proceedings and claims in respect of
Liabilities to Taxation or Claims for Taxation.
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2.2 In respect of any payment due from the Covenantors under clause
2.1 the Purchaser may if it is satisfied that it will be or has
been subject to a Liability to Taxation calculate and demand in
writing from the Covenantors from time to time such additional
amount as will ensure that the total amount paid by the
Covenants, less the tax chargeable on this amount, is equal to
the amount that would otherwise be payable under this Deed.
3 Exclusions
3.1 The indemnity in clause 2.1 shall not apply to any Liability to
Taxation or Claim for Taxation:
3.1.1 to the extent that an appropriate provision or
reserve was made in the Principal Accounts (as
such may have been modified or amended by the
Management Accounts); or
3.1.2 for which the Company is or may become liable
wholly or primarily as a result of transactions
in the ordinary course of its business after
the Last Accounts Date; or
3.1.3 to the extent that the Liability or Claim
arises as a result only of the appropriate
provision or reserve in the Principal Accounts
(as such may have been modified or amended by
the Management Accounts) being insufficient by
reason of any increase in rates of Taxation
made after the date of the Agreement with
retrospective effect or of any change in law
SSAPs, or FRSs which is announced and comes
into force after the date of this Agreement
with retrospective effect; or
3.1.4 to the extent that liability is excluded or
limited under the provisions of Schedule 7 to
the Agreement.
3.1.5 where the Liability to Taxation is suffered by
the Company in respect of a Liability to
Taxation of another Company and such latter
Liability to Taxation would not be or have been
subject to a claim under this Deed
3.1.6 to the extent that it has been made good or
otherwise compensated at no expense to the
Purchaser or the Company
3.1.7 which is attributable to the Company ceasing to
be entitled to the Small Companies' rate of
corporation tax
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3.1.8 to the extent that it would not have arisen but
for the fact that the treatment of any assets
or liabilities, or Taxation attributable to
timing differences in future accounts of the
Company, is different from the treatment in the
Principal Accounts, except where such
difference arises because the Company is
required by law or compliance with SSAPs to
alter its accounting policy
3.1.9 which would not have arisen but for a voluntary
act, omission or transaction of the Company or
the Purchaser carried out or occurring after
the date of this Deed otherwise than in the
normal course of business (unless pursuant to
an obligation incurred prior to the date of
this Deed or taking place with the approval of
all or any of the Covenantors) and which the
Purchaser or the Company was, or ought
reasonably to have been, aware could give rise
to a Liability to Taxation]
3.1.10 to the extent that it corresponds to an
increase in the value of the assets of any
other Company, resulting from a reduction in
its Liability to Taxation
3.1.11 where a Claim for Taxation would not have
arisen but for any change in the accounting
policy or practice of the Purchaser or the
Company introduced or having effect after the
Last Accounts Date except where such change in
accounting policy or practice is required by
law or compliance with SSAPs.
3.1.12 to the extent that the amount by which any
Liability to Taxation for which the Company is
or may be liable to be assessed or accountable
is reduced or extinguished as a result of the
matter giving rise to such claim
3.1.13 if the Purchaser or the Company fails after due
warning to comply with its obligations
contained in paragraph 5 hereof
4 Withholdings
4.1 All sums payable by the Covenantors under this Deed shall be
paid free and clear of all deductions or withholdings unless
the deduction or withholding is required by law, in which event
the Covenantors shall pay such additional amount as shall be
required to ensure that the net amount received by the
Purchaser under this Deed will equal the full amount which
would have been received, had no such deduction or withholding
been required to be made.
4.2 If the Covenantors are required to make any deduction or
withholding as contemplated in clause 4.1 above, they shall
deliver to the Purchaser within 30
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days after it has made such payment evidence reasonably
satisfactory to the Purchaser that such payment or deduction
has been made and has been or will be accounted for to the
relevant authorities.
4.3 Following receipt of the payment evidence referred to in clause
4.2 above, the Purchaser shall as soon as practicable apply for
any credit or repayment to which it may be entitled. Following
the receipt of any such credit or repayment by the Purchaser,
the Purchaser shall pay such amount to the Covenantors as shall
ensure that the Purchaser is in the same position after making
such payment as if no such deduction or withholding had been
made.
5 Conduct of claims
5.1 The Purchaser or the Company shall notify the Covenantors in
writing within not less than 5 working days of any Claim for
Taxation relevant for the purposes of this Deed, and shall
subject as herein provided take such action as the Covenantors
may reasonably request to dispute, resist appeal or defend the
Claim for Taxation. As soon as practicable after such request
the Purchaser and the Company shall be indemnified and secured
to its reasonable satisfaction by the Covenantors against all
losses, costs, damages, and expenses that are or may be thereby
incurred.
5.2 If the Covenantors do not request the Purchaser or the Company
to take any appropriate action within one month of the notice
to the Covenantors, the Purchaser or the Company shall be free
to satisfy or settle the relevant Claim for Taxation on such
terms as it may in its absolute discretion think fit.
5.3 Subject to Clause 5.2 the Purchaser and the Company shall
ensure that the Covenantors are placed in a position to dispute
on behalf of the Company, any claim for Taxation and shall
render, or cause to be rendered, to the Covenantors, at the
expense of the Covenantors such assistance as the Covenantors,
or a majority of them, may reasonably require in disputing any
Claim for Taxation.
5.4 Subject as aforesaid, the Covenantors shall be entitled on
behalf of the Company, to instruct such solicitors or other
professional advisors as the Covenantors, or a majority of
them, may nominate, to act on behalf of the Covenantors of the
Company to the intent that the conduct and costs and expenses
of the dispute shall be delegated entirely to and be borne
solely by the Covenantors.
5.5 The Company shall permit the Covenantors and their advisors to
have reasonable access to its records and the reasonable
assistance of its employees to enable the Covenantors to carry
out the conduct of disputes in accordance with the foregoing
provisions of this Clause.
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5.6 In connection with the conduct of any dispute relating to a
Claim for Taxation (to which Clause 5.1 applies):
5.6.1 each party shall keep the other parties hereto
fully informed of all relevant matters and the
Covenantors, the Purchaser or the Company as
the case may be, shall promptly forward, or
procure to be forwarded, to the Covenantors,
the Purchaser and the Company as the case may
be, copies of all correspondence and other
written communications pertaining to it;
5.6.2 the appointment of solicitors and other
professional advisors shall be subject to the
approval of the Purchaser and the Company,
which shall not be unreasonably withheld or
delayed;
5.6.3 the Covenantors shall make no settlement or
compromise of the dispute, nor agree any matter
in its conduct which is likely to affect the
amount of the resulting Liability to Taxation,
without the prior written approval of both the
Purchaser and the Company, which shall not be
unreasonably withheld or delayed;
5.6.4 if any dispute arises between the Purchaser or
the Company and the Covenantors as to whether
any Claim for Taxation or Liability to Taxation
should at any time be settled in full, or
contested in whole or in part, the dispute
shall be referred to the determination of a
senior tax counsel, of at least ten years,
standing, appointed by agreement between the
Purchaser, the Company and the Covenantors, or
(if they do not agree) upon the application by
any party to the President for the time being
of the Law Society, whose determination shall
be final. The counsel shall be asked to advise
whether, in his opinion, an appeal against the
Claim or Liability would, on the balance of
probabilities, be likely to succeed and as to
how the costs of the dispute should be
allocated between the Covenantors and the
Company. Only if his opinion is in the
affirmative shall an appeal be made and that
Claim or Liability not then settled. Any
further dispute arising between the
Covenantors, the Company and the Purchaser as
to whether any further appeal should be pursued
following determination of an earlier appeal
(whether or not in favour of the Company) shall
be resolved in a similar manner.
6 Dates for and quantum of payments
6.1 The Covenantors shall pay to the Purchaser any amounts payable
under this Deed on or before the date which is the later of the
date which is ten business
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days after demand is made therefore by or on behalf of the
claimant and the fifth business day before the first date on
which the tax becomes recoverable by the relevant tax
authority.
6.2 Where a claim under this Deed relates to the use or set-off of
any Relief, the Covenantors shall pay to the Purchaser the
amount due under this Deed in respect thereof on the later of
the date which is five business days before the first date on
which tax which would not have been payable but for such use or
set-off becomes recoverable by the relevant tax authority and
ten business days after demand is made therefor by or on behalf
of the claimant.
6.3 Any sum not paid by the Covenantors on the due date for payment
specified in this clause 5 shall bear interest (which shall
accrue from day to day after as well as before any judgement
for same) at the rate of 3 percent per annum over the base rate
of Midland Bank plc, from the due date to and including the day
of actual payment of such sum, compounded quarterly. Such
interest shall be paid on the demand of the Purchaser.
6.4 The Purchaser shall make a repayment to the Covenantors
(together with any interest paid by the relevant taxation
authority) to the extent that and on the date on which the
Company receives any repayment of any amount paid in respect of
any Liability to Taxation pursuant to clause 6.1. Any repayment
to the Covenantors pursuant to this clause 6.4 shall not
prejudice the right of the Purchaser to recover from the
Covenantors under this Deed in the event that a further
Liability to Taxation arises, whether in respect of matters to
which the repayment relates or otherwise.
6.5 For the purposes of Clause 6.4:
6.5.1 the Company shall be deemed to receive a
repayment on the date on which the Company
receives a repayment of Taxation or if and when
the Company would have received the repayment
but for a Liability to Taxation in respect of
which the Company is not entitled to be
indemnified under this Deed of if and when the
Company would have received the repayment had
the Liability to Taxation been discharged by a
payment of Taxation or if and when the Company
is able to obtain the benefit of the reduction
in its Liability to Taxation as a result of the
right to repayment;
6.5.2 The interest shall be deemed to have been paid
to the extent that any repayment is deemed to
have been received by the Company and where a
payment has been made by the Covenantors in
circumstances that no corresponding payment has
been made by the Company to the relevant
taxation authority the amount of interest shall
be deemed to be equal to the amount of interest
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which would have been earned on an equal amount
to the repayment, had it been placed on a 7 day
deposit with a clearing bank, for a period
commencing on the date which is the day after
which the payment was received by the Purchaser
from the Covenantors and ending on the day
which is 7 days before the Company receives the
payment.
6.6 Any dispute in relation to the provisions of clauses 6.2, 6.3,
6.4 or 6.5 may be referred, by the Purchaser, the Company or
the Covenantors, to the auditors for the time being of the
Company, acting as experts and not as arbitrators, whose
certificate shall be final and binding upon the parties in the
absence of manifest error.
7. Illegality
If at any time any provision under the Deed is or becomes
illegal, invalid or unenforceable in any respect under the law
of any jurisdiction, neither the legality, validity or
enforceability of the remaining provisions hereof nor the
legality, validity or enforceability of such provision under
the law of any other jurisdiction shall in any way be affected
or impaired thereby.
8. Assignment
The whole or any part of the benefit of this Deed may be
assigned by the Purchaser to the intent that the indemnity
given under this Deed shall ensure for the benefit of their
successors and assigns provided always that any such assignee
acknowledges acceptance of the limitations on the covenantor's
liability in respect of indemnity.
9. Counterparts
This Deed may be executed in any number of counterparts and by
the parties to and on separate counterparts, each of which,
when executed and delivered shall be an original but all the
counterparts together shall constitute one and the same
instrument.
10. General
10.1 The Company shall procure that each other Group Company
performs its obligations under this deed.
10.2 This deed shall be binding on the Covenantors and their
respective successors and personal representatives.
10.3 The provisions of the Agreement relating to notices shall apply
to any notice to be given under, or in connection with, this
Deed.
10.4 The construction, validity and performance of this deed shall
be governed by the laws of England.
IN WITNESS whereof this Deed has been executed the day and year first before
written.
EXECUTED as a DEED and )
delivered by )
David Charles Chapman Stott )
in the presence of:-
witness signature:
witness name:
witness address:
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EXECUTED as a DEED and )
delivered by )
Bryan Mervyn Weavers )
in the presence of:-
witness signature:
witness name:
witness address:
EXECUTED as a )
DEED and )
delivered by )
Christopher Philip Levelis Marke )
in the presence of:-
witness signature:
witness name:
witness address:
EXECUTED as a )
DEED and )
delivered by )
Robert David Munton )
in the presence of:-
witness signature:
witness name:
witness address:
EXECUTED as a )
DEED and )
delivered by )
Susan Patricia Crouch )
in the presence of:-
witness signature:
witness name:
witness address:
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EXECUTED as a DEED )
by PGI ACQUISITION )
COMPANY E and DELIVERED )
by (Officer) )
and (Officer) )
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THE SCHEDULE
Names and addresses of Covenantors
David Charles Chapman Stott, Ashleigh, 29 Ranelagh Avenue, London SW13 0BN;
Bryan Mervyn Weavers, Dragons, St Georges Lane, Hurstpierpoint, West Sussex;
Christopher Philip Levelis Marke, 7, Elm Tree Avenue, Esher, Surrey, KT10 8JG;
Robert David Munton of Cherry Tree Cottage, Horsham Road, Holmbury, St. Mary,
Dorking, Surrey; Susan Patricia Crouch of 14 Farm View, Tilt Road, Cobham,
Surrey KT11 3HL.
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SCHEDULE 5
Short particulars of the Property
Leasehold property and details of the lease
1 Description: Office premises at Ocean House, 50 Kingston Road,
New Malden, Surrey.
Whether registered: No, held under a lease dated 27th September
1994 and made between
1. Sovereign Countries Limited,
2. Spearhead Exhibition Limited and
3. Spearhead Communication Limited
Rent: 53,950 p.a. subject to a review on 29th September 1999
and five yearly thereafter
To whom payable: Lessor
Term: 20 years from 29th September 1994
Covenants: normal commercial lease
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SCHEDULE 6
Pension arrangements
1. Interpretation
In this Schedule, where the context admits:
1 `Company' means Spearhead Exhibitions Limited;
2 `Pension Scheme' means the retirement benefits scheme known as
The Spearhead Exhibitions Pension Funds which was established
by a Deed dated March 1, 1983 (or the trustees from time to
time of that scheme, as the context requires); and
3 `Relevant Employee' means any past or present employee or
officer of the Company or of any predecessor to all or part of
its business.
2. Warranties and Representations
The Warrantors hereby warrants and represents to and for the benefit of the
Purchaser as follows:
2.1 No Other Pension Arrangements
Save for the Pension Scheme the Company is not a party to nor participates in
nor contributes to any scheme, arrangement or agreement (whether legally
enforceable or not) for the provision of any pension, retirement, death,
incapacity, sickness, disability, accident or other like benefits (including the
payment of medical expenses) for any Relevant Employee or for the widow,
widower, child or dependant of any Relevant Employee.
2.2 No Assurances etc
Neither the Company nor any member of the Group:
2.2.1 has given any undertaking or assurance (whether
legally enforceable or not) to any Relevant
Employee or to any widow, widower, child or
dependant of any Relevant Employee as to the
continuance, introduction,improvement or
increase of any benefit of a kind described in
2.1 above; or
2.2.2 is paying or has in the last three years paid
any benefit of a kind described in 2.1 above to
any Relevant Employee or to any widow, widower,
child or dependant of any Relevant Employee.
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2.3 All Details Disclosed
All material details relating to the Pension Scheme have been disclosed and
include (without limitation) the following:
2.3.1 a true and complete copy of the deed or other
instrument by which the Pension Scheme was
established and all deeds and other instruments
supplemental thereto;
2.3.2 a true and complete copy of all announcements,
explanatory literature and the like of current
effect which have been issued to any Relevant
Employee in connection with the Pension Scheme;
2.3.3 a true and complete copy of the report on the
last actuarial valuation of the Pension Scheme
to be completed prior to the date of this
Agreement and of any subsequent written
recommendations of an actuarial nature;
2.3.4 a true and complete copy of the last audited
accounts of the Pension Scheme to be completed
prior to the date of this Agreement and details
of any material change in the investment policy
of the Pension Scheme since the date as at
which those accounts were made up;
2.3.5 a true and complete copy of all insurance
policies (if any) and annuity contracts (if
any) held for the purposes of the Pension
Scheme and details of any such policies and
contracts (if any) which the Pension Scheme has
agreed to effect;
2.3.6 a true and complete copy of the memorandum and
articles of association of any company which is
a trustee of the Pension Scheme and the names
and addresses of the directors and secretary of
that company;
2.3.7 the names and addressee of the trustees of the
Pension Scheme;
2.3.8 details of all amendments (if any) to the
Pension Scheme which have been announced or are
proposed but which have not yet been formally
made;
2.3.9 details of all discretionary increases (if any)
to pensions in payment or deferment under the
Pension Scheme which have been granted in the
ten years prior to the date of this Agreement
or which are under consideration;
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2.3.10 details of all discretionary practices (if any)
which may have led any person to expect
additional benefits in a given set of
circumstances (by way of example, but without
limitation, on retirement at the behest of the
Company or in the event of redundancy); and
2.3.11 details of the rate at which and basis upon
which the Company currently contributes to the
Pension Scheme, any change to that rate and/or
basis which is proposed or under consideration
and all contributions paid to the Pension
Scheme by the Company in the four years prior
to the date of this Agreement.
2.4 Benefits
All benefits which are not money purchase benefits and which are payable under
the Pension Scheme on the death of any person while in employment to which the
Pension Scheme relates are insured fully under a policy with an insurance
company of good repute and there are no grounds on which that company might
avoid liability under that policy. All other benefits payable under the Pension
Scheme are money purchase benefits. In this sub-clause 'money purchase benefits'
has the same meaning as in the Social Security Act 1986, section 84(1).
2.5 Augmentation
No power under the Pension Scheme has been exercised in relation to any Relevant
Employee or, since the date as at which the last actuarial valuation of the
Pension Scheme to be completed prior to the date of this Agreement was
undertaken, in respect of any other person:
2.5.1 to provide terms of membership of the Pension
Scheme (whether as to benefits or
contributions) which differ from those
generally applicable to the members of the
Pension Scheme; or
2.5.2 to provide any benefits which would not but for
the exercise of that power have been payable
under the Pension Scheme; or
2.5.3 to augment any benefits under the Pension
Scheme.
2.6 Contributions and Expenses
Contributions to the Pension Scheme are not paid in arrear and all contributions
and other amounts which have fallen due for payment have been paid punctually.
No fee, charge or expense relating to or in connection with the Pension Scheme
has been incurred but not paid. If any such fee, charge or expense has been paid
by any person other than the Pension Scheme the Pension Scheme has reimbursed
that person if and to the extent that the Pension Scheme is or may become liable
so to do.
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2.7 Company's Obligations
The Company:
2.7.1 has observed and performed those provisions of
the Pension Scheme which apply to it; and
2.7.2 may (without the consent of any person or
further payment) terminate its liability to
contribute to the Pension Scheme at any time
subject only to giving such notice (if any) as
is expressly provided for in the documentation
containing the current provisions governing the
Pension Scheme.
2.8 No Other Employer
The Company is the only employer for the time being participating in the Pension
Scheme. No other employer which has previously participated in the Pension
Scheme has any claim under the Pension Scheme and in respect of any such
employer the period of participation has been terminated and benefits have been
provided in accordance with the provisions of the Pension Scheme.
2.9 Administration
All documents and records in respect of the Pension Scheme are up to date and so
far as the Warrantors are aware complete and accurate in all respects.
2.10 Investments
None of the assets of the Pension Scheme:
2.10.1 is invested in or in any description of
employer-related investments (within the
meaning of the Social Security Act 1975,
section 57A); or
2.10.2 save for deposits with banks, building
societies and other financial institutions and
save for any instrument creating or
acknowledging an indebtedness listed on any
stock exchange of repute, is loaned to any
person or company; or
2.10.3 is subject to any encumbrance or agreement or
commitment to give or create any encumbrance.
2.11 No Payment to Employer
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No payment to which the Income and Corporation Taxes Act 1988, section 601,
applies has been made out of funds which are or have been held for the purposes
of the Pension Scheme.
2.12 Compliance
The Pension Scheme:
2.12.1 is an exempt approved scheme (within the
meaning of the Income and Corporation Taxes Act
1988, section 592);
2.12.2 has properly and punctually accounted to the
Inland Revenue for all and any tax for which
the Pension Scheme is liable or accountable;
2.12.3 is not liable to taxation on any income from or
capital gains on any of the funds which are or
have been held for the purposes of the Pension
Scheme; and
2.12.4 complies with and has at all times been
administered in accordance with all applicable
laws, regulations and requirements (including
those of the Board of Inland Revenue and of
trust laws.
2.13 Litigation
None of the Pension Scheme, the Company [or any member of the Vendor's group] is
engaged or involved in any proceedings which relate to or are in connection with
the Pension Scheme or the benefits thereunder and no such proceedings are
pending or threatened and so far as the Vendor is aware there are no facts
likely to give rise to any such proceedings. In this sub-clause 'proceedings'
includes any litigation or arbitration and also includes any investigation or
determination by the Pensions Ombudsman.
2.14 Indemnities
In relation to the Pension Scheme or the funds which are or have been held for
the purposes thereof neither the Company nor the trustees or administrator of
the Pension Scheme has given an indemnity or guarantee to any person (other than
in the case of the Company any general indemnity in favour of the trustees or
administrator under the documentation governing the Pension Scheme).
3 DAMAGES FOR BREACH OF PENSION WARRANTIES
In determining the damages flowing from any breach of Warranties contained in
clause 2, the Company shall be deemed to be under a liability:
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3.1 to provide and to continue to provide any benefit of a kind
referred to in that clause which is now provided or has been
announced or is proposed; and
3.2 to maintain and to continue to maintain (without benefits being
reduced) the Pension Scheme and any other arrangements of a
kind described in that clause which are now in existence or are
proposed and any discretionary practices of a kind referred to
in that clause which have hitherto been carried on.
4 POST COMPLETION
4.1 Following Completion the Purchaser will procure that the
Company (or any other subsidiary of the Purchaser which
replaces the Company as principal employer for the purposes of
the Scheme) will not cause any of the Scheme trustees to be
removed pursuant to the powers conferred on it by Clause 16(2)
of the definitive Trust Deed dated 1st March, 1983 and that no
part of the Fund (as defined by the Scheme rules) is used or
applied by way of a loan.
4.2 The Articles of Association of the Company shall be amended
following Completion to provide that the unanimous vote of all
the directors for the time being of the Company is required
prior to any contributions to the Pension Scheme being made by
the Company.
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SCHEDULE 7
Warrantors'/Covenantors' protection provisions
(1) The liability of the Warrantors in relation to the Warranties
shall cease on the second anniversary of the date of this
Agreement and the liability of the Covenantors in relation to
the Deed of Indemnity shall cease on the seventh anniversary of
the date of this Agreement, save as regards any alleged
specific breach of which notice in writing (containing details
of the event or circumstance giving rise to the breach, the
basis upon which the Purchaser is making a claim against the
Warrantors/Covenantors (as the case may be) and the total
amount of liability which results) has been given to the
Warrantors/Covenantors (as the case may be) prior to that
anniversary.
(2) The Warrantors/Covenantors shall not be liable for any Warranty
Claim unless their aggregate liability in respect of all
Warranty Claims (or what would be their liability apart from
this paragraph) exceeds(pound)20,000, in which case the
Purchaser shall be entitled to claim the whole of any such
claims (and not just the excess).
(3) The total liability of the Warrantors/Covenantors under
Warranty Claims shall not in any event exceed(pound)5,400,000.
To the extent that it is able to do so, the Purchaser shall
exercise its right of set-off against the Loan Notes in respect
of any Warranty Claim prior to demanding payment in respect of
such Warranty Claim against the Warrantors/Covenantors (as the
case may be).
(4) The Purchaser warrants to the Warrantors/Covenantors that it is
acquiring the shares as capital assets and not as trading
stock.
(5) The Purchaser shall indemnify the Warrantors/Covenantors
against any liability to taxation arising under any of Section
191 of the Taxation of Chargeable Gains Act 1992, Section 132
of the Finance Act 1988 and Section 767A of the Taxes Act and
all connected costs, damages or expenses incurred by them or
any of them.
(6) The Purchaser shall indemnify the Vendors against any loss or
depreciation in the benefits derived or to be derived by any
one or more of the Vendors under the Pension Scheme by virtue
of such scheme ceasing to be an exempt approved scheme within
the meaning of Section 592(1) of the Taxes Act or by virtue of
Sub-sections 8(A) to 8(D) (both inclusive) of Section 592 of
the Taxes Act applying to the Pension Scheme where such loss or
depreciation occurs solely by reason of an act done by the
Company or the Purchaser.
(7) The Purchaser will not so long as any of paragraphs (3) to (6)
(inclusive) of this Schedule are applicable or capable of
taking effect cease to control any Group Company without
procuring from the person acquiring control an undertaking in
favour of the Vendors, the Warrantors and the Covenantors (as
appropriate) to be bound by such provisions so far as they
affect that Group Company, to same extent as the Purchaser is
bound.
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EXHIBIT 10.17
PRODUCTION GROUP INTERNATIONAL, INC.
SERIES D PREFERRED
STOCK PURCHASE AGREEMENT
February 10, 1995
<PAGE>
TABLE OF CONTENTS
-----------------
Page
----
1. Purchase and Sale of Stock.......................................... 1
1.1 Sale and Issuance of Series D Preferred Stock................. 1
1.2 Closing....................................................... 1
1.3 Subsequent Closing of Series D Preferred Stock................ 1
2. Representations and Warranties of the Company....................... 2
2.1 Organization, Good Standing and Qualification................. 2
2.2 Capitalization and Voting Rights.............................. 2
2.3 Subsidiaries.................................................. 3
2.4 Authorization................................................. 3
2.5 Valid Issuance of Preferred and Common Stock.................. 3
2.6 Governmental Consents......................................... 4
2.7 Litigation.................................................... 4
2.8 Confidentiality Agreement..................................... 5
2.9 Patents and Trademarks........................................ 5
2.10 Compliance with Other Instruments............................. 5
2.11 Agreements; Action............................................ 6
2.12 Disclosure.................................................... 7
2.13 Business Projections.......................................... 7
2.14 Registration Rights........................................... 7
2.15 Corporate Documents........................................... 7
2.16 Title to Property and Assets.................................. 8
2.17 Financial Statements.......................................... 8
2.18 Changes....................................................... 8
2.19 Employee Benefit Plans........................................ 9
2.20 Tax Returns, Payments and Elections........................... 9
2.21 Insurance..................................................... 9
2.22 Minute Books.................................................. 10
2.23 Labor Agreements and Actions.................................. 10
3. Representations, Warranties and Covenants of the Investors.......... 10
3.1 Authorization................................................. 10
3.2 Purchase Entirely for Own Account............................. 10
3.3 Disclosure of Information..................................... 11
3.4 Investment Experience......................................... 11
3.5 Accredited Investor........................................... 11
3.6 Restricted Securities......................................... 11
3.7 Further Limitations on Disposition............................ 11
3.8 Legends....................................................... 12
3.9 Consents...................................................... 12
i.
<PAGE>
3.10 Litigation................................................... 12
3.11 Compliance with Other Instruments............................ 12
4. California Commissioner of Corporations............................ 13
4.1 Corporate Securities Law..................................... 13
5. Conditions of Investor's Obligations at Closing.................... 13
5.1 Representations and Warranties............................... 13
5.2 Performance.................................................. 13
5.3 Compliance Certificate....................................... 13
5.4 Qualifications............................................... 13
5.5 Proceedings and Documents.................................... 13
5.6 Board of Directors........................................... 14
5.7 Opinion of Company Counsel................................... 14
5.8 Stockholder Voting Agreement................................. 14
5.9 Investors' Rights Agreement.................................. 14
5.10 Restated Articles............................................ 14
5.11 Amendment of Bylaws.......................................... 14
5.12 Management Rights Letter..................................... 14
5.13 Indemnification Agreements................................... 14
6. Conditions of the Company's Obligations at Closing................ 14
6.1 Representations and Warranties............................... 14
6.2 Payment of Purchase Price.................................... 15
6.3 Performance.................................................. 15
6.4 Restated Articles............................................ 15
6.5 Stockholder Voting Agreement................................. 15
6.6 Investors' Rights Agreement.................................. 15
7. Miscellaneous...................................................... 15
7.1 Survival of Warranties....................................... 15
7.2 Benefit of Agreement; Successors and Assigns................. 15
7.3 Governing Law................................................ 15
7.4 Counterparts................................................. 15
7.5 Titles and Subtitles......................................... 16
7.6 Notices...................................................... 16
7.7 Finder's Fee................................................. 16
7.8 Expenses..................................................... 16
7.9 Amendments and Waivers....................................... 16
7.10 Severability................................................. 17
7.11 Aggregation of Stock......................................... 17
7.12 Complete Agreement........................................... 17
ii.
<PAGE>
SCHEDULE A - Schedule of Investors
SCHEDULE B - Schedule of Current Securityholders
SCHEDULE C - Schedule of Exceptions
EXHIBIT A - Restated Articles of Incorporation
EXHIBIT B - First Restated Investors' Rights Agreement
EXHIBIT C - First Restated Stockholder Voting Agreement
EXHIBIT D - Investors Voting Agreement
EXHIBIT E - Opinion of Counsel for the Company
iii.
<PAGE>
SERIES D PREFERRED STOCK PURCHASE AGREEMENT
-------------------------------------------
THIS SERIES D PREFERRED STOCK PURCHASE AGREEMENT is made as of the 10th day
of February, 1995, by and among Production Group International, Inc., a Virginia
corporation (the "Company"), and the investors listed on Schedule A hereto, each
of which is herein referred to as an "Investor", and collectively shall be
hereinafter referred to as the "Investors".
THE PARTIES HEREBY AGREE AS FOLLOWS:
1. Purchase and Sale of Stock.
--------------------------
1.1 Sale and Issuance of Series D Preferred Stock.
---------------------------------------------
(a) The Company shall adopt and file with the Virginia State Corporation
Commission on or before the Closing (as defined below) the Restated Articles of
Incorporation in the form attached hereto as Exhibit A (the "Restated
---------
Articles").
(b) Subject to the terms and conditions of this Agreement, each Investor
agrees, severally, to purchase at the Closing and the Company agrees to sell and
issue to each Investor at the Closing that number of shares of the Company's
Series D Preferred Stock set forth opposite each Investor's name on Schedule A
----------
hereto for the purchase price set forth thereon.
1.2 Closing. The purchase and sale of the Series D Preferred Stock
-------
shall take place at the offices of Morgan, Lewis & Bockius, 1800 M Street, N.W.,
Washington, D.C., at 9:00 a.m., on February 10, 1995, or at such other time and
place as the Company and Investors acquiring in the aggregate more than half the
shares of Series D Preferred Stock sold pursuant hereto mutually agree upon
orally or in writing (which time and place are designated as the "Closing"). At
the Closing the Company shall deliver to each Investor a certificate
representing the Series D Preferred Stock that such Investor is purchasing
against payment of the purchase price therefor by check or wire transfer.
1.3 Subsequent Closing of Series D Preferred Stock. Notwithstanding the
----------------------------------------------
provisions of Section 1.1(b) and Section 1.2 above, with respect to the shares
of Series D Preferred Stock being purchased by Trident Capital Partners Fund-I,
L.P. and Trident Capital Partners Fund-I, C.V. (collectively, the "Trident
Investors"), the Closing shall take place with respect to 119,264 and 23,593
shares, respectively, and the closing of the remaining 59,632 and 11,796 shares,
respectively shall occur upon delivery of the funds thereto to the Company;
provided, that such delivery of funds occur on or before
<PAGE>
February 17, 1995, provided further, that there are no conditions to the
obligations of the Trident Investors or the Company with respect to such
subsequent closing.
2. Representations and Warranties of the Company.
---------------------------------------------
The Company hereby represents and warrants to each Investor that, except as set
forth on a Schedule of Exceptions furnished each Investor and special counsel to
the Investors (the "Schedule of Exceptions"), which exceptions shall be deemed
to be representations and warranties as if made hereunder:
2.1 Organization, Good Standing and Qualification. The Company is a
---------------------------------------------
corporation duly organized, validly existing and in good standing under the laws
of the Commonwealth of Virginia and has all requisite corporate power and
corporate authority to carry on its business as now conducted. The Company is
duly qualified to transact business and is in good standing in each jurisdiction
in which the failure so to qualify would have a material adverse effect on its
business or properties.
2.2 Capitalization and Voting Rights. The authorized capital of the
--------------------------------
Company consists or will consist prior to the Closing of:
(a) Preferred Stock. 3,950,000 shares of Preferred Stock, without
---------------
par value, (the "Preferred Stock"), 600,000 shares have been designated Series A
Preferred Stock all of which are issued and outstanding, 400,000 shares of which
have been designated Series B Preferred Stock, none of which is issued and
outstanding, 1,350,000 shares have been designated Series C Preferred Stock,
1,270,151 shares of which are issued and outstanding and 1,600,000 shares have
been designated Series D Preferred Stock, up to 1,574,997 of which may be sold
pursuant to this Agreement. The outstanding shares of Series A Preferred Stock
and Series C Preferred Stock are owned by the persons and in the numbers
specified in Schedule B hereto. The rights, privileges and preferences of the
----------
Preferred Stock are, or as of the Closing will be, as stated in the Restated
Articles.
(b) Common Stock. 10,000,000 shares of Common Stock, without par
------------
value, (the "Common Stock"), of which 550,000 shares are issued and outstanding
and are owned by Mark N. Sirangelo, 3,950,000 shares of which are reserved for
issuance upon conversion of the Preferred Stock and a total of 711,000 shares
are reserved for issuance upon exercise of currently existing options and
options not yet granted.
(c) Except for (A) the conversion privileges of the Company's Series
A Preferred Stock, (B) the conversion privileges of the Company's Series B
preferred Stock, (C) the conversion privileges of the Company's Series C
Preferred Stock, (D) the conversion privileges of the Series D Preferred Stock
to be issued under this Agreement, (E) the rights provided in Sections 2.6 of
the First Restated Investors' Rights Agreement attached hereto as Exhibit B (the
---------
"Investors' Rights Agreement"), (F)
2.
<PAGE>
a total of 711,000 shares issuable upon exercise of currently outstanding
options and options not yet granted or issued or reserved for issuance to
employees, directors and consultants of the Company, there are not outstanding
any options, warrants, rights (including conversion or preemptive rights) or
agreements for the purchase or acquisition from the Company of any shares of its
capital stock. The Company is not a party or subject to any agreement or
understanding, and, to the Company's knowledge, except for the First Restated
Stockholder Voting Agreement attached hereto as Exhibit C (the "Stockholder
---------
Voting Agreement"), and that certain Investors Voting Agreement between the
Investors and Mr. Mark N. Sirangelo concerning certain corporate transactions of
even date herewith (the "Investors Voting Agreement") in the form attached
hereto as Exhibit D, there is no agreement or understanding between any persons
---------
and/or entities, which affects or relates to the voting or giving of written
consents with respect to any security or by a director of the Company.
2.3 Subsidiaries. The Company does not presently own or control,
------------
directly or indirectly, any interest in any other corporation, association, or
other business entity.
2.4 Authorization. All corporate action on the part of the Company, its
-------------
officers, directors and stockholders necessary for the authorization, execution
and delivery of this Agreement, the Investors' Rights Agreement and the
Stockholder Voting Agreement, the performance of all obligations of the Company
hereunder and thereunder and the authorization, issuance (or reservation for
issuance) and delivery of the Series D Preferred Stock and the Common Stock
issuable upon conversion of the Series D Preferred Stock (collectively, the
"Securities") have been taken or will be taken prior to the Closing, and each of
this Agreement, the Investors' Rights Agreement, and the Stockholder Voting
Agreement has been duly authorized, executed and delivered by the Company and it
constitutes a valid and legally binding obligation of the Company, enforceable
in accordance with its terms, subject to bankruptcy and other laws of general
application affecting the rights of creditors, and except to the extent that the
availability of any equitable remedy is subject to the discretion of a court,
and except insofar as the enforceability of the indemnification provisions of
Section 1.9 of the Investors' Rights Agreement may be limited by applicable laws
and public policy.
2.5 Valid Issuance of Preferred and Common Stock.
--------------------------------------------
(a) The shares of Series D Preferred Stock which are being purchased
by the Investors hereunder, when issued, sold and delivered in accordance with
the terms hereof for the consideration expressed herein, will be duly and
validly issued, fully paid and nonassessable and, based in part upon the
representations of the Investors in this Agreement, will be issued in compliance
with all applicable securities laws as presently in effect, of the United States
and each of the states whose securities laws govern the issuance of any of the
Series D Preferred Stock hereunder. The Common Stock issuable upon conversion
of the Series D Preferred Stock has been duly
3.
<PAGE>
and validly reserved for issuance and, upon issuance in accordance with the
terms of the Restated Articles, will be duly and validly issued, fully paid and
nonassessable, and assuming the representations of the Investors in this
Agreement continue to be true and correct as of the date of such conversion or
exercise, issued in compliance with all applicable securities laws, as presently
in effect, of the United States and each of the states whose securities laws
govern the issuance of any of the Series D Preferred Stock hereunder.
(b) The outstanding shares of Series A Preferred Stock, Series C
Preferred Stock, and Common Stock are all duly and validly authorized and
issued, fully paid and nonassessable, and were issued in compliance with all
applicable securities laws as presently in effect, of the United States and each
of the states whose securities laws govern the issuance of any of the Series A
Preferred Stock, Series C Preferred Stock and the Common Stock.
2.6 Governmental Consents. No consent, approval, order or authorization
---------------------
of, or registration, qualification, designation, declaration or filing with, any
federal, state or, local governmental authority on the part of the Company is
required in connection with the consummation of the transactions contemplated by
this Agreement, the Investors' Rights Agreement or the Stockholder Voting
Agreement, except for those already filed and except for the filing pursuant to
Section 25102(f) of the California Corporate Securities Law of 1968, as amended,
and the rules thereunder, and any other required state securities law filings
that may be filed after the Closing, which filings will be effected within
fifteen (15) days of the sale of the Series D Preferred Stock.
2.7 Litigation. There is no action, suit, proceeding or investigation
----------
pending or, to the Company's knowledge, currently threatened against the Company
which questions the validity of this Agreement, the Investors' Rights Agreement,
the Stockholder Voting Agreement, or the right of the Company to enter into
them, or to consummate the transactions contemplated hereby or thereby, or which
might result, either individually or in the aggregate, in any material adverse
change in the assets, condition or affairs of the Company (financially or
otherwise) as presently conducted or proposed to be conducted, or any change in
the current equity ownership of the Company, nor is the Company aware of any
facts which would serve as the basis for any litigation which is likely to
result in a judgment against the Company which would have a material adverse
effect on the assets, condition or affairs of the Company, financially or
otherwise. The foregoing includes, without limitation, actions pending or
threatened (or any fact which would serve as the basis for any such action which
is likely to result in such a judgement against the Company) involving the prior
employment of any of the Company's employees, their use in connection with the
Company's business of any information or techniques allegedly proprietary to any
of their former employers, or their obligations under any agreements with prior
employers. The Company is not a party or subject to the provisions of any
order, writ, injunction, judgment or decree of any court
4.
<PAGE>
or government agency or instrumentality. There is no action, suit, proceeding
or investigation by the Company currently pending or which the Company intends
to initiate.
2.8 Confidentiality Agreement. Each employee and officer of the Company
-------------------------
has executed a Confidentiality Agreement in substantially the form provided to
special counsel to the Investors. The Company, after reasonable investigation,
is not aware that any of its employees or officers are in violation thereof.
Neither the execution nor delivery of this Agreement, the Investors' Rights
Agreement or the Stockholder Voting Agreement, nor the carrying on of the
Company's business by the employees of the Company, nor the conduct of the
Company's business as proposed to be conducted, will, to the Company's
knowledge, conflict with or result in a breach of the terms, conditions or
provisions of, or constitute a default under, any contract, covenant or
instrument under which any of such employees is now obligated.
2.9 Patents and Trademarks. The Company has sufficient title and
----------------------
interest in and to all patents, trademarks, service marks, trade names,
copyrights, trade secrets, information, proprietary rights and processes
necessary for its business as now conducted and as proposed to be conducted
without any conflict with or infringement of the rights of others. The Schedule
of Exceptions contains a complete list of patents and pending patent
applications of the Company. The Company is not aware of any patents,
trademarks, service marks, trade names, copyrights, trade secrets, information,
proprietary rights and processes for which it would need to obtain title and
interest in and to for its business as now conducted and as proposed to be
conducted. There are no outstanding options, licenses, or agreements of any
kind relating to the foregoing, nor is the Company bound by or a party to any
options, licenses or agreements of any kind with respect to the patents,
trademarks, service marks, trade names, copyrights, trade secrets, licenses,
information, proprietary rights and processes of any other person or entity.
The Company has not received any communications alleging that the Company has
violated or, by conducting its business as proposed to be conducted in the
Business Plan, would violate any of the patents, trademarks, service marks,
trade names, copyrights or trade secrets or other proprietary rights of any
other person or entity. The Company is not aware that any of its employees is
obligated under any contract (including licenses, covenants or commitments of
any nature) or other agreement, or subject to any judgment, decree or order of
any court or administrative agency, that would interfere with the use of his or
her best efforts to promote the interests of the Company or that would conflict
with the Company's business as proposed to be conducted.
2.10 Compliance with Other Instruments. The Company is not in violation
---------------------------------
or default in any material respect of any provision of the Restated Articles or
its Amended and Restated Bylaws, or in any material respect of any instrument,
judgment, order, writ, decree or contract to which it is a party or by which it
is bound, or, to its knowledge, of any provision of any federal or state
statute, rule or regulation applicable to the Company. The execution, delivery
and performance of this Agreement,
5.
<PAGE>
the Investors' Rights Agreement and the Stockholder Voting Agreement, and the
consummation of the transactions contemplated hereby or thereby will not result
in any such violation or be in conflict with or constitute, with or without the
passage of time and giving of notice, either such a default under any such
provision, instrument, judgment, order, writ, decree or contract or be an event
that results in the creation of any lien, charge or encumbrance upon any assets
of the Company or the suspension, revocation, impairment, forfeiture, or
nonrenewal of any material permit, license, authorization, or approval
applicable to the Company, its business or operations or any of its assets or
properties.
2.11 Agreements; Action.
------------------
(a) Except for agreements explicitly contemplated by this Agreement,
the Investors' Rights Agreement, the Stockholder Voting Agreement or the
Investors Voting Agreement, there are no agreements, understandings or proposed
transactions between the Company and any of its officers, directors, affiliates,
or any affiliate thereof.
(b) Except for agreements explicitly contemplated by this Agreement or
the Investors' Rights Agreement, there are no agreements, understandings,
instruments, contracts, or proposed transactions, to which the Company is a
party or by which it is bound outside the normal course of business, which may
involve obligations (contingent or otherwise) of, or payments to the Company in
excess of, $100,000.
(c) The Company has not (i) declared or paid any dividends, or
authorized or made any distribution upon or with respect to any class or series
of its capital stock, (ii) incurred any indebtedness for money borrowed or any
other liabilities individually in excess of $100,000 or, in the case of
indebtedness and/or liabilities individually less than $100,000, in excess of
$250,000 in the aggregate, (iii) made any loans or advances to any person, other
than ordinary advances for travel expenses, or (iv) sold, exchanged or otherwise
disposed of any of its material assets or rights.
(d) For the purposes of subsections (b) and (c) above, all
indebtedness, liabilities, agreements, understandings, instruments, contracts
and proposed transactions involving the same person or entity (including persons
or entities the Company has reason to believe are affiliated therewith) shall be
aggregated for the purpose of meeting the individual minimum dollar amounts of
such subsections.
(e) Since November 30, 1994, the Company has not received notice that
there has been a cancellation of one or more orders for the Company's services
or a loss of one or more customers of the Company, the cancellation or loss of
which in the aggregate would result in the loss of an amount equal to or greater
than 1% of the Company's revenues for the fiscal year ended November 30, 1994.
The Company is not aware of any facts or circumstances that would lead it to
reasonably believe that
6.
<PAGE>
there will be a cancellation of one or more orders for the Company's services or
a loss of one or more customers of the Company, the cancellation or loss of
which in the aggregate would materially adversely affect the business and
prospects of the Company.
(f) The Company is not a party to and is not bound by any contract,
agreement or instrument, or subject to any restriction under the Restated
Articles or its Amended and Restated Bylaws, which materially adversely affects
its business as now conducted or as proposed to be conducted, its properties or
its financial condition.
(g) With the exception of discussions with the Investors, the Company
has not engaged in the past three (3) months in any discussion (i) with any
representative of any corporation or corporations regarding the consolidation or
merger of the Company with or into any such corporation or corporations, (ii)
with any corporation, partnership, association or other business entity or any
individual regarding the sale, conveyance or disposition of all or substantially
all of the assets of the Company or a transaction or series of related
transactions in which more than fifty percent (50%) of the voting power of the
Company is disposed of, or (iii) regarding any other form of acquisition,
liquidation, dissolution or winding up of the Company.
2.12 Disclosure. The Company has fully provided each Investor with all
----------
the information which such Investor has requested for deciding whether to
purchase the Series D Preferred Stock and has answered all questions posed by
such Investors. Neither this Agreement, the Investors' Rights Agreement, the
Stockholder Voting Agreement, nor any other written statements or certificates
delivered in connection herewith or therewith contains any untrue statement of a
material fact or omits to state a material fact necessary to make the statements
herein or therein not misleading.
2.13 Business Projections. The business projections of the Company
--------------------
delivered to the Investors were prepared in good faith by the Company and the
Company reasonably believes that as of the date of delivery of such projections,
there was a reasonable basis for such projections. It is acknowledged that such
shall not be regarded as guarantees or assurances with respect to such matters.
2.14 Registration Rights. Except as provided in the Investors' Rights
-------------------
Agreement, the Company has not granted or agreed to grant any registration
rights, including piggyback rights, to any person or entity.
2.15 Corporate Documents. Except for amendments necessary to satisfy
-------------------
representations and warranties or conditions contained herein (the form of which
amendments has been approved by the Investors), the Restated Articles and the
Amended and Restated Bylaws of the Company are in the form previously provided
to special counsel for the Investors.
7.
<PAGE>
2.16 Title to Property and Assets. The Company owns the property and
----------------------------
assets that it purports to own in the Financial Statements (as defined in
Section 2.17 below) free and clear of all mortgages, liens, loans and
encumbrances, except such encumbrances and liens which arise in the ordinary
course of business and do not materially impair the Company's ownership or use
of such property or assets. With respect to the property and assets it leases,
the Company is in material compliance with such leases and, to the best of its
knowledge, holds a valid leasehold interest free of any liens, claims or
encumbrances. All of the Company's personal properties, whether owned or
leased, are in good operating condition (normal wear and tear excepted) and are
adequate and suitable for the purposes for which they are currently being used.
2.17 Financial Statements. The Company has delivered to each Investor
--------------------
its audited financial statements (balance sheet and profit and loss statement)
at November 30, 1993 and for the fiscal year then ended and for the period from
inception to such date and its unaudited financial statements at November 30,
1994 for the fiscal year then ended (collectively, the "Financial Statements").
The Financial Statements have been prepared in accordance with generally
accepted accounting principles applied on a consistent basis throughout the
periods indicated and with each other, except that unaudited Financial
Statements may not contain all footnotes required by generally accepted
accounting principles. The Financial Statements accurately set out and describe
in all material respects the financial condition and operating results of the
Company as of the dates, and for the periods, indicated therein, subject in the
case of unaudited Financial Statements to normal year-end audit adjustments.
Except as set forth in the Financial Statements, the Company has no liabilities,
contingent or otherwise, other than (i) liabilities incurred in the ordinary
course of business subsequent to November 30, 1994 and (ii) obligations under
contracts and commitments incurred in the ordinary course of business, which, in
both cases, individually or in the aggregate, are not material to the financial
condition or operating results of the Company. The Company maintains and will
continue to maintain a standard system of accounting established and
administered in accordance with generally accepted accounting principles.
2.18 Changes. Since November 30, 1994 there has not been:
-------
(a) any change in the assets, liabilities, financial condition or
operating results of the Company from that reflected in the Financial
Statements, except changes in the ordinary course of business which have not
been, in the aggregate, materially adverse;
(b) any damage, destruction or loss, whether or not covered by
insurance, materially and adversely affecting the assets, properties, financial
condition, operating results or business of the Company (as such business is
presently conducted and as it is proposed to be conducted);
8.
<PAGE>
(c) any waiver by the Company of a valuable right or of a material
debt owed to it;
(d) any satisfaction or discharge of any lien, claim or encumbrance or
payment of any obligation by the Company, except in the ordinary course of
business and which is not material to the assets, properties, financial
condition, operating results or business of the Company (as such business is
presently conducted and as it is proposed to be conducted);
(e) any change or amendment to a material contract or arrangement by
which the Company or any of its assets or properties is bound or subject, which
would have a material adverse effect on the Company or its business;
(f) any change in any compensation arrangement or agreement with any
officer; or
(g) to the Company's knowledge, any other event or condition of any
character which might materially and adversely affect the assets, properties,
financial condition, operating results or business of the Company (as such
business is presently conducted and as it is proposed to be conducted).
2.19 Employee Benefit Plans. The Company does not have any Employee
----------------------
Benefit Plan as defined in the Employee Retirement Income Security Act of 1974
("ERISA").
2.20 Tax Returns, Payments and Elections. The Company has filed all tax
-----------------------------------
returns and reports as required by law. To the Company's knowledge these
returns and reports are true and correct in all material respects. The Company
has paid all taxes and other assessments due, except those contested by it in
good faith which are listed in the Schedule of Exceptions. The Company has not
elected pursuant to the Internal Revenue Code of 1986, as amended (the "Code"),
to be treated as a collapsible corporation pursuant to Section 1362(a) of the
Code, nor has it made any other elections pursuant to the Code (other than
elections which relate solely to methods of accounting, depreciation or
amortization) which would have a materially adverse effect on the Company, its
financial condition, its business as presently conducted or proposed to be
conducted or any of its properties or material assets.
2.21 Insurance. The Company has in full force and effect fire and
---------
casualty insurance policies, with extended coverage, sufficient in amount
(subject to reasonable deductibles) to allow it to replace any of its properties
that might be damaged or destroyed. The Company also has in full force and
effect general liability insurance and insurance covering all rights customarily
insured against by businesses that are similarly situated.
9.
<PAGE>
2.22 Minute Books. The minute books of the Company provided to the
------------
Investors contain a complete summary of all meetings of directors and
stockholders since the time of incorporation and reflect all transactions
referred to in such minutes accurately in all material respects.
2.23 Labor Agreements and Actions. The Company is not bound by or
----------------------------
subject to (and none of its assets or properties is bound by or subject to) any
written or oral, express or implied, contract, commitment or arrangement with
any labor union, and no labor union has requested or, to the knowledge of the
Company, has sought to represent any of the employees, representatives or agents
of the Company. There is no strike or other labor dispute involving the Company
pending, or to the knowledge of the Company threatened, which could have a
material adverse effect on the assets, properties, financial condition,
operating results, or business of the Company (as such business is presently
conducted and as it is proposed to be conducted), nor is the Company aware of
any labor organization activity involving its employees. The Company is not
aware that any officer or key employee, or that any group of employees, intends
to terminate their employment with the Company, nor does the Company have a
present intention to terminate the employment of any of the foregoing. The
employment of each officer and employee of the Company is terminable at the will
of the Company. The Company is not obligated to contribute to or accrue or pay
benefits under any deferred compensation or retirement funding arrangement.
3. Representations, Warranties and Covenants of the Investors. Each
----------------------------------------------------------
Investor hereby represents and warrants severally, but not jointly, that:
3.1 Authorization. It has full power and authority to enter into this
-------------
Agreement, the Investors' Rights Agreement and the Stockholder Voting Agreement
and to perform all its obligations hereunder and thereunder. This Agreement,
the Investors' Rights Agreement and the Stockholder Voting Agreement have been
duly authorized, executed and delivered by such Investor and constitutes its
valid and legally binding obligation, enforceable in accordance with their
terms.
3.2 Purchase Entirely for Own Account. This Agreement is made with each
---------------------------------
Investor in reliance upon such Investor's representation to the Company, which
by such Investor's execution of this Agreement such Investor hereby confirms,
that the shares of Series D Preferred Stock will be acquired for investment for
such Investor's own account, not as a nominee or agent, and not with a view to
the resale or distribution of any part thereof, and that such Investor has no
present intention of selling, granting any participation in, or otherwise
distributing the same. By executing this Agreement, each Investor further
represents that such Investor does not have any contract, undertaking, agreement
or arrangement with any person to sell, transfer or grant participation to such
person or to any third person, with respect to any of the shares of Series D
Preferred Stock.
10.
<PAGE>
3.3 Disclosure of Information. Each Investor has had an opportunity to
-------------------------
ask questions and receive answers from the Company regarding the terms and
conditions of the offering of the Series D Preferred Stock. The foregoing,
however, does not limit or modify the representations and warranties of the
Company in Section 2 of this Agreement or the right of the Investors to rely
thereon.
3.4 Investment Experience. Each Investor is an institutional investor
---------------------
in securities of companies in the development stage and acknowledges that it is
able to fend for itself, can bear the economic risk of its investment and has
such knowledge and experience in financial or business matters that it is
capable of evaluating the merits and risks of the investment in the Series D
Preferred Stock. Each Investor also represents it has not been organized solely
for the purpose of acquiring the Series D Preferred Stock.
3.5 Accredited Investor. Each Investor is an accredited investor as
-------------------
defined in Rule 501(a) of Regulation D, as amended, promulgated under the
Securities Act of 1933, as amended (the "Act").
3.6 Restricted Securities. Each Investor understands that the shares of
---------------------
Series D Preferred Stock it is purchasing are characterized as "restricted
securities" under the federal securities laws inasmuch as they are being
acquired from the Company in a transaction not involving a public offering and
that under such laws and applicable regulations such securities may be resold
without registration under the Act, only in certain limited circumstances. In
this connection, each Investor represents that it is familiar with Rule 144,
promulgated under the Act as presently in effect, and understands the resale
limitations imposed thereby and by the Act.
3.7 Further Limitations on Disposition. Without in any way limiting the
----------------------------------
representations set forth above, each Investor further agrees not to make any
disposition of all or any portion of the Securities unless and until the
transferee has agreed in writing for the benefit of the Company to be bound by
the terms of this Agreement, the Investors' Rights Agreement, the Stockholder
Voting Agreement, and
(a) There is then in effect a registration statement under the Act
covering such proposed disposition and such disposition is made in accordance
with such registration statement and any applicable state securities laws; or
(b) (i) Such Investor shall have notified the Company of the proposed
disposition and shall have furnished the Company with a detailed statement of
the circumstances surrounding the proposed disposition, and (ii) if reasonably
requested by the Company, such Investor shall have furnished the Company with an
opinion of counsel, reasonably satisfactory to the Company, that such
disposition will not require registration of such shares under the Act or any
applicable state securities laws. It is agreed that the Company will not
require opinions of counsel for transactions made pursuant to Rule 144 except in
unusual circumstances.
11.
<PAGE>
(c) Notwithstanding the provisions of paragraphs (a) and (b) above, no
such registration statement or opinion of counsel shall be necessary for a
transfer by an Investor which is a partnership to a partner of such partnership
or a retired partner of such partnership who retires after the date hereof, or
to the estate of any such partner or retired partner or the transfer by gift,
will or intestate succession of any partner to his spouse or to the siblings,
lineal descendants or ancestors of such partner or his spouse, if the transferee
agrees in writing to be subject to the Investors' Rights Agreement and the
Stockholder Voting Agreement to the same extent as if he were an original
Investor hereunder.
3.8 Legends. It is understood that the certificates evidencing the
-------
Securities may bear one or all of the following legends:
(a) "These securities have not been registered under the Securities
Act of 1933 or any applicable state securities laws. They may not be sold,
offered for sale, pledged or hypothecated in the absence of a registration
statement in effect with respect to the securities under such Act and applicable
state securities laws or an opinion of counsel and/or other evidence reasonably
satisfactory to the Company that such registration is not required or unless
sold pursuant to Rule 144."
(b) Any legend required by the laws of the Commonwealth of Virginia,
the State of California and any other state in which the securities will be
issued.
3.9 Consents. No consent, approval, order or authorization of, or
--------
registration, qualification, designation, declaration or filing with any local,
state, federal or foreign governmental authority on the part of such Investor is
required in connection with the valid execution and delivery of this Agreement,
the Investors' Rights Agreement, the Stockholder Voting Agreement and the
consummation of the transactions contemplated hereby and thereby.
3.10 Litigation. There is no action, suit, proceeding or investigation
----------
pending or, to such Investors' knowledge, currently threatened against the
Investors which questions the validity of this Agreement, the Investors' Rights
Agreement, the Stockholder Voting Agreement or the right of such Investor to
enter into them, or to consummate the transactions contemplated hereby or
thereby.
3.11 Compliance with Other Instruments. Such Investor is not in
----------------------------------
violation or default in any material respect of any provision of its charter
documents, or in any material respect of any instrument, judgment, order, writ,
decree or contract to which it is a party or by which it is bound, or, to its
knowledge, of any provision of any federal or state statute, rule or regulation
applicable to such Investor. To such Investor's best knowledge, the execution,
delivery and performance of this Agreement, the Investors' Rights Agreement, the
Stockholder Voting Agreement and the consummation of the transactions
contemplated hereby or thereby will not result in any such violation or be in
conflict with or constitute, with or without the passage of time and giving of
12.
<PAGE>
notice, such a default under any such provision, instrument, judgment, order,
writ, decree or contract.
4. California Commissioner of Corporations.
---------------------------------------
4.1 Corporate Securities Law. THE SALE OF THE SECURITIES WHICH ARE THE
------------------------
SUBJECT OF THIS AGREEMENT HAS NOT BEEN QUALIFIED WITH THE COMMISSIONER OF
CORPORATIONS OF THE STATE OF CALIFORNIA AND THE ISSUANCE OF SUCH SECURITIES OR
THE PAYMENT OR RECEIPT OF ANY PART OF THE CONSIDERATION FOR SUCH SECURITIES
PRIOR TO SUCH QUALIFICATION IS UNLAWFUL, UNLESS THE SALE OF SECURITIES IS EXEMPT
FROM QUALIFICATION BY SECTION 25100, 25102 OR 25105 OF THE CALIFORNIA
CORPORATIONS CODE. THE RIGHTS OF ALL PARTIES TO THIS AGREEMENT ARE EXPRESSLY
CONDITIONED UPON SUCH QUALIFICATION BEING OBTAINED, UNLESS THE SALE IS SO
EXEMPT.
5. Conditions of Investor's Obligations at Closing. The obligations of
-----------------------------------------------
each Investor under subsection 1.1 of this Agreement are subject to the
fulfillment on or before the Closing of each of the following conditions, the
waiver of which shall not be effective against any Investor who does not consent
in writing thereto:
5.1 Representations and Warranties. The representations and warranties
------------------------------
of the Company contained in Section 2 shall be true and correct on and as of the
Closing with the same force and effect as though such representations and
warranties had been made on and as of the date of such Closing.
5.2 Performance. The Company shall have performed and complied with all
-----------
agreements, obligations and conditions contained in this Agreement that are
required to be performed or complied with by it on or before the Closing.
5.3 Compliance Certificate. The President of the Company shall deliver
----------------------
to each Investor at the Closing a certificate certifying that the conditions
specified in Sections 5.1 and 5.2 have been fulfilled and stating that there
shall have been no material adverse change in the business, affairs, operations,
properties, assets or condition of the Company since November 30, 1994.
5.4 Qualifications. The Company shall have obtained all necessary state
--------------
securities law permits and qualifications, or secured an exemption therefrom,
required by any state for the offer and sale of the Series D Preferred Stock, or
such permits or qualifications are not required to be obtained until after the
Closing.
5.5 Proceedings and Documents. All corporate and other proceedings in
-------------------------
connection with the transactions contemplated at the Closing and all documents
incident thereto shall be reasonably satisfactory in form and substance to
Investors' spe-
13.
<PAGE>
cial counsel, and they shall have received all such counterpart original and
certified or other copies of such documents as they may reasonably request.
5.6 Board of Directors. Effective as of the Closing, the directors of
------------------
the Company shall be Mark Sirangelo, Peter Wendell, Robert McCormack, Rose
Sirangelo and Ed Doody. First Plaza Group Trust will retain its right under the
Stockholder Voting Agreement to designate one representative.
5.7 Opinion of Company Counsel. Each Investor shall have received from
--------------------------
Morgan, Lewis & Bockius, counsel for the Company, an opinion, dated as of the
Closing, in the form attached hereto as Exhibit E.
---------
5.8 Stockholder Voting Agreement. The Company, each Investor, Mr.
----------------------------
Sirangelo and the other parties listed in the Stockholder Voting Agreement shall
have executed and delivered the Stockholder Voting Agreement.
5.9 Investors' Rights Agreement. The Company and each Investor shall
---------------------------
have entered into the Investors' Rights Agreement.
5.10 Restated Articles. The Restated Articles shall have been filed with
-----------------
the Virginia State Corporation Commission.
5.11 Amendment of Bylaws. The Company's Amended and Restated Bylaws
-------------------
shall have been amended to be in conformity with the provisions of the
Stockholder Voting Agreement and to provide that the Chairman of the Board shall
have the authority to break deadlocks on the Board of Directors.
5.12 Management Rights Letter. The Company shall have executed a letter
------------------------
granting certain management rights to First Plaza Group Trust and T. Rowe Price
Threshold Fund III, L.P. sufficient for ERISA qualified limited partners of such
Investors.
5.13 Indemnification Agreements. Each officer and director of the
--------------------------
Company as of the Closing and the Company shall have executed agreements
indemnifying such officers and directors.
6. Conditions of the Company's Obligations at Closing. The
---------------------------------------------------
obligations of the Company to each Investor under this Agreement are subject to
the fulfillment on or before the Closing of each of the following conditions by
that Investor:
6.1 Representations and Warranties. The representations and warranties
------------------------------
of the Investor contained in Section 3 shall be true and correct on and as of
the Closing with the same force and effect as though such representations and
warranties had been made on and as of the Closing.
14.
<PAGE>
6.2 Payment of Purchase Price. The Investors shall have delivered the
-------------------------
purchase price specified in Section 1.1.
6.3 Performance. The Investors shall have performed and complied with
-----------
all agreements, obligations and conditions contained in this Agreement that are
required to be performed or complied with by them on or before the Closing.
6.4 Restated Articles. The Restated Articles shall have been filed with
-----------------
the Virginia State Corporation Commission.
6.5 Stockholder Voting Agreement. The Company, each Investor, Mr.
----------------------------
Sirangelo and the other parties listed in the Stockholder Voting Agreement shall
have executed and delivered the Stockholder Voting Agreement.
6.6 Investors' Rights Agreement. The Company, each Investor, Mr.
---------------------------
Sirangelo and the other parties listed in the Investors' Rights Agreement shall
have executed and delivered the Investors' Rights Agreement.
7. Miscellaneous.
-------------
7.1 Survival of Warranties. Except for the warranties and
----------------------
representations in Sections 2.1, 2.4 and 3.7 which shall survive indefinitely,
the warranties, representations and covenants of the Company and Investors
contained in or made pursuant to this Agreement shall survive the execution and
delivery of this Agreement for two years from the Closing and shall in no way be
affected by any investigation of the subject matter thereof made by or on behalf
of the Investors or the Company.
7.2 Benefit of Agreement; Successors and Assigns. Except as otherwise
--------------------------------------------
provided herein, the terms and conditions of this Agreement shall inure to the
benefit of and be binding upon the respective successors and assigns of the
parties. Nothing in this Agreement, express or implied, is intended to confer
upon any party other than the parties hereto or their respective successors and
assigns any rights, remedies, obligations, or liabilities under or by reason of
this Agreement, except as otherwise expressly provided in this Agreement.
7.3 Governing Law. This Agreement shall be governed by and construed
-------------
under the laws of the Commonwealth of Virginia, without giving effect to the
conflict of law provisions.
7.4 Counterparts. This Agreement may be executed in two or more
------------
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
15.
<PAGE>
7.5 Titles and Subtitles. The titles and subtitles used in this Agreement
--------------------
are used for convenience only and are not to be considered in construing or
interpreting this Agreement.
7.6 Notices. Unless otherwise provided, any notice required or
-------
permitted under this Agreement shall be given in writing and shall be deemed
effectively given upon personal delivery to the party to be notified or upon
deposit with the United States Post Office, by registered or certified mail,
postage prepaid and addressed to the party to be notified at the address
indicated for such party on the signature page hereof, or at such other address
as such party may designate by ten (10) days' advance written notice to the
other parties.
7.7 Finder's Fee. Each party represents that it neither is nor will be
------------
obligated for any finders' fee or commission in connection with this
transaction. Each Investor agrees to indemnify and to hold harmless the Company
from any liability for any commission or compensation in the nature of a
finders' fee (and the costs and expenses of defending against such liability or
asserted liability) for which the Investor or any of its officers, partners,
employees, or representatives is responsible.
The Company agrees to indemnify and hold harmless each Investor from any
liability for any commission or compensation in the nature of a finders' fee
(and the costs and expenses of defending against such liability or asserted
liability) for which the Company or any of its officers, employees or
representatives is responsible.
7.8 Expenses. Irrespective of whether the Closing is effected, the
--------
Company shall pay all costs and expenses that it incurs with respect to the
negotiation, execution, delivery and performance of this Agreement and all other
agreements contemplated herein and shall pay the reasonable fees and out-of-
pocket expenses of the Company counsel. If the Closing is not effected, the
Investors shall pay all costs and expenses that they incur with respect to the
negotiation, execution, delivery and performance of this Agreement and all other
agreements contemplated herein and shall pay the reasonable fees and out-of-
pocket expenses of the Investors' counsel. If the Closing is effected, the
Company shall, at the Closing, reimburse the reasonable fees of the law firm of
Brobeck, Phleger & Harrison, sole special counsel for the Investors relating to
the transactions contemplated by this Agreement in an amount not to exceed
$15,000.00, and shall, upon receipt of a bill therefor, reimburse the reasonable
out-of-pocket expenses of such counsel.
7.9 Amendments and Waivers. Any term of this Agreement may be amended
----------------------
and the observance of any term of this Agreement may be waived (either generally
or in a particular instance and either retroactively or prospectively), only
with the written consent of the Company and the holders of a majority of the
Common Stock issued or issuable upon conversion of the Series D Preferred Stock.
Any amendment or waiver effected in accordance with this paragraph shall be
binding upon each holder of
16.
<PAGE>
any securities purchased under this Agreement at the time outstanding (including
securities into which such securities are convertible) and the Company.
7.10 Severability. If one or more provisions of this Agreement are held
------------
to be unenforceable under applicable law, such provision shall be excluded from
this Agreement and the balance of the Agreement shall be interpreted as if such
provision were so excluded and shall be enforceable in accordance with its
terms.
7.11 Aggregation of Stock. All shares of Series D Preferred Stock held
--------------------
or acquired by affiliated entities or persons shall be aggregated together for
the purpose of determining the availability of any rights under this Agreement.
7.12 Complete Agreement. The Agreement, together with all Exhibits and
------------------
Schedules hereto, constitute the entire agreement of the parties with respect to
the subject matter hereof and supersede all prior agreements and understanding,
oral or written, with respect thereto.
[REST OF PAGE LEFT INTENTIONALLY BLANK]
17.
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
first above written.
PRODUCTION GROUP INTERNATIONAL, INC.
By:
--------------------------------------
Mark N. Sirangelo, President
Address: One Courthouse Metro
Suite 200
2200 Wilson Boulevard
Arlington, Virginia 22201
SIGNATURE PAGE TO SERIES D PREFERRED STOCK PURCHASE AGREEMENT
<PAGE>
SIERRA VENTURES IV, a
California Limited Partnership
By its General Partner,
SV ASSOCIATES IV, L.P., a California Limited
Partnership
By ________________________________
Peter C. Wendell
General Partner
Address: 3000 Sand Hill Road, Bldg 4, Suite 210
Menlo Park, California 94025
SIERRA VENTURES IV INTERNATIONAL, a
California Limited Partnership
By its General Partner,
SV ASSOCIATES IV, L.P., a California Limited
Partnership
By _______________________________
Peter C. Wendell
General Partner
Address: 3000 Sand Hill Road, Bldg 4, Suite 210
Menlo Park, California 94025
SIGNATURE PAGE TO SERIES D PREFERRED STOCK PURCHASE AGREEMENT
<PAGE>
TRIDENT CAPITAL PARTNERS FUND-I, L.P., a Limited
Partnership
By: TRIDENT CAPITAL, L.P., a Delaware Limited
Partnership
Title: General Partner
By: TRIDENT CAPITAL, INC.
Title: General Partner
By:___________________________
Robert C. McCormack
Address: 2480 Sand Hill Road, Suite 201
Menlo Park, California 94025
141 West Jackson Boulevard, 29th Floor
Chicago, Illinois 60604
SIGNATURE PAGE TO SERIES D PREFERRED STOCK PURCHASE AGREEMENT
<PAGE>
TRIDENT CAPITAL PARTNERS FUND-I, C.V., a Netherlands
Antilles Limited Partnership
By: TRIDENT CAPITAL, L.P., a Delaware Limited
Partnership
Title: Investment General Partner
By: TRIDENT CAPITAL, INC.
Title: General Partner
By:_________________________________
Robert C. McCormack, Co-Chairman
Address: 2480 Sand Hill Road, Suite 201
Menlo Park, California 94025
141 West Jackson Boulevard, 29th Floor
Chicago, Illinois 60604
SIGNATURE PAGE TO SERIES D PREFERRED STOCK PURCHASE AGREEMENT
<PAGE>
MELLON BANK, N.A., as Trustee for First Plaza
Group Trust (as directed by General Motors
Investment Management Corporation)
By:
--------------------------------
Name:
------------------------------
Title:
-----------------------------
Address:
-----------------------------
-----------------------------
SIGNATURE PAGE TO SERIES D PREFERRED STOCK PURCHASE AGREEMENT
<PAGE>
ORCHID & CO., nominee for T. Rowe Price Theshold
Fund III, L.P.
By: T. Rowe Price Threshold Fund
Associates, Inc.
General Partner
By:
--------------------------------
Name:
------------------------------
Title:
-----------------------------
Address: 100 East Pratt Street
Baltimore, Maryland 21202
SIGNATURE PAGE TO SERIES D PREFERRED STOCK PURCHASE AGREEMENT
<PAGE>
GALVIN ENTERPRISES
By:
-------------------------------
Michael Galvin, President
Address: 2000 L Street, Suite 200
Washington, D.C. 20036
SIGNATURE PAGE TO SERIES D PREFERRED STOCK PURCHASE AGREEMENT
<PAGE>
STANFORD UNIVERSITY
By:
--------------------------------
Name:
------------------------------
Title:
-----------------------------
Address: 2770 Sand Hill Road
Menlo Park, CA 94025
SIGNATURE PAGE TO SERIES D PREFERRED STOCK PURCHASE AGREEMENT
<PAGE>
SCHEDULE A
SCHEDULE OF INVESTORS
Series D Preferred Stock
------------------------
<TABLE>
<CAPTION>
Number of Shares
of Series D
Name and Address Preferred Stock Purchase Price
- ---------------- --------------- --------------
<S> <C> <C>
Mellon Bank, N.A., as Trustee 857,142 $ 5,999,994.00
for First Plaza Group Trust
Sierra Ventures IV, L. P. 206,035 1,442,245.00
Sierra Ventures IV International 8,250 57,750.00
Orchid & Co. 214,285 1,499,995.00
Trident Capital
Partners Fund-I, L. P. 178,896 1,252,272.00
Trident Capital
Partners Fund-I, C.V. 35,389 247,723.00
Galvin Enterprises, Inc. 71,429 500,003.00
Stanford University 3,571 24,997.00
--------- --------------
TOTAL 1,574,997 $11,024,979.00
</TABLE>
<PAGE>
SCHEDULE B
SCHEDULE OF CURRENT SECURITYHOLDERS
SHAREHOLDER'S NAME SHARES HELD BY SHAREHOLDER
Mark N. Sirangelo 550,000 Shares Common Stock
Jonathan J. Ledecky 120,000 Shares Series A Preferred Stock
and option for 25,000 shares of Common
Stock
Galvin Enterprises, Inc. 120,000 Shares Series A Preferred Stock
and 48,076 Shares Series C Preferred Stock
Trident Capital Partners Fund-1, L.P. 360,000 Shares Series A Preferred Stock
and 192,307 Shares Series C Preferred
Stock
Sierra Ventures IV, L.P. 924,519 Shares Series C Preferred Stock
Sierra Ventures IV International 37,019 Shares Series C Preferred Stock
Stanford University 19,230 Shares Series C Preferred Stock
The Legacy Fund, Inc. 10,000 Shares Series C Preferred Stock
Cyril Wismar Options for 70,000 shares of Common Stock
and 10,000 Shares Series C Preferred Stock
Gerald Lewis Options for 70,000 shares of Common Stock
and 5,000 Shares Series C Preferred Stock
Samuel Smith Options for 70,000 shares of Common Stock
and 10,000 Shares Series C Preferred Stock
Alexander MacKenzie Options for 70,000 shares of Common Stock
and 10,000 Shares Series C Preferred Stock
John Zeller 4,000 Shares Series C Preferred Stock
<PAGE>
Exhibit 10.18
PRODUCTION GROUP INTERNATIONAL, INC.
SERIES E PREFERRED
STOCK PURCHASE AGREEMENT
February 22, 1996
<PAGE>
TABLE OF CONTENTS
-----------------
Page
----
1. Purchase and Sale of Stock........................................... 1
1.1 Articles of Incorporation...................................... 1
1.2 Investor's Call Option......................................... 1
1.3 Company Put Option............................................. 2
1.4 Closing........................................................ 3
1.5 Additional Investors........................................... 3
2. Representations and Warranties of the Company........................ 4
2.1 Organization, Good Standing and Qualification.................. 4
2.2 Capitalization and Voting Rights............................... 4
2.3 Subsidiaries................................................... 5
2.4 Authorization.................................................. 5
2.5 Valid Issuance of Preferred and Common Stock................... 5
2.6 Governmental Consents.......................................... 6
2.7 Litigation..................................................... 6
2.8 Confidentiality Agreement...................................... 6
2.9 Patents and Trademarks......................................... 7
2.10 Compliance with Other Instruments.............................. 7
2.11 Agreements; Action............................................. 8
2.12 Disclosure..................................................... 9
2.13 Business Projections........................................... 9
2.14 Registration Rights............................................ 9
2.15 Corporate Documents............................................ 9
2.16 Title to Property and Assets................................... 9
2.17 Financial Statements........................................... 9
2.18 Changes........................................................ 10
2.19 Employee Benefit Plans......................................... 11
2.20 Tax Returns, Payments and Elections............................ 11
2.21 Insurance...................................................... 11
2.22 Minute Books................................................... 11
2.23 Labor Agreements and Actions................................... 11
3. Representations, Warranties and Covenants of the Investors........... 12
3.1 Authorization.................................................. 12
3.2 Purchase Entirely for Own Account.............................. 12
3.3 Disclosure of Information...................................... 12
3.4 Investment Experience.......................................... 12
3.5 Accredited Investor............................................ 12
3.6 Restricted Securities.......................................... 12
3.7 Further Limitations on Disposition............................. 13
3.8 Legends........................................................ 13
3.9 Consents....................................................... 14
<PAGE>
3.10 Litigation..................................................... 14
3.11 Compliance with Other Instruments.............................. 14
4. California Commissioner of Corporations.............................. 14
4.1 Corporate Securities Law....................................... 14
5. Conditions of Investor's Obligations at Closing...................... 14
5.1 Representations and Warranties................................. 14
5.2 Performance.................................................... 15
5.3 Compliance Certificate......................................... 15
5.4 Qualifications................................................. 15
5.5 Proceedings and Documents...................................... 15
5.6 Board of Directors............................................. 15
5.7 Opinion of Company Counsel..................................... 15
5.8 Stockholder Voting Agreement................................... 15
5.9 Investors' Rights Agreement.................................... 15
5.10 Restated Articles.............................................. 15
5.11 Management Rights Letter....................................... 15
5.12 Indemnification Agreements..................................... 16
6. Conditions of the Company's Obligations.............................. 16
6.1 Representations and Warranties................................. 16
6.2 Performance.................................................... 16
6.3 Restated Articles.............................................. 16
6.4 Stockholder Voting Agreement................................... 16
6.5 Investors' Rights Agreement.................................... 16
7. Miscellaneous........................................................ 16
7.1 Survival of Warranties......................................... 16
7.2 Benefit of Agreement; Successors and Assigns................... 16
7.3 Governing Law.................................................. 17
7.4 Counterparts................................................... 17
7.5 Titles and Subtitles........................................... 17
7.6 Notices........................................................ 17
7.7 Finder's Fee................................................... 17
7.8 Expenses....................................................... 17
7.9 Amendments and Waivers......................................... 18
7.10 Severability................................................... 18
7.11 Aggregation of Stock........................................... 18
7.12 Complete Agreement............................................. 18
7.13 Waiver of Conflicts............................................ 18
-ii-
<PAGE>
SCHEDULE A - Schedule of Investors
SCHEDULE B - Schedule of Current Securityholders
SCHEDULE C - Schedule of Exceptions
EXHIBIT A - Second Restated Articles of Incorporation
EXHIBIT B - Second Restated Investors' Rights Agreement
EXHIBIT C - Second Restated Stockholder Voting Agreement
EXHIBIT D - Investors' Voting Agreement
EXHIBIT E - Opinion of Counsel for the Company
-iii-
<PAGE>
SERIES E PREFERRED STOCK PURCHASE AGREEMENT
-------------------------------------------
THIS SERIES E PREFERRED STOCK PURCHASE AGREEMENT is made as of the 22nd day
of February, 1996 (the "Effective Date"), by and among Production Group
International, Inc., a Virginia corporation (the "Company"), and the investors
listed on Schedule A hereto, each of which is herein referred to as an
"Investor", and collectively shall be hereinafter referred to as the
"Investors".
THE PARTIES HEREBY AGREE AS FOLLOWS:
1. Purchase and Sale of Stock.
--------------------------
1.1 Articles of Incorporation. The Company shall have adopted and filed
-------------------------
with the Virginia State Corporation Commission the Second Restated Articles of
Incorporation in the form attached hereto as Exhibit A (the "Restated
---------
Articles").
1.2 Investor's Call Option. Upon written notice to the Company, each
----------------------
Investor, severally, shall have the right to purchase from the Company, and the
Company agrees to sell to such Investor, up to one-half the number of shares of
Series E Preferred Stock set forth opposite such Investor's name on Schedule A
hereto, at a price of $8.35 per share. Such call option may be exercised from
time to time, provided, that:
(a) the total number of shares of Series E Preferred Stock purchased
by such Investor pursuant to this Section 1.2, when added together with shares
previously purchased by such Investor pursuant to Section 1.3 (the "Number of
Previously Purchased Shares"), shall not exceed one-half the number of shares of
Series E Preferred Stock set forth opposite such Investor's name on Schedule A
hereto (the "Call Maximum");
(b) such call option may not be exercised for an amount of shares
less than the lesser of (i) 30,000 shares of Series E Preferred Stock, (ii) ten
percent (10%) of the number of shares of Series E Preferred Stock set forth
opposite such Investor's name on Schedule A hereto, or (iii) if the Number of
Previously Purchased Shares by such Investor is less than the Call Maximum for
such Investor but greater than forty percent (40%) of the number of shares of
Series E Preferred Stock set forth opposite such Investor's name on Schedule A
hereto, then the amount of the difference between the Call Maximum and the
Number of Previously Purchased Shares;
(c) written notice of the call option set forth in this Section 1.2
must be given no later than the earlier of (i) December 31, 1996, or (ii) twenty
(20) business days before the consummation of the Company's initial public
offering of Common Stock.
Notwithstanding (c) above, in the event that the Company is required to
give notice to its shareholders pursuant to Section 1.3 of that certain Second
Restated Investors' Rights
<PAGE>
Agreement attached hereto as Exhibit B (the "Investors' Rights Agreement"), each
---------
Investor shall have until two (2) weeks after the filing of such registration
statement to exercise its call option, subject to the conditions set forth
above.
1.3 Company Put Option. Upon written notice to each Investor, the
------------------
Company shall have the right to sell to each Investor, and each Investor agrees
severally, but not jointly, to purchase from the Company up to the number of
shares of Series E Preferred Stock set forth opposite such Investor's name on
Schedule A hereto, at a price of $8.35 per share. Such put option may be
exercised from time to time, provided, that:
(a) such put option in the aggregate may not be exercised for an
amount of shares less than ten percent (10%) of the total number of shares of
Series E Preferred Stock set forth on Schedule A hereto;
(b) the total number of shares of Series E Preferred Stock purchased
by such Investor pursuant to this Section 1.3, when combined with shares
previously purchased by such Investor pursuant to Section 1.2, shall not exceed
the number of shares of Series E Preferred Stock set forth opposite such
Investor's name on Schedule A hereto;
(c) such put option shall be exercised with respect to each
Investor;
(d) in the event that such put option is exercised for less than the
total number of shares of Series E Preferred Stock set forth on Schedule A
hereto, such put option shall be exercised with respect to each Investor on a
pro-rata basis;
(e) the Board of Directors has approved exercise of such put option
and has restricted the use of proceeds from the sale of Series E Preferred Stock
pursuant to this Section 1.3 for identified and defined business acquisitions by
the Company that have been approved by the Board of Directors and are scheduled
to close by December 31, 1996;
(f) through the end of the fiscal month immediately preceding the
delivery of notice, the Company is profitable year-to-date in the then-current
fiscal year, as measured by net income before provision for taxes, provided
--------
further, that (i) in the event such put option is exercised during the first
- -------
fiscal quarter of a year, then such profitability shall be measured as of the
end of the preceding fiscal year, and (ii) such profitability is determined in
accordance with generally accepted accounting principles applied on a consistent
basis throughout the applicable year-to-date period and the fiscal year
preceding such year-to-date period;
(g) any shares previously purchased by an Investor pursuant to
Section 1.2 shall be first credited against such Investor's obligation to
purchase shares pursuant to this Section 1.3;
(h) the written notice by the Company shall contain a statement by
the Chief Executive Officer of the Company that all of the conditions set forth
in this Section 1.3 have been met;
-2-
<PAGE>
(i) written notice of the put option set forth in this Section 1.3
must be given no later than the earlier of (i) December 31, 1996, or (ii) twenty
(20) business days before the consummation of the Company's initial public
offering of Common Stock;
(j) The Company is in compliance with the requirements of Section
2.1 of the Investors' Rights Agreement; and
(k) Mark Sirangelo is Chief Executive Officer of the Company and is
performing the functions of Chief Executive Officer, and neither is he
permanently disabled nor has he been disabled for the two months preceding the
notice.
1.4 Closing. The purchase and sale of the Series E Preferred Stock,
-------
whether pursuant to Section 1.2 or 1.3, shall take place at the offices of the
Company at 9:00 a.m., Virginia time, on the date that is fifteen (15) business
days after the delivery of notice to the relevant party or parties, or at such
other time and place as the Company and the Investor exercising a call option in
the case of Section 1.2, or as the Company and Investors acquiring in the
aggregate more than half the shares of Series E Preferred Stock subject to the
put option in the case of Section 1.3, mutually agree upon orally or in writing
(which time and place are designated as a "Closing"). Notwithstanding the
foregoing, a change in the date of a Closing pursuant to Section 1.3 to later
than twenty-five (25) business days after the delivery of notice shall require
the consent of each Investor. At a Closing the Company shall deliver to each
Investor a certificate representing the Series E Preferred Stock that such
Investor is purchasing against payment of the purchase price therefor by check
or wire transfer. The Company shall also deliver to each Investor purchasing
shares of Series E Preferred Stock at a Closing, whether pursuant to Section 1.2
or 1.3, a revised Schedule of Exceptions showing any changes to the Schedule of
Exceptions attached to this Agreement at least two (2) business days prior to
such Closing. Each Closing shall also be subject to the following conditions:
(a) All the conditions set forth in Section 1.2 or 1.3, as the case
may be, have been met, the Chief Executive Officer of the Company shall deliver
a certificate attesting to such fact; and
(b) Counsel for the Company shall deliver an opinion with respect to
the capitalization of the Company and the due authorization and issuance of the
shares of Series E Preferred Stock.
1.5 Additional Investors. The Company may, until sixty (60) days after
--------------------
the Effective Date, add new parties to this Agreement, provided, that (a) such
new parties execute signature pages to this Agreement and the other agreements
referenced herein, and are subject to the terms and conditions of this Agreement
and the other agreements referenced herein and shall be deemed an "Investor" for
purposes of this Agreement; (b) Schedule A is amended accordingly; (c) the
Company promptly notifies each Investor of such new party or parties and
concurrently distributes an amended Schedule A; and (d) the aggregate amount of
shares of
-3-
<PAGE>
additional Series E Preferred Stock represented by such new parties does not
exceed 598,804 shares.
2. Representations and Warranties of the Company. The Company hereby
---------------------------------------------
represents and warrants to each Investor that, except as set forth on a Schedule
of Exceptions furnished each Investor and special counsel to the Investors (the
"Schedule of Exceptions"), which exceptions shall be deemed to be
representations and warranties as if made hereunder:
2.1 Organization, Good Standing and Qualification. The Company is a
---------------------------------------------
corporation duly organized, validly existing and in good standing under the laws
of the Commonwealth of Virginia and has all requisite corporate power and
corporate authority to carry on its business as now conducted. The Company is
duly qualified to transact business and is in good standing in each jurisdiction
in which the failure so to qualify would have a material adverse effect on its
business or properties.
2.2 Capitalization and Voting Rights. The authorized capital of the
--------------------------------
Company consists or will consist prior to the Closing of:
(a) Preferred Stock. 5,387,125 shares of Preferred Stock, without
---------------
par value, (the "Preferred Stock"), 600,000 shares have been designated Series A
Preferred Stock all of which are issued and outstanding, 400,000 shares of which
have been designated Series B Preferred Stock, none of which is issued and
outstanding, 1,350,000 shares have been designated Series C Preferred Stock,
1,260,151 shares of which are issued and outstanding, 1,600,000 shares have been
designated Series D Preferred Stock, 1,574,997 shares of which are issued and
outstanding, and 1,437,125 shares have been designated Series E Preferred Stock,
up to all of which may be sold pursuant to this Agreement. The outstanding
shares of Series A Preferred Stock, Series C Preferred Stock and Series D
Preferred Stock are owned by the persons and in the numbers specified in
Schedule B hereto. The rights, privileges and preferences of the Preferred Stock
- ----------
are, or as of the Closing will be, as stated in the Restated Articles.
(b) Common Stock. 10,000,000 shares of Common Stock, without par
------------
value, (the "Common Stock"), of which 550,000 shares are issued and outstanding
and are owned by Mark N. Sirangelo, 5,387,125 shares of which are reserved for
issuance upon conversion of the Preferred Stock and a total of 711,000 shares
are reserved for issuance upon exercise of currently existing options and
options not yet granted.
(c) Except for (A) the conversion privileges of the Company's Series
A Preferred Stock, (B) the conversion privileges of the Company's Series B
preferred Stock, (C) the conversion privileges of the Company's Series C
Preferred Stock, (D) the conversion privileges of the Company's Series D
Preferred Stock, (E) the conversion privileges of the Series E Preferred Stock
to be issued under this Agreement, (F) the rights provided in Sections 2.6 of
the Investors' Rights Agreement, (G) a total of 711,000 shares issuable upon
exercise of currently outstanding options and options not yet granted or issued
or reserved for issuance to employees, directors and consultants of the Company,
there are not outstanding
-4-
<PAGE>
any options, warrants, rights (including conversion or preemptive rights) or
agreements for the purchase or acquisition from the Company of any shares of its
capital stock. The Company is not a party or subject to any agreement or
understanding, and, to the Company's knowledge, except for the Second Restated
Stockholder Voting Agreement attached hereto as Exhibit C (the "Stockholder
---------
Voting Agreement"), and that certain Investors Voting Agreement between the
Investors and Mr. Mark N. Sirangelo concerning certain corporate transactions
dated February 10, 1995 (the "Investors Voting Agreement") in the form attached
hereto as Exhibit D, there is no agreement or understanding between any persons
---------
and/or entities, which affects or relates to the voting or giving of written
consents with respect to any security or by a director of the Company.
2.3 Subsidiaries. The Company does not presently own or control,
------------
directly or indirectly, any interest in any other corporation, association, or
other business entity.
2.4 Authorization. All corporate action on the part of the Company, its
-------------
officers, directors and stockholders necessary for the authorization, execution
and delivery of this Agreement, the Investors' Rights Agreement and the
Stockholder Voting Agreement, the performance of all obligations of the Company
hereunder and thereunder and the authorization, issuance (or reservation for
issuance) and delivery of the Series E Preferred Stock and the Common Stock
issuable upon conversion of the Series E Preferred Stock (collectively, the
"Securities") have been taken or will be taken prior to the Closing, and each of
this Agreement, the Investors' Rights Agreement, and the Stockholder Voting
Agreement has been duly authorized, executed and delivered by the Company and it
constitutes a valid and legally binding obligation of the Company, enforceable
in accordance with its terms, subject to bankruptcy and other laws of general
application affecting the rights of creditors, and except to the extent that the
availability of any equitable remedy is subject to the discretion of a court,
and except insofar as the enforceability of the indemnification provisions of
Section 1.9 of the Investors' Rights Agreement may be limited by applicable laws
and public policy.
2.5 Valid Issuance of Preferred and Common Stock.
--------------------------------------------
(a) The shares of Series E Preferred Stock which are being purchased
by the Investors hereunder, when issued, sold and delivered in accordance with
the terms hereof for the consideration expressed herein, will be duly and
validly issued, fully paid and nonassessable and, based in part upon the
representations of the Investors in this Agreement, will be issued in compliance
with all applicable securities laws as presently in effect, of the United States
and each of the states whose securities laws govern the issuance of any of the
Series E Preferred Stock hereunder. The Common Stock issuable upon conversion
of the Series E Preferred Stock has been duly and validly reserved for issuance
and, upon issuance in accordance with the terms of the Restated Articles, will
be duly and validly issued, fully paid and nonassessable, and assuming the
representations of the Investors in this Agreement continue to be true and
correct as of the date of such conversion or exercise, issued in compliance with
all applicable securities laws, as presently in effect, of the United States and
-5-
<PAGE>
each of the states whose securities laws govern the issuance of any of the
Series E Preferred Stock hereunder.
(b) The outstanding shares of Series A Preferred Stock, Series C
Preferred Stock, Series D Preferred Stock and Common Stock are all duly and
validly authorized and issued, fully paid and nonassessable, and were issued in
compliance with all applicable securities laws as presently in effect, of the
United States and each of the states whose securities laws govern the issuance
of any of the Series A Preferred Stock, Series C Preferred Stock, Series D
Preferred Stock and the Common Stock.
2.6 Governmental Consents. No consent, approval, order or authorization
---------------------
of, or registration, qualification, designation, declaration or filing with, any
federal, state or, local governmental authority on the part of the Company is
required in connection with the consummation of the transactions contemplated by
this Agreement, the Investors' Rights Agreement or the Stockholder Voting
Agreement, except for those already filed and except for the filing pursuant to
Section 25102(f) of the California Corporate Securities Law of 1968, as amended,
and the rules thereunder, and any other required state securities law filings
that may be filed after the Closing, which filings will be effected within
fifteen (15) days of each sale of Series E Preferred Stock.
2.7 Litigation. There is no action, suit, proceeding or investigation
----------
pending or, to the Company's knowledge, currently threatened against the Company
which questions the validity of this Agreement, the Investors' Rights Agreement,
the Stockholder Voting Agreement, or the right of the Company to enter into
them, or to consummate the transactions contemplated hereby or thereby, or which
might result, either individually or in the aggregate, in any material adverse
change in the assets, condition or affairs of the Company (financially or
otherwise) as presently conducted or proposed to be conducted, or any change in
the current equity ownership of the Company, nor is the Company aware of any
facts which would serve as the basis for any litigation which is likely to
result in a judgment against the Company which would have a material adverse
effect on the assets, condition or affairs of the Company, financially or
otherwise. The foregoing includes, without limitation, actions pending or
threatened (or any fact which would serve as the basis for any such action which
is likely to result in such a judgement against the Company) involving the prior
employment of any of the Company's employees, their use in connection with the
Company's business of any information or techniques allegedly proprietary to any
of their former employers, or their obligations under any agreements with prior
employers. The Company is not a party or subject to the provisions of any
order, writ, injunction, judgment or decree of any court or government agency or
instrumentality. There is no action, suit, proceeding or investigation by the
Company currently pending or which the Company intends to initiate.
2.8 Confidentiality Agreement. Each employee and officer of the Company
-------------------------
has executed a Confidentiality Agreement in substantially the form provided to
special counsel to the Investors. The Company, after reasonable investigation,
is not aware that any of its employees or officers are in violation thereof.
Neither the execution nor delivery of this Agreement, the Investors' Rights
Agreement or the Stockholder Voting Agreement, nor the
-6-
<PAGE>
carrying on of the Company's business by the employees of the Company, nor the
conduct of the Company's business as proposed to be conducted, will, to the
Company's knowledge, conflict with or result in a breach of the terms,
conditions or provisions of, or constitute a default under, any contract,
covenant or instrument under which any of such employees is now obligated.
2.9 Patents and Trademarks. The Company has sufficient title and
----------------------
interest in and to all patents, trademarks, service marks, trade names,
copyrights, trade secrets, information, proprietary rights and processes
necessary for its business as now conducted and as proposed to be conducted
without any conflict with or infringement of the rights of others. The Schedule
of Exceptions contains a complete list of patents and pending patent
applications of the Company. The Company is not aware of any patents,
trademarks, service marks, trade names, copyrights, trade secrets, information,
proprietary rights and processes for which it would need to obtain title and
interest in and to for its business as now conducted and as proposed to be
conducted. There are no outstanding options, licenses, or agreements of any
kind relating to the foregoing, nor is the Company bound by or a party to any
options, licenses or agreements of any kind with respect to the patents,
trademarks, service marks, trade names, copyrights, trade secrets, licenses,
information, proprietary rights and processes of any other person or entity.
The Company has not received any communications alleging that the Company has
violated or, by conducting its business as proposed to be conducted in the
Business Plan, would violate any of the patents, trademarks, service marks,
trade names, copyrights or trade secrets or other proprietary rights of any
other person or entity. The Company is not aware that any of its employees is
obligated under any contract (including licenses, covenants or commitments of
any nature) or other agreement, or subject to any judgment, decree or order of
any court or administrative agency, that would interfere with the use of his or
her best efforts to promote the interests of the Company or that would conflict
with the Company's business as proposed to be conducted.
2.10 Compliance with Other Instruments. The Company is not in violation
---------------------------------
or default in any material respect of any provision of the Restated Articles or
its Amended and Restated Bylaws, or in any material respect of any instrument,
judgment, order, writ, decree or contract to which it is a party or by which it
is bound, or, to its knowledge, of any provision of any federal or state
statute, rule or regulation applicable to the Company. The execution, delivery
and performance of this Agreement, the Investors' Rights Agreement and the
Stockholder Voting Agreement, and the consummation of the transactions
contemplated hereby or thereby will not result in any such violation or be in
conflict with or constitute, with or without the passage of time and giving of
notice, either such a default under any such provision, instrument, judgment,
order, writ, decree or contract or be an event that results in the creation of
any lien, charge or encumbrance upon any assets of the Company or the
suspension, revocation, impairment, forfeiture, or nonrenewal of any material
permit, license, authorization, or approval applicable to the Company, its
business or operations or any of its assets or properties.
-7-
<PAGE>
2.11 Agreements; Action.
------------------
(a) Except for agreements explicitly contemplated by this Agreement,
the Investors' Rights Agreement, the Stockholder Voting Agreement or the
Investors Voting Agreement, there are no agreements, understandings or proposed
transactions between the Company and any of its officers, directors, affiliates,
or any affiliate thereof.
(b) Except for agreements explicitly contemplated by this Agreement
or the Investors' Rights Agreement, there are no agreements, understandings,
instruments, contracts, or proposed transactions, to which the Company is a
party or by which it is bound outside the normal course of business, which may
involve obligations (contingent or otherwise) of, or payments to the Company in
excess of, $100,000.
(c) The Company has not (i) declared or paid any dividends, or
authorized or made any distribution upon or with respect to any class or series
of its capital stock, (ii) incurred any indebtedness for money borrowed or any
other liabilities individually in excess of $100,000 or, in the case of
indebtedness and/or liabilities individually less than $100,000, in excess of
$250,000 in the aggregate, (iii) made any loans or advances to any person, other
than ordinary advances for travel expenses, or (iv) sold, exchanged or otherwise
disposed of any of its material assets or rights.
(d) For the purposes of subsections (b) and (c) above, all
indebtedness, liabilities, agreements, understandings, instruments, contracts
and proposed transactions involving the same person or entity (including persons
or entities the Company has reason to believe are affiliated therewith) shall be
aggregated for the purpose of meeting the individual minimum dollar amounts of
such subsections.
(e) Since November 30, 1995, the Company has not received notice
that there has been a cancellation of one or more orders for the Company's
services or a loss of one or more customers of the Company, the cancellation or
loss of which in the aggregate would result in the loss of an amount equal to or
greater than 1% of the Company's revenues for the fiscal year ended November 30,
1995. The Company is not aware of any facts or circumstances that would lead it
to reasonably believe that there will be a cancellation of one or more orders
for the Company's services or a loss of one or more customers of the Company,
the cancellation or loss of which in the aggregate would materially adversely
affect the business and prospects of the Company.
(f) The Company is not a party to and is not bound by any contract,
agreement or instrument, or subject to any restriction under the Restated
Articles or its Amended and Restated Bylaws, which materially adversely affects
its business as now conducted or as proposed to be conducted, its properties or
its financial condition.
(g) With the exception of any discussions held with all of the
Investors, the Company has not engaged in the past three (3) months in any
discussion (i) with any representative of any corporation or corporations
regarding the consolidation or merger of the
-8-
<PAGE>
Company with or into any such corporation or corporations, (ii) with any
corporation, partnership, association or other business entity or any individual
regarding the sale, conveyance or disposition of all or substantially all of the
assets of the Company or a transaction or series of related transactions in
which more than fifty percent (50%) of the voting power of the Company is
disposed of, or (iii) regarding any other form of acquisition, liquidation,
dissolution or winding up of the Company.
2.12 Disclosure. The Company has fully provided each Investor with all
----------
the information which such Investor has requested for deciding whether to
purchase the Series E Preferred Stock and has answered all questions posed by
such Investors. Neither this Agreement, the Investors' Rights Agreement, the
Stockholder Voting Agreement, nor any other written statements or certificates
delivered in connection herewith or therewith contains any untrue statement of a
material fact or omits to state a material fact necessary to make the statements
herein or therein not misleading.
2.13 Business Projections. The business projections of the Company dated
--------------------
October 11, 1995 delivered to the Investors were prepared in good faith by the
Company and the Company reasonably believes that as of the date of delivery of
such projections, there was a reasonable basis for such projections. It is
acknowledged that such shall not be regarded as guarantees or assurances with
respect to such matters.
2.14 Registration Rights. Except as provided in the Investors' Rights
-------------------
Agreement, the Company has not granted or agreed to grant any registration
rights, including piggyback rights, to any person or entity.
2.15 Corporate Documents. Except for amendments necessary to satisfy
-------------------
representations and warranties or conditions contained herein (the form of which
amendments has been approved by the Investors), the Restated Articles and the
Amended and Restated Bylaws of the Company are in the form previously provided
to special counsel for the Investors.
2.16 Title to Property and Assets. The Company owns the property and
----------------------------
assets that it purports to own in the Financial Statements (as defined in
Section 2.17 below) free and clear of all mortgages, liens, loans and
encumbrances, except such encumbrances and liens which arise in the ordinary
course of business and do not materially impair the Company's ownership or use
of such property or assets. With respect to the property and assets it leases,
the Company is in material compliance with such leases and, to the best of its
knowledge, holds a valid leasehold interest free of any liens, claims or
encumbrances. All of the Company's personal properties, whether owned or
leased, are in good operating condition (normal wear and tear excepted) and are
adequate and suitable for the purposes for which they are currently being used.
2.17 Financial Statements. The Company has delivered to each Investor
--------------------
its audited financial statements (balance sheet and profit and loss statement)
at August 31, 1995 and for the fiscal year then ended and for the period from
inception to such date and its
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<PAGE>
unaudited financial statements at November 30, 1995 (collectively, the
"Financial Statements"). The Financial Statements have been prepared in
accordance with generally accepted accounting principles applied on a consistent
basis throughout the periods indicated and with each other, except that
unaudited Financial Statements may not contain all footnotes required by
generally accepted accounting principles. The Financial Statements accurately
set out and describe in all material respects the financial condition and
operating results of the Company as of the dates, and for the periods, indicated
therein, subject in the case of unaudited Financial Statements to normal year-
end audit adjustments. Except as set forth in the Financial Statements, the
Company has no liabilities, contingent or otherwise, other than (i) liabilities
incurred in the ordinary course of business subsequent to November 30, 1995 and
(ii) obligations under contracts and commitments incurred in the ordinary course
of business, which, in both cases, individually or in the aggregate, are not
material to the financial condition or operating results of the Company. The
Company maintains and will continue to maintain a standard system of accounting
established and administered in accordance with generally accepted accounting
principles.
2.18 Changes. Since November 30, 1995, there has not been:
-------
(a) any change in the assets, liabilities, financial condition or
operating results of the Company from that reflected in the Financial
Statements, except changes in the ordinary course of business which have not
been, in the aggregate, materially adverse;
(b) any damage, destruction or loss, whether or not covered by
insurance, materially and adversely affecting the assets, properties, financial
condition, operating results or business of the Company (as such business is
presently conducted and as it is proposed to be conducted);
(c) any waiver by the Company of a valuable right or of a material
debt owed to it;
(d) any satisfaction or discharge of any lien, claim or encumbrance
or payment of any obligation by the Company, except in the ordinary course of
business and which is not material to the assets, properties, financial
condition, operating results or business of the Company (as such business is
presently conducted and as it is proposed to be conducted);
(e) any change or amendment to a material contract or arrangement by
which the Company or any of its assets or properties is bound or subject, which
would have a material adverse effect on the Company or its business;
(f) any change in any compensation arrangement or agreement with any
officer; or
(g) to the Company's knowledge, any other event or condition of any
character which might materially and adversely affect the assets, properties,
financial
-10-
<PAGE>
condition, operating results or business of the Company (as such business is
presently conducted and as it is proposed to be conducted).
2.19 Employee Benefit Plans. The Company does not have any Employee
----------------------
Benefit Plan as defined in the Employee Retirement Income Security Act of 1974
("ERISA").
2.20 Tax Returns, Payments and Elections. The Company has filed all tax
-----------------------------------
returns and reports as required by law. To the Company's knowledge these
returns and reports are true and correct in all material respects. The Company
has paid all taxes and other assessments due, except those contested by it in
good faith which are listed in the Schedule of Exceptions. The Company has not
elected pursuant to the Internal Revenue Code of 1986, as amended (the "Code"),
to be treated as a collapsible corporation pursuant to Section 1362(a) of the
Code, nor has it made any other elections pursuant to the Code (other than
elections which relate solely to methods of accounting, depreciation or
amortization) which would have a materially adverse effect on the Company, its
financial condition, its business as presently conducted or proposed to be
conducted or any of its properties or material assets.
2.21 Insurance. The Company has in full force and effect fire and
---------
casualty insurance policies, with extended coverage, sufficient in amount
(subject to reasonable deductibles) to allow it to replace any of its properties
that might be damaged or destroyed. The Company also has in full force and
effect general liability insurance and insurance covering all rights customarily
insured against by businesses that are similarly situated.
2.22 Minute Books. The minute books of the Company provided to the
------------
Investors contain a complete summary of all meetings of directors and
stockholders since the time of incorporation and reflect all transactions
referred to in such minutes accurately in all material respects.
2.23 Labor Agreements and Actions. The Company is not bound by or
----------------------------
subject to (and none of its assets or properties is bound by or subject to) any
written or oral, express or implied, contract, commitment or arrangement with
any labor union, and no labor union has requested or, to the knowledge of the
Company, has sought to represent any of the employees, representatives or agents
of the Company. There is no strike or other labor dispute involving the Company
pending, or to the knowledge of the Company threatened, which could have a
material adverse effect on the assets, properties, financial condition,
operating results, or business of the Company (as such business is presently
conducted and as it is proposed to be conducted), nor is the Company aware of
any labor organization activity involving its employees. The Company is not
aware that any officer or key employee, or that any group of employees, intends
to terminate their employment with the Company, nor does the Company have a
present intention to terminate the employment of any of the foregoing. The
employment of each officer and employee of the Company is terminable at the will
of the Company. The Company is not obligated to contribute to or accrue or pay
benefits under any deferred compensation or retirement funding arrangement.
-11-
<PAGE>
3. Representations, Warranties and Covenants of the Investors. Each
----------------------------------------------------------
Investor hereby represents and warrants severally, but not jointly, that:
3.1 Authorization. It has full power and authority to enter into this
-------------
Agreement, the Investors' Rights Agreement and the Stockholder Voting Agreement
and to perform all its obligations hereunder and thereunder. This Agreement,
the Investors' Rights Agreement and the Stockholder Voting Agreement have been
duly authorized, executed and delivered by such Investor and constitutes its
valid and legally binding obligation, enforceable in accordance with their
terms.
3.2 Purchase Entirely for Own Account. This Agreement is made with each
---------------------------------
Investor in reliance upon such Investor's representation to the Company, which
by such Investor's execution of this Agreement such Investor hereby confirms,
that the shares of Series E Preferred Stock will be acquired for investment for
such Investor's own account, not as a nominee or agent, and not with a view to
the resale or distribution of any part thereof, and that such Investor has no
present intention of selling, granting any participation in, or otherwise
distributing the same. By executing this Agreement, each Investor further
represents that such Investor does not have any contract, undertaking, agreement
or arrangement with any person to sell, transfer or grant participation to such
person or to any third person, with respect to any of the shares of Series E
Preferred Stock.
3.3 Disclosure of Information. Each Investor has had an opportunity to
-------------------------
ask questions and receive answers from the Company regarding the terms and
conditions of the offering of the Series E Preferred Stock. The foregoing,
however, does not limit or modify the representations and warranties of the
Company in Section 2 of this Agreement or the right of the Investors to rely
thereon.
3.4 Investment Experience. Each Investor is an institutional investor
---------------------
in securities of companies in the development stage and acknowledges that it is
able to fend for itself, can bear the economic risk of its investment and has
such knowledge and experience in financial or business matters that it is
capable of evaluating the merits and risks of the investment in the Series E
Preferred Stock. Each Investor also represents it has not been organized solely
for the purpose of acquiring the Series E Preferred Stock.
3.5 Accredited Investor. Each Investor is an accredited investor as
-------------------
defined in Rule 501(a) of Regulation D, as amended, promulgated under the
Securities Act of 1933, as amended (the "Act").
3.6 Restricted Securities. Each Investor understands that the shares of
---------------------
Series E Preferred Stock it is purchasing are characterized as "restricted
securities" under the federal securities laws inasmuch as they are being
acquired from the Company in a transaction not involving a public offering and
that under such laws and applicable regulations such securities may be resold
without registration under the Act, only in certain limited circumstances. In
this connection, each Investor represents that it is familiar with Rule 144,
promulgated under the
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<PAGE>
Act as presently in effect, and understands the resale limitations imposed
thereby and by the Act.
3.7 Further Limitations on Disposition. Without in any way limiting the
----------------------------------
representations set forth above, each Investor further agrees not to make any
disposition of all or any portion of the Securities unless and until the
transferee has agreed in writing for the benefit of the Company to be bound by
the terms of this Agreement, the Investors' Rights Agreement, the Stockholder
Voting Agreement, and
(a) There is then in effect a registration statement under the Act
covering such proposed disposition and such disposition is made in accordance
with such registration statement and any applicable state securities laws; or
(b) (i) Such Investor shall have notified the Company of the
proposed disposition and shall have furnished the Company with a detailed
statement of the circumstances surrounding the proposed disposition, and (ii) if
reasonably requested by the Company, such Investor shall have furnished the
Company with an opinion of counsel, reasonably satisfactory to the Company, that
such disposition will not require registration of such shares under the Act or
any applicable state securities laws. It is agreed that the Company will not
require opinions of counsel for transactions made pursuant to Rule 144 except in
unusual circumstances.
(c) Notwithstanding the provisions of paragraphs (a) and (b) above,
no such registration statement or opinion of counsel shall be necessary for a
transfer by an Investor which is a partnership to a partner of such partnership
or a retired partner of such partnership who retires after the date hereof, or
to the estate of any such partner or retired partner or the transfer by gift,
will or intestate succession of any partner to his spouse or to the siblings,
lineal descendants or ancestors of such partner or his spouse, if the transferee
agrees in writing to be subject to the Investors' Rights Agreement and the
Stockholder Voting Agreement to the same extent as if he were an original
Investor hereunder.
3.8 Legends. It is understood that the certificates evidencing the
-------
Securities may bear one or all of the following legends:
(a) "These securities have not been registered under the Securities
Act of 1933 or any applicable state securities laws. They may not be sold,
offered for sale, pledged or hypothecated in the absence of a registration
statement in effect with respect to the securities under such Act and applicable
state securities laws or an opinion of counsel and/or other evidence reasonably
satisfactory to the Company that such registration is not required or unless
sold pursuant to Rule 144."
(b) Any legend required by the laws of the Commonwealth of Virginia,
the State of California and any other state in which the securities will be
issued.
-13-
<PAGE>
3.9 Consents. No consent, approval, order or authorization of, or
--------
registration, qualification, designation, declaration or filing with any local,
state, federal or foreign governmental authority on the part of such Investor is
required in connection with the valid execution and delivery of this Agreement,
the Investors' Rights Agreement, the Stockholder Voting Agreement and the
consummation of the transactions contemplated hereby and thereby.
3.10 Litigation. There is no action, suit, proceeding or investigation
----------
pending or, to such Investors' knowledge, currently threatened against the
Investors which questions the validity of this Agreement, the Investors' Rights
Agreement, the Stockholder Voting Agreement or the right of such Investor to
enter into them, or to consummate the transactions contemplated hereby or
thereby.
3.11 Compliance with Other Instruments. Such Investor is not in
----------------------------------
violation or default in any material respect of any provision of its charter
documents, or in any material respect of any instrument, judgment, order, writ,
decree or contract to which it is a party or by which it is bound, or, to its
knowledge, of any provision of any federal or state statute, rule or regulation
applicable to such Investor. To such Investor's best knowledge, the execution,
delivery and performance of this Agreement, the Investors' Rights Agreement, the
Stockholder Voting Agreement and the consummation of the transactions
contemplated hereby or thereby will not result in any such violation or be in
conflict with or constitute, with or without the passage of time and giving of
notice, such a default under any such provision, instrument, judgment, order,
writ, decree or contract.
4. California Commissioner of Corporations.
---------------------------------------
4.1 Corporate Securities Law. THE SALE OF THE SECURITIES WHICH ARE THE
------------------------
SUBJECT OF THIS AGREEMENT HAS NOT BEEN QUALIFIED WITH THE COMMISSIONER OF
CORPORATIONS OF THE STATE OF CALIFORNIA AND THE ISSUANCE OF SUCH SECURITIES OR
THE PAYMENT OR RECEIPT OF ANY PART OF THE CONSIDERATION FOR SUCH SECURITIES
PRIOR TO SUCH QUALIFICATION IS UNLAWFUL, UNLESS THE SALE OF SECURITIES IS EXEMPT
FROM QUALIFICATION BY SECTION 25100, 25102 OR 25105 OF THE CALIFORNIA
CORPORATIONS CODE. THE RIGHTS OF ALL PARTIES TO THIS AGREEMENT ARE EXPRESSLY
CONDITIONED UPON SUCH QUALIFICATION BEING OBTAINED, UNLESS THE SALE IS SO
EXEMPT.
5. Conditions of Investor's Obligations. The obligations of each
------------------------------------
Investor under subsection 1.1 of this Agreement are subject to the fulfillment
on or before the Effective Date of each of the following conditions, the waiver
of which shall not be effective against any Investor who does not consent in
writing thereto:
5.1 Representations and Warranties. The representations and warranties
------------------------------
of the Company contained in Section 2 shall be true and correct on and as of the
Effective Date with the same force and effect as though such representations and
warranties had been made on and as of the date of the Effective Date.
-14-
<PAGE>
5.2 Performance. The Company shall have performed and complied with all
-----------
agreements, obligations and conditions contained in this Agreement that are
required to be performed or complied with by it on or before the Effective Date.
5.3 Compliance Certificate. The President of the Company shall deliver
----------------------
to each Investor on or prior to the Effective Date a certificate certifying that
the conditions specified in Sections 5.1 and 5.2 have been fulfilled and stating
that there shall have been no material adverse change in the business, affairs,
operations, properties, assets or condition of the Company since November 30,
1995.
5.4 Qualifications. The Company shall have obtained all necessary state
--------------
securities law permits and qualifications, or secured an exemption therefrom,
required by any state for the offer and sale of the Series E Preferred Stock, or
such permits or qualifications are not required to be obtained until after the
Effective Date.
5.5 Proceedings and Documents. All corporate and other proceedings in
-------------------------
connection with the transactions contemplated as of the Effective Date and all
documents incident thereto shall be reasonably satisfactory in form and
substance to Investors' special counsel, and they shall have received all such
counterpart original and certified or other copies of such documents as they may
reasonably request.
5.6 Board of Directors. Effective as of the Effective Date, the
------------------
directors of the Company shall be Mark Sirangelo, Peter Wendell, Robert
McCormack, Rose Sirangelo and Ed Doody. First Plaza Group Trust will retain its
right under the Stockholder Voting Agreement to designate one representative.
5.7 Opinion of Company Counsel. Each Investor shall have received from
--------------------------
Ginsburg, Feldman and Bress, counsel for the Company, an opinion, dated as of
the Effective Date, in the form attached hereto as Exhibit E.
---------
5.8 Stockholder Voting Agreement. The Company, each Investor, Mr.
----------------------------
Sirangelo and the other parties listed in the Stockholder Voting Agreement shall
have executed and delivered the Stockholder Voting Agreement.
5.9 Investors' Rights Agreement. The Company and each Investor shall
---------------------------
have entered into the Investors' Rights Agreement.
5.10 Restated Articles. The Restated Articles shall have been filed with
-----------------
the Virginia State Corporation Commission.
5.11 Management Rights Letter. The Company shall have executed a letter
------------------------
granting certain management rights to the Michael P. Galvin 1994 Trust.
-15-
<PAGE>
5.12 Indemnification Agreements. Each officer and director of the
--------------------------
Company as of the Effective Date and the Company shall have executed agreements
indemnifying such officers and directors.
6. Conditions of the Company's Obligations. The obligations of the
---------------------------------------
Company to each Investor under this Agreement are subject to the fulfillment on
or before the Effective Date of each of the following conditions by that
Investor:
6.1 Representations and Warranties. The representations and warranties
------------------------------
of the Investor contained in Section 3 shall be true and correct on and as of
the Effective Date with the same force and effect as though such representations
and warranties had been made on and as of the Effective Date.
6.2 Performance. The Investors shall have performed and complied with
-----------
all agreements, obligations and conditions contained in this Agreement that are
required to be performed or complied with by them on or before the Effective
Date.
6.3 Restated Articles. The Restated Articles shall have been filed with
-----------------
the Virginia State Corporation Commission.
6.4 Stockholder Voting Agreement. The Company, each Investor, Mr.
----------------------------
Sirangelo and the other parties listed in the Stockholder Voting Agreement shall
have executed and delivered the Stockholder Voting Agreement.
6.5 Investors' Rights Agreement. The Company, each Investor, Mr.
---------------------------
Sirangelo and the other parties listed in the Investors' Rights Agreement shall
have executed and delivered the Investors' Rights Agreement.
7. Miscellaneous.
-------------
7.1 Survival of Warranties. Except for the warranties and
----------------------
representations in Sections 2.1, 2.4 and 3.7 which shall survive indefinitely,
the warranties, representations and covenants of the Company and Investors
contained in or made pursuant to this Agreement shall survive the execution and
delivery of this Agreement for two years from the Effective Date and shall in no
way be affected by any investigation of the subject matter thereof made by or on
behalf of the Investors or the Company.
7.2 Benefit of Agreement; Successors and Assigns. Except as otherwise
--------------------------------------------
provided herein, the terms and conditions of this Agreement shall inure to the
benefit of and be binding upon the respective successors and assigns of the
parties. Nothing in this Agreement, express or implied, is intended to confer
upon any party other than the parties hereto or their respective successors and
assigns any rights, remedies, obligations, or liabilities under or by reason of
this Agreement, except as otherwise expressly provided in this Agreement.
-16-
<PAGE>
7.3 Governing Law. This Agreement shall be governed by and construed
-------------
under the laws of the Commonwealth of Virginia, without giving effect to the
conflict of law provisions.
7.4 Counterparts. This Agreement may be executed in two or more
------------
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
7.5 Titles and Subtitles. The titles and subtitles used in this
--------------------
Agreement are used for convenience only and are not to be considered in
construing or interpreting this Agreement.
7.6 Notices. Unless otherwise provided, any notice required or
-------
permitted under this Agreement shall be given in writing and shall be deemed
effectively given upon personal delivery to the party to be notified or upon
deposit with the United States Post Office, by registered or certified mail,
postage prepaid and addressed to the party to be notified at the address
indicated for such party on the signature page hereof, or by courier, or at such
other address as such party may designate by ten (10) days' advance written
notice to the other parties.
7.7 Finder's Fee. Each party represents that it neither is nor will be
------------
obligated for any finders' fee or commission in connection with this
transaction. Each Investor agrees to indemnify and to hold harmless the Company
from any liability for any commission or compensation in the nature of a
finders' fee (and the costs and expenses of defending against such liability or
asserted liability) for which the Investor or any of its officers, partners,
employees, or representatives is responsible.
The Company agrees to indemnify and hold harmless each Investor from any
liability for any commission or compensation in the nature of a finders' fee
(and the costs and expenses of defending against such liability or asserted
liability) for which the Company or any of its officers, employees or
representatives is responsible.
7.8 Expenses. Irrespective of whether the Closing is effected, the
--------
Company shall pay all costs and expenses that it incurs with respect to the
negotiation, execution, delivery and performance of this Agreement and all other
agreements contemplated herein and shall pay the reasonable fees and out-of-
pocket expenses of the Company counsel. If the Closing is not effected, the
Investors shall pay all costs and expenses that they incur with respect to the
negotiation, execution, delivery and performance of this Agreement and all other
agreements contemplated herein and shall pay the reasonable fees and out-of-
pocket expenses of the Investors' counsel. If the Closing is effected, the
Company shall, at the Closing, reimburse the reasonable fees of the law firm of
Venture Law Group, sole special counsel for the Investors relating to the
transactions contemplated by this Agreement in an amount not to exceed $15,000,
and shall, upon receipt of a bill therefor, reimburse the reasonable out-of-
pocket expenses of such counsel.
-17-
<PAGE>
7.9 Amendments and Waivers. Any term of this Agreement may be amended
----------------------
and the observance of any term of this Agreement may be waived (either generally
or in a particular instance and either retroactively or prospectively), only
with the written consent of the Company and the holders of a majority of the
Common Stock issued or issuable upon conversion of the Series E Preferred Stock.
Any amendment or waiver effected in accordance with this paragraph shall be
binding upon each holder of any securities purchased under this Agreement at the
time outstanding (including securities into which such securities are
convertible) and the Company.
7.10 Severability. If one or more provisions of this Agreement are held
------------
to be unenforceable under applicable law, such provision shall be excluded from
this Agreement and the balance of the Agreement shall be interpreted as if such
provision were so excluded and shall be enforceable in accordance with its
terms.
7.11 Aggregation of Stock. All shares of Series E Preferred Stock held
--------------------
or acquired by affiliated entities or persons shall be aggregated together for
the purpose of determining the availability of any rights under this Agreement.
7.12 Complete Agreement. The Agreement, together with all Exhibits and
------------------
Schedules hereto, constitute the entire agreement of the parties with respect to
the subject matter hereof and supersede all prior agreements and understanding,
oral or written, with respect thereto.
7.13 Waiver of Conflicts. Each party to this Agreement acknowledges that
-------------------
Venture Law Group, special counsel for the Investors, has in the past performed
and may continue to perform legal services for (a) certain of the Investors in
matters unrelated to the transactions described in this Agreement, including the
representation of such Purchasers in venture capital financings and other
matters, and (b) for the Company in miscellaneous corporate matters.
Accordingly, each party to this Agreement hereby (1) acknowledges that they have
had an opportunity to ask for information relevant to this disclosure; and (2)
gives its informed consent to Venture Law Group's representation of certain of
the Investors in such unrelated matters and the Company in such unrelated
matters and to Venture Law Group's representation of the Investors in connection
with this Agreement and the transactions contemplated hereby.
[REST OF PAGE LEFT INTENTIONALLY BLANK]
-18-
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
first above written.
PRODUCTION GROUP INTERNATIONAL, INC.
By:
---------------------------------
Mark N. Sirangelo, President
Address: One Courthouse Metro
Suite 200
2200 Wilson Boulevard
Arlington, Virginia 22201
SIGNATURE PAGE TO SERIES E PREFERRED STOCK PURCHASE AGREEMENT
<PAGE>
MELLON BANK, N.A., as Trustee for First Plaza
Group Trust (as directed by General Motors
Investment Management Corporation)
By:
---------------------------------
Name:
-------------------------------
Title:
------------------------------
Address: One Mellon Bank Center
Pittsburgh, PA 15258-0001
SIGNATURE PAGE TO SERIES E PREFERRED STOCK PURCHASE AGREEMENT
<PAGE>
SIERRA VENTURES IV, a
California Limited Partnership
By its General Partner,
SV ASSOCIATES IV, L.P., a California Limited
Partnership
By:
------------------------------
Peter C. Wendell
General Partner
Address: 3000 Sand Hill Road, Bldg 4, Suite 210
Menlo Park, California 94025
SIERRA VENTURES IV INTERNATIONAL, a California
Limited Partnership
By its General Partner,
SV ASSOCIATES IV, L.P., a California Limited
Partnership
By:
------------------------------
Peter C. Wendell
General Partner
Address: 3000 Sand Hill Road, Bldg 4, Suite 210
Menlo Park, California 94025
SIGNATURE PAGE TO SERIES E PREFERRED STOCK PURCHASE AGREEMENT
<PAGE>
MERIFIN CAPITAL N.V.
By:
------------------------------
Name:
------------------------------
Title:
------------------------------
Address: c/o Finabel S.A.
254 Route de Lausanne
CH-1292 Geneva, Chambesy, Switzerland
Attn: Guillaume de Rham
with a copy to: Merifin Capital
200 Park Avenue, 25th Floor
New York, NY 10166
Attn: Christopher Wright
SIGNATURE PAGE TO SERIES E PREFERRED STOCK PURCHASE AGREEMENT
<PAGE>
ORCHID & CO., nominee for T. Rowe Price Theshold
Fund III, L.P.
By: T. Rowe Price Threshold Fund
Associates, Inc.
General Partner
By:
------------------------------
Name:
----------------------------
Title:
---------------------------
Address: 100 East Pratt Street
Baltimore, Maryland 21202
SIGNATURE PAGE TO SERIES E PREFERRED STOCK PURCHASE AGREEMENT
<PAGE>
TRIDENT CAPITAL PARTNERS FUND-I, L.P., a Limited
Partnership
By: TRIDENT CAPITAL, L.P., a Delaware Limited
Partnership
Title: General Partner
By: TRIDENT CAPITAL, INC.
Title: General Partner
By:
-----------------------------
Robert C. McCormack
Address: 2480 Sand Hill Road, Suite 201
Menlo Park, California 94025
190 South LaSalle Street, Suite 2760
Chicago, Illinois 60603
SIGNATURE PAGE TO SERIES E PREFERRED STOCK PURCHASE AGREEMENT
<PAGE>
TRIDENT CAPITAL PARTNERS FUND-I, C.V., a
Netherlands Antilles Limited Partnership
By: TRIDENT CAPITAL, L.P., a Delaware Limited
Partnership
Title: Investment General Partner
By: TRIDENT CAPITAL, INC.
Title: General Partner
By:
-------------------------------------
Robert C. McCormack, Co-Chairman
Address: 2480 Sand Hill Road, Suite 201
Menlo Park, California 94025
190 South LaSalle Street, Suite 2760
Chicago, Illinois 60603
SIGNATURE PAGE TO SERIES E PREFERRED STOCK PURCHASE AGREEMENT
<PAGE>
MICHAEL P. GALVIN 1994 TRUST
By:
---------------------------------
Title:
------------------------------
Address: 2000 L Street, Suite 200
Washington, D.C. 20036
SIGNATURE PAGE TO SERIES E PREFERRED STOCK PURCHASE AGREEMENT
<PAGE>
MERCURY PARTNERS, LLC
By:
-------------------------------
Bradley W. de Koning
Managing Director
Address: Mercury Partners, LLC
11100 Santa Monica Blvd.
Suite 2020
Los Angeles, CA 90025
SIGNATURE PAGE TO SERIES E PREFERRED STOCK PURCHASE AGREEMENT
<PAGE>
-----------------------------------
Frederic C. Hamilton
Address: The Hamilton Companies
1560 Broadway, Suite 2200
Denver, Colorado 80202
SIGNATURE PAGE TO SERIES E PREFERRED STOCK PURCHASE AGREEMENT
<PAGE>
WLD/LAMONT PARTNERS
By:
---------------------------------
Douglas S. Luke, General Partner
Address: One E. Broward Blvd., #101
Ft. Lauderdale, FL 33301
SIGNATURE PAGE TO SERIES E PREFERRED STOCK PURCHASE AGREEMENT
<PAGE>
ABS EMPLOYEES' VENTURE FUND L.P.
By:
-----------------------------------
Mayo A. Shattuck, III
President, Alex. Brown Investments, Inc.
G.P. of Partnership
Address: 135 E. Baltimore Street
Baltimore, MD 21202
SIGNATURE PAGE TO SERIES E PREFERRED STOCK PURCHASE AGREEMENT
<PAGE>
Exhibit 10.19
AMENDMENT NO. 1 TO SERIES E PREFERRED STOCK PURCHASE AGREEMENT
--------------------------------------------------------------
This Amendment No. 1 (the "Amendment") to that certain Series E Preferred
Stock Purchase Agreement (the "Original Agreement") dated as of February 22,
1996 by and among Production Group International, Inc., a Virginia corporation
(the "Company"), and the investors listed on Schedule A thereto, each of which
is herein referred to as a "Prior Series E Investor" and collectively as the
"Prior Series E Investors," is made as of June 19, 1996 (the "Effective Date")
by and among the Company and the Prior Series E Investors that have executed
this Amendment (collectively, the "Amending Investors"). Capitalized terms not
otherwise defined in this Amendment shall have the meaning set forth in the
Original Agreement.
WHEREAS, the Amending Investors hold a majority of the Common Stock issued or
issuable upon conversion of the Series E Preferred Stock; and
WHEREAS, the Company and the Amending Investors desire to amend the Original
Agreement; and
WHEREAS, the Amending Investors constitute the holders of at least 60% of the
outstanding securities held by "Investors" and "Prior Investors" as defined for
purposes of that certain Second Restated Investors' Rights Agreement (the
"Rights Agreement") dated as of February 22, 1996 between the Company and the
parties thereto.
THE PARTIES HEREBY AGREE AS FOLLOWS:
1. Section 1.3(d), which currently reads as follows:
"(d) in the event that such put option is exercised for less than
the total number of shares of Series E Preferred Stock set forth on
Schedule A hereto, such put option shall be exercised with respect to
each Investor on a pro-rata basis;"
shall be amended in its entirety to read as follows:
"(d) in the event that such put option is exercised for less than
the total number of shares of Series E Preferred Stock set forth on
Schedule A hereto, such put option shall be exercised with respect to
each Investor on a pro-rata basis, based upon the number of shares of
Series E Preferred Stock set forth opposite each Investor's name, less
the number of shares of Series E Preferred Stock previously purchased
by such Investor pursuant to Sections 1.2 or 1.3;"
2. Section 1.5, which currently reads as follows:
"1.5 Additional Investors. The Company may, until sixty (60)
--------------------
days after the Effective Date, add new parties to this Agreement,
provided, that (a) such new
<PAGE>
parties execute signature pages to this Agreement and the other
agreements referenced herein, and are subject to the terms and
conditions of this Agreement and the other agreements referenced
herein and shall be deemed an "Investor" for purposes of this
Agreement; (b) Schedule A is amended accordingly; (c) the Company
promptly notifies each Investor of such new party or parties and
concurrently distributes an amended Schedule A; and (d) the aggregate
amount of shares of additional Series E Preferred Stock represented by
such new parties does not exceed 598,804 shares."
shall be amended in its entirety to read as follows:
"1.5 Additional Investors and Subscription Amounts. The Company
---------------------------------------------
may, until June 30, 1996, either add new parties to this Agreement, or
agree with an Investor to increase the number of shares of Series E
Preferred Stock set forth opposite such Investor's name, provided,
that (a) in the event a new party is added to this Agreement, such new
party executes signature pages to this Agreement and the other
agreements referenced herein, and is subject to the terms and
conditions of this Agreement and the other agreements referenced
herein and shall be deemed an "Investor" for purposes of this
Agreement; (b) in the event the number of shares of Series E
Preferred Stock for an Investor is increased, the Company and such
Investor both execute a written document documenting such increase,
(c) in either event, Schedule A is amended accordingly; (c) in either
event, the Company promptly notifies each Investor of such new party
or parties or such increase for an existing Investor and concurrently
distributes an amended Schedule A; and (d) the aggregate amount of
shares of Series E Preferred Stock set forth on Schedule A and
available to be sold pursuant to this Agreement does not exceed
1,796,407 shares."
3. Schedule A to the Original Agreement is hereby amended in its
entirety as of the date hereof to read as set forth in Schedule A attached
hereto.
4. The Amending Investors hereby waive the provisions of Section 2
of the Rights Agreement with respect to any additional issuances of Series E
Preferred Stock pursuant to the Original Agreement and any amendments thereto,
including without limitation, pursuant to this Amendment. Such waiver also
includes waiver of the notice provisions in such Section 2.
5. Except as specifically provided herein, the Original Agreement
shall remain in full force and effect.
[REST OF PAGE LEFT INTENTIONALLY BLANK]
-2-
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Amendment No. 1 as of
the Effective Date.
PRODUCTION GROUP INTERNATIONAL, INC.
By:
---------------------------------
Mark N. Sirangelo, President
Address: One Courthouse Metro
Suite 200
2200 Wilson Boulevard
Arlington, Virginia 22201
<PAGE>
MELLON BANK, N.A., solely in its capacity as
Trustee for the First Plaza Group Trust (as
directed by General Motors Investment Management
Corporation), and not in its individual capacity
By:
---------------------------------------------
Name:
-------------------------------------------
Title:
------------------------------------------
Address: One Mellon Bank Center
Pittsburgh, PA 15258-0001
SIGNATURE PAGE TO AMENDMENT NO. 1 TO
SERIES E PREFERRED STOCK PURCHASE AGREEMENT
<PAGE>
SIERRA VENTURES IV, a
California Limited Partnership
By its General Partner,
SV ASSOCIATES IV, L.P., a California Limited
Partnership
By:
-----------------------------------------
Peter C. Wendell
General Partner
Address: 3000 Sand Hill Road, Bldg 4, Suite 210
Menlo Park, California 94025
SIERRA VENTURES IV INTERNATIONAL, a California
Limited Partnership
By its General Partner,
SV ASSOCIATES IV, L.P., a California Limited
Partnership
By:
-----------------------------------------
Peter C. Wendell
General Partner
Address: 3000 Sand Hill Road, Bldg 4, Suite 210
Menlo Park, California 94025
SIGNATURE PAGE TO AMENDMENT NO. 1 TO
SERIES E PREFERRED STOCK PURCHASE AGREEMENT
<PAGE>
MERIFIN CAPITAL N.V.
By: Finabel S.A., Managing Director
By:
---------------------------------------
Name:
-------------------------------------
Title:
------------------------------------
Address: c/o Finabel S.A.
254 Route de Lausanne
CH-1292 Geneva, Chambesy, Switzerland
Attn: Guillaume de Rham
With a copy to: Merifin Capital
200 Park Avenue, 25th Floor
New York, NY 10166
Attn: Christopher Wright
SIGNATURE PAGE TO AMENDMENT NO. 1 TO
SERIES E PREFERRED STOCK PURCHASE AGREEMENT
<PAGE>
ORCHID & CO., nominee for T. Rowe Price Theshold
Fund III, L.P.
By: T. Rowe Price Threshold Fund
Associates, Inc.
General Partner
By:
-----------------------------------
Name:
---------------------------------
Title:
--------------------------------
Address: 100 East Pratt Street
Baltimore, Maryland 21202
SIGNATURE PAGE TO AMENDMENT NO. 1 TO
SERIES E PREFERRED STOCK PURCHASE AGREEMENT
<PAGE>
TRIDENT CAPITAL PARTNERS FUND-I, L.P., a Limited
Partnership
By: TRIDENT CAPITAL, L.P., a Delaware Limited
Partnership
Title: General Partner
By: TRIDENT CAPITAL, INC.
Title: General Partner
By:
---------------------------
Robert C. McCormack
Address: 2480 Sand Hill Road, Suite 201
Menlo Park, California 94025
190 South La Salle Street, Suite 2760
Chicago, Illinois 60603
SIGNATURE PAGE TO AMENDMENT NO. 1 TO
SERIES E PREFERRED STOCK PURCHASE AGREEMENT
<PAGE>
TRIDENT CAPITAL PARTNERS FUND-I, C.V., a
Netherlands Antilles Limited Partnership
By: TRIDENT CAPITAL, L.P., a Delaware Limited
Partnership
Title: Investment General Partner
By: TRIDENT CAPITAL, INC.
Title: General Partner
By:
--------------------------------------
Robert C. McCormack, Co-Chairman
Address: 2480 Sand Hill Road, Suite 201
Menlo Park, California 94025
190 South La Salle Street, Suite 2760
Chicago, Illinois 60603
SIGNATURE PAGE TO AMENDMENT NO. 1 TO
SERIES E PREFERRED STOCK PURCHASE AGREEMENT
<PAGE>
MERCURY PARTNERS, LLC
By:
------------------------------
Bradley W. de Koning
Managing Director
Address: Mercury Partners, LLC
11100 Santa Monica Blvd.
Suite 2020
Los Angeles, CA 90025
SIGNATURE PAGE TO AMENDMENT NO. 1 TO
SERIES E PREFERRED STOCK PURCHASE AGREEMENT
<PAGE>
------------------------------------------
Frederic C. Hamilton
Address: c/o The Hamilton Companies
1560 Broadway, Suite 2200
Denver, Colorado 80202
SIGNATURE PAGE TO AMENDMENT NO. 1 TO
SERIES E PREFERRED STOCK PURCHASE AGREEMENT
<PAGE>
WLD/LAMONT PARTNERS
By:
-----------------------------------
Douglas S. Luke
General Partner
Address: One E. Broward Blvd.
Suite 1101
Ft. Lauderdale, FL 33301
SIGNATURE PAGE TO AMENDMENT NO. 1 TO
SERIES E PREFERRED STOCK PURCHASE AGREEMENT
<PAGE>
SCHEDULE A
SCHEDULE OF INVESTORS
Series E Preferred Stock
------------------------
Number of Shares
of Series E
Name and Address Preferred Stock
---------------- ---------------
<TABLE>
<CAPTION>
<S> <C>
Mellon Bank, N.A., as Trustee 479,042
for First Plaza Group Trust
Sierra Ventures IV, L.P. 201,511
Sierra Ventures IV International 8,069
Merifin Capital N.V. 119,760
Orchid & Co. 59,880
Trident Capital 49,991
Partners Fund-I, L.P.
Trident Capital 9,889
Partners Fund-I, C.V.
Michael P. Galvin 1994 Trust 59,880
Mercury Partners, LLC 59,880
Frederic C. Hamilton 59,880
WLD/Lamont Partners 479,042
ABS Employees' Venture Fund, L.P. 55,151
TOTAL 1,641,975
</TABLE>
<PAGE>
Exhibit 10.20
AMENDMENT NO. 2 TO SERIES E PREFERRED STOCK PURCHASE AGREEMENT
--------------------------------------------------------------
This Amendment No. 2 (the "Amendment") to that certain Series E Preferred
Stock Purchase Agreement (the "Original Agreement") dated as of February 22,
1996 by and among Production Group International, Inc., a Virginia corporation
(the "Company"), and the investors listed on Schedule A thereto, each of which
is herein referred to as a "Prior Series E Investor" and collectively as the
"Prior Series E Investors," as amended by that certain Amendment No. 1 to the
Original Agreement dated as of June 19, 1996, is made as of September 26, 1996
(the "Effective Date") by and among the Company and the Prior Series E Investors
that have executed this Amendment (collectively, the "Amending Investors").
Capitalized terms not otherwise defined in this Amendment shall have the meaning
set forth in the Original Agreement.
WHEREAS, the Amending Investors hold a majority of the Common Stock issued or
issuable upon conversion of the Series E Preferred Stock; and
WHEREAS, the Company and the Amending Investors desire to amend the Original
Agreement.
THE PARTIES HEREBY AGREE AS FOLLOWS:
1. Section 1.5, which currently reads as follows:
"1.5 Additional Investors and Subscription Amounts. The Company
---------------------------------------------
may, until June 30, 1996, either add new parties to this Agreement, or
agree with an Investor to increase the number of shares of Series E
Preferred Stock set forth opposite such Investor's name, provided, that (a)
in the event a new party is added to this Agreement, such new party
executes signature pages to this Agreement and the other agreements
referenced herein, and is subject to the terms and conditions of this
Agreement and the other agreements referenced herein and shall be deemed an
"Investor" for purposes of this Agreement; (b) in the event the number of
shares of Series E Preferred Stock for an Investor is increased, the
Company and such Investor both execute a written document documenting such
increase, (c) in either event, Schedule A is amended accordingly; (c) in
either event, the Company promptly notifies each Investor of such new party
or parties or such increase for an existing Investor and concurrently
distributes an amended Schedule A; and (d) the aggregate amount of shares
of Series E Preferred Stock set forth on Schedule A and available to be
sold pursuant to this Agreement does not exceed 1,796,407 shares."
shall be amended in its entirety to read as follows:
"1.5 Additional Investors and Subscription Amounts. The Company
---------------------------------------------
may, until December 31, 1996, either add new parties to this Agreement, or
agree
<PAGE>
with an Investor to increase the number of shares of Series E Preferred
Stock set forth opposite such Investor's name, provided, that (a) in the
event a new party is added to this Agreement, such new party executes
signature pages to this Agreement and the other agreements referenced
herein, and is subject to the terms and conditions of this Agreement and
the other agreements referenced herein and shall be deemed an "Investor"
for purposes of this Agreement; (b) in the event the number of shares of
Series E Preferred Stock for an Investor is increased, the Company and such
Investor both execute a written document documenting such increase, (c) in
either event, Schedule A is amended accordingly; (c) in either event, the
Company promptly notifies each Investor of such new party or parties or
such increase for an existing Investor and concurrently distributes an
amended Schedule A; and (d) the aggregate amount of shares of Series E
Preferred Stock set forth on Schedule A and available to be sold pursuant
to this Agreement does not exceed 1,796,407 shares."
2. Schedule A to the Original Agreement is hereby amended in its
entirety as of the date hereof to read as set forth in Schedule A attached
hereto.
3. Except as specifically provided herein, the Original Agreement shall
remain in full force and effect.
[REST OF PAGE LEFT INTENTIONALLY BLANK]
-2-
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Amendment No. 1 as of
the Effective Date.
PRODUCTION GROUP INTERNATIONAL, INC.
By:
---------------------------------
Mark N. Sirangelo, President
Address: One Courthouse Metro
Suite 200
2200 Wilson Boulevard
Arlington, Virginia 22201
SIGNATURE PAGE TO AMENDMENT NO. 2 TO
SERIES E PREFERRED STOCK PURCHASE AGREEMENT
<PAGE>
SIERRA VENTURES IV, a
California Limited Partnership
By its General Partner,
SV ASSOCIATES IV, L.P., a California Limited
Partnership
By:
----------------------------------
Peter C. Wendell
General Partner
Address: 3000 Sand Hill Road, Bldg 4, Suite 210
Menlo Park, California 94025
SIERRA VENTURES IV INTERNATIONAL, a
California Limited Partnership
By its General Partner,
SV ASSOCIATES IV, L.P., a California Limited
Partnership
By:
----------------------------------
Peter C. Wendell
General Partner
Address: 3000 Sand Hill Road, Bldg 4, Suite 210
Menlo Park, California 94025
SIGNATURE PAGE TO AMENDMENT NO. 2 TO
SERIES E PREFERRED STOCK PURCHASE AGREEMENT
<PAGE>
MELLON BANK, N.A., solely in its capacity as
Trustee for the First Plaza Group Trust (as
directed by General Motors Investment
Management Corporation), and not in its
individual capacity
By:
----------------------------------
Name:
--------------------------------
Title:
-------------------------------
Address: One Mellon Bank Center
Pittsburgh, PA 15258-0001
SIGNATURE PAGE TO AMENDMENT NO. 2 TO
SERIES E PREFERRED STOCK PURCHASE AGREEMENT
<PAGE>
WLD/LAMONT PARTNERS
By:
-------------------------------
Douglas S. Luke
General Partner
Address: One E. Broward Blvd.
Suite 1101
Ft. Lauderdale, FL 33301
SIGNATURE PAGE TO AMENDMENT NO. 2 TO
SERIES E PREFERRED STOCK PURCHASE AGREEMENT
<PAGE>
SCHEDULE A
SCHEDULE OF INVESTORS
Series E Preferred Stock
------------------------
<TABLE>
<CAPTION>
Number of Shares
of Series E
Name and Address Preferred Stock
---------------- ---------------
<S> <C>
Mellon Bank, N.A., as Trustee 479,042
for First Plaza Group Trust
Sierra Ventures IV, L.P. 201,511
Sierra Ventures IV International 8,069
Merifin Capital N.V. 119,760
Orchid & Co. 59,880
Trident Capital 49,991
Partners Fund-I, L.P.
Trident Capital 9,889
Partners Fund-I, C.V.
Michael P. Galvin 1994 Trust 59,880
Mercury Partners, LLC 59,880
Frederic C. Hamilton 59,880
WLD/Lamont Partners 633,474
ABS Employees' Venture Fund, L.P. 55,151
TOTAL 1,796,407
</TABLE>
-7-
<PAGE>
Exhibit 10.21
==============================================
PRODUCTION GROUP INTERNATIONAL, INC.
SECOND RESTATED INVESTORS' RIGHTS AGREEMENT
February 22, 1996
==============================================
<PAGE>
TABLE OF CONTENTS
-----------------
Page
----
1. Registration Rights................................................... 1
1.1 Definitions...................................................... 1
1.2 Request for Registration......................................... 2
1.3 Company Registration............................................. 4
1.4 Obligations of the Company....................................... 4
1.5 Furnish Information.............................................. 5
1.6 Expenses of Registrations........................................ 5
1.7 Underwriting Requirements........................................ 6
1.8 Delay of Registration............................................ 6
1.9 Indemnification.................................................. 6
1.10 Reports Under Securities Exchange Act of 1934.................... 8
1.11 Form S-3 Registration............................................ 9
1.12 Assignment of Registration Rights................................ 9
1.13 Limitations on Subsequent Registration Rights.................... 10
1.14 "Market Stand-Off" Agreement..................................... 10
1.15 Termination of Registration Rights............................... 11
2. Covenants of the Company............................................... 11
2.1 Delivery of Financial Statements.................................. 11
2.2 Inspection........................................................ 12
2.3 Termination of Information and Inspection Covenants............... 12
2.4 D&O Insurance..................................................... 12
2.5 Selection of Auditors............................................. 12
2.6 Right of First Offer on Sales by the Company...................... 12
3. Covenants of the Investors............................................. 14
3.1 Right of First Offer on Sales by Series C Investors............... 14
3.2 Right of Co-Sale held by Mr. Sirangelo on Sales by Series C
Investors......................................................... 16
3.3 Notification of Investments....................................... 16
3.4 Termination of Investors Covenants................................ 16
4. Miscellaneous.......................................................... 17
4.1 Successors and Assigns............................................ 17
4.2 Governing Law..................................................... 17
4.3 Counterparts...................................................... 17
4.4 Titles and Subtitles.............................................. 17
4.5 Notices........................................................... 17
4.6 Expenses.......................................................... 17
4.7 Amendments and Waivers............................................ 17
4.8 Severability...................................................... 18
4.9 Termination of Prior Agreements................................... 18
4.10 Aggregation of Stock.............................................. 18
4.11 Entire Agreement.................................................. 18
<PAGE>
Schedule A List of Investors
Schedule B List of Prior Investors and Common Shareholders
<PAGE>
SECOND RESTATED INVESTORS' RIGHTS AGREEMENT
-------------------------------------------
THIS SECOND RESTATED INVESTORS' RIGHTS AGREEMENT is made as of the
22nd day of February, 1996, by and among Production Group International, Inc., a
Virginia corporation (the "Company"), the investors listed on Schedule A hereto,
each of which is herein referred to as an "Investor", and collectively shall be
referred to as the "Investors", the holders of the Company's Common Stock,
Series A Preferred Stock, Series B Preferred Stock, Series C Preferred Stock and
Series D Preferred Stock that are not also Investors listed on Schedule B
hereto, each of which is herein referred to as a "Prior Investor" and
collectively shall be referred to as the "Prior Investors", and Messrs. Edward
J. Mathias, Rockwell A. Schnabel and Robert C. McCormack, each of whom is herein
referred to as a "Potential Investor", and collectively shall be referred to as
"Potential Investors". At such time as a Potential Investor beneficially owns
shares of the Company's Series B Preferred Stock, such Potential Investor shall
be deemed an Investor for purposes of this Agreement. All terms not otherwise
defined herein shall have the meaning ascribed such terms in the Series E
Preferred Stock Purchase Agreement of even date herewith by and among the
Company and the Investors (the "Series E Agreement").
RECITALS
--------
WHEREAS, the Company and the Investors are parties to the Series E
Agreement;
WHEREAS, the Company, certain of the Investors and the Prior Investors
are parties to that certain First Restated Investors' Rights Agreement dated as
of February 10, 1995 (the "Prior Agreement");
WHEREAS, in order to induce the Investors to enter into the Series E
Agreement, the Company has agreed to grant to the Investors the rights set forth
herein and to replace the Prior Agreement with this Agreement; and
WHEREAS, in connection with the execution and delivery of the Series E
Agreement, the parties hereto have agreed that this Agreement will also govern
certain rights and obligations granted herein to the Prior Investors and the
Potential Investors.
NOW, THEREFORE, THE PARTIES HEREBY AGREE AS FOLLOWS:
1. Registration Rights. The Company covenants and agrees as
-------------------
follows:
1.1 Definitions. For purposes of this Section 1:
-----------
(a) The term "Act" shall mean the Securities Act of 1933, as
amended;
(b) The term "1934 Act" shall mean the Securities Exchange Act of
1934, as amended;
<PAGE>
(c) The term "register", "registered," and "registration" refer to
a registration effected by preparing and filing a registration statement or
similar document in compliance with the Act, and the declaration or ordering of
effectiveness of such registration statement or document;
(d) The term "Registrable Securities" means (i) the Common Stock
issuable or issued upon conversion of the Series A Preferred Stock, the Series B
Preferred Stock, the Series C Preferred Stock, the Series D Preferred Stock and
the Series E Preferred Stock of the Company, and (ii) any Common Stock of the
Company issued as (or issuable upon the conversion or exercise of any warrant,
right or other security which is issued as) a dividend or other distribution
with respect to, or in exchange for or in replacement of, the securities
referred to in subsection (i) above, excluding in all cases, however, any
Registrable Securities sold by a person in a transaction in which his rights
under this Section 1 are not assigned; provided, however, that Common Stock or
other securities shall only be treated as Registrable Securities if and so long
as (A) they have not been sold to or through a broker or dealer or underwriter
in a public distribution or a public securities transaction, (B) they have not
been sold in a transaction exempt from the registration and prospectus delivery
requirements of the Act under Section 4(1) thereof so that all transfer
restrictions and restrictive legends with respect thereto are removed upon the
consummation of such sale, and (C) the registration rights associated with such
securities have not been terminated pursuant to Section 1.15 hereof;
(e) The number of shares of "Registrable Securities then
outstanding" shall be determined by the number of shares of Common Stock
outstanding which are, and the number of shares of Common Stock issuable
pursuant to then exercisable or convertible securities which are, Registrable
Securities;
(f) The term "Holder" means any person owning or having the right to
acquire Registrable Securities or any assignee thereof in accordance with
Section 1.12 hereof; and
(g) The term "Form S-3" means such form under the Act as in effect
on the date hereof or any registration form under the Act subsequently adopted
by the Securities and Exchange Commission ("SEC") which permits inclusion or
incorporation of substantial information by reference to other documents filed
by the Company with the SEC.
1.2 Request for Registration.
------------------------
(a) If the Company shall receive at any time after the earlier of
(i) February 10, 1999, or (ii) three (3) months after the effective date of the
first registration statement for a public offering of securities of the Company
(other than a registration statement relating either to the sale of securities
to employees of the Company pursuant to a stock option, stock purchase or
similar plan or a SEC Rule 145 transaction), a written request from the Holders
of forty percent (40%) of the Registrable Securities then outstanding that the
Company file a registration statement under the Act covering the registration of
the Registrable Securities then outstanding then, if the anticipated aggregate
offering price would exceed $10,000,000, the Company shall, within ten (10) days
of the receipt thereof, give written notice of such request to all Holders in
accordance with Section 4.5 hereof and shall, subject to the limitations of
subsection 1.2(b), use
-2-
<PAGE>
its best efforts to effect as soon as practicable, and in any event within sixty
(60) days of the receipt of such request, the filing of such registration
statement under the Act covering the registration of all Registrable Securities
which the Holders request to be registered within twenty (20) days of the
mailing of such notice by the Company.
(b) If the Holders initiating the registration request hereunder
("Initiating Holders") intend to distribute the Registrable Securities covered
by their request by means of an underwriting, they shall so advise the Company
as a part of their request made pursuant to this Section 1.2 and the Company
shall include such information in the written notice referred to in subsection
1.2(a). The underwriter will be selected by a majority in interest of the
Initiating Holders and shall be reasonably acceptable to the Company. In such
event, the right of any Holder to include his Registrable Securities in such
registration shall be conditioned upon such Holder's participation in such
underwriting and the inclusion of such Holder's Registrable Securities in the
underwriting (unless otherwise mutually agreed by a majority in interest of the
Initiating Holders and such Holder) to the extent provided herein. All Holders
proposing to distribute their securities through such underwriting shall
(together with the Company as provided in subsection 1.4(e)) enter into an
underwriting agreement in customary form with the underwriter or underwriters
selected for such underwriting by a majority in interest of the Initiating
Holders. Notwithstanding any other provision of this Section 1.2, if the
underwriter advises the Initiating Holders in writing that marketing factors
require a limitation of the number of shares to be underwritten, then the
Initiating Holders shall so advise all Holders of Registrable Securities which
would otherwise be underwritten pursuant hereto, and the number of shares of
Registrable Securities that may be included in the underwriting shall be
allocated among all Holders thereof, including the Initiating Holders, in
proportion (as nearly as practicable) to the amount of Registrable Securities of
the Company owned by each Holder; provided, however, that the number of shares
of Registrable Securities to be included in such underwriting shall not be
reduced unless all other securities are first entirely excluded from the
underwriting.
(c) The Company is obligated to effect only one (1) such
registration pursuant to this Section 1.2; provided, that the Company shall not
be obligated to effect a registration within ninety (90) days after the
effective date of a registration statement covering stock or securities sold by
the Company other than (i) a registration relating solely to the sale of
securities to participants in a Company stock plan, or (ii) a registration on
any form which does not include substantially the same information as would be
required to be included in a registration statement covering the sale of the
Registrable Securities or (iii) a registration in which the only Common Stock
being registered is Common Stock issuable upon conversion of debt securities
which are also being registered.
(d) Notwithstanding the foregoing, if the Company shall furnish to
Holders requesting a registration statement pursuant to this Section 1.2, a
certificate signed by the President of the Company stating that in the good
faith judgment of the Board of Directors of the Company, it would be seriously
detrimental to the Company and its shareholders for such registration statement
to be filed and it is therefore essential to defer the filing of such
registration statement, the Company shall have the right to defer such filing
for a period of not more than 120 days after receipt of the request of the
Initiating Holders; provided, however, that the Company may not utilize this
right more than once in any twelve month period.
-3-
<PAGE>
1.3 Company Registration. If (but without any obligation to do so)
--------------------
the Company proposes to register (including for this purpose a registration
effected by the Company for shareholders other than the Holders) any of its
stock or other securities under the Act in connection with the public offering
of such securities solely for cash (other than a registration relating solely to
the sale of securities to participants in a Company stock plan, or a
registration on any form which does not include substantially the same
information as would be required to be included in a registration statement
covering the sale of the Registrable Securities, or a registration in which the
only Common Stock being registered is Common Stock issuable upon conversion of
debt securities which are also being registered), the Company shall, at such
time, promptly give each Holder written notice of such registration in
accordance with Section 4.5. Upon the written request of any Holder given
within twenty (20) days after mailing of such notice by the Company, the Company
shall, subject to the provisions of Section 1.7, cause to be registered under
the Act all of the Registrable Securities that each such Holder has requested to
be registered.
1.4 Obligations of the Company. Whenever required under this
--------------------------
Section 1 to effect the registration of any Registrable Securities, the Company
shall, as expeditiously as reasonably possible:
(a) Prepare and file with the SEC a registration statement with
respect to such Registrable Securities and use its best efforts to cause such
registration statement to become effective, and, upon the request of the Holders
of a majority of the Registrable Securities registered thereunder, keep such
registration statement effective for up to one hundred twenty (120) days;
(b) Prepare and file with the SEC such amendments and supplements to
such registration statement and the prospectus used in connection with such
registration statement as may be necessary to comply with the provisions of the
Act with respect to the disposition of all securities covered by such
registration statement;
(c) Furnish to the Holders such numbers of copies of a prospectus,
including a preliminary prospectus, in conformity with the requirements of the
Act, and such other documents as they may reasonably request in order to
facilitate the disposition of Registrable Securities owned by them;
(d) Use its best efforts to register and qualify the securities
covered by such registration statement under such other securities or Blue Sky
laws of such jurisdictions as shall be reasonably requested by the Holders,
provided that the Company shall not be required in connection therewith or as a
condition thereto to qualify to do business or to file a general consent to
service of process in any such states or jurisdictions;
(e) In the event of any underwritten public offering, enter into and
perform its obligations under an underwriting agreement, in usual and customary
form, with the managing underwriter(s) of such offering. Each Holder
participating in such underwriting shall also enter into and perform its
obligations under such an agreement;
-4-
<PAGE>
(f) Notify each Holder of Registrable Securities covered by such
registration statement at any time when a prospectus relating thereto is
required to be delivered under the Act of the happening of any event as a result
of which the prospectus included in such registration statement, as then in
effect, includes an untrue statement of a material fact or omits to state a
material fact required to be stated therein or necessary to make the statements
therein not misleading in the light of the circumstances then existing; and
(g) Use its best efforts to furnish, at the request of any Holder
requesting registration of Registrable Securities pursuant to this Section 1, on
the date that such Registrable Securities are delivered to the underwriters for
sale in connection with a registration pursuant to this Section 1, if such
securities are being sold through underwriters, or, if such securities are not
being sold through underwriters, on the date that the registration statement
with respect to such securities becomes effective, (i) an opinion, dated such
date, of the counsel representing the Company for the purposes of such
registration, in form and substance as is customarily given to underwriters in
an underwritten public offering, addressed to the underwriters, if any, and to
the Holders requesting registration of Registrable Securities and (ii) a letter
dated such date, from the independent certified public accountants of the
Company, in form and substance as is customarily given by independent certified
public accountants to underwriters in an underwritten public offering, addressed
to the underwriters, if any, and to the Holders requesting registration of
Registrable Securities.
1.5 Furnish Information.
-------------------
(a) It shall be a condition precedent to the obligations of the
Company to take any action pursuant to this Section 1 with respect to the
Registrable Securities of any selling Holder that such Holder shall furnish to
the Company such information regarding itself, the Registrable Securities held
by it, and the intended method of disposition of such securities as shall be
required to effect the registration of such Holder's Registrable Securities.
(b) The Company shall have no obligation with respect to any
registration requested pursuant to Section 1.2 or Section 1.11 if, due to the
operation of subsection 1.5(a), the anticipated aggregate offering price of the
Registrable Securities to be included in the registration does not equal or
exceed the anticipated aggregate offering price required to originally trigger
the Company's obligation to initiate such registration as specified in
subsection 1.2(a) or subsection 1.11(b)(2), whichever is applicable.
1.6 Expenses of Registrations. All expenses other than underwriting
-------------------------
discounts and commissions incurred in connection with registrations, filings or
qualifications pursuant to Sections 1.2, 1.3 and 1.11 including, without
limitation, all registration, filing and qualification fees, printers' and
accounting fees, fees and disbursements of counsel for the Company (which
counsel shall also represent the selling Holders), shall be borne by the
Company. The Company shall bear the reasonable fees and disbursements of one
counsel for the selling Holders in an amount not to exceed 20% of the fees and
disbursements of Company counsel for such offering if (a) the underwriters of
such offering require separate counsel for the selling Holders, or (b) if a
majority in interest of the selling Holders reasonably determines that there is
a conflict of interest that requires separate counsel for the selling Holders.
-5-
<PAGE>
1.7 Underwriting Requirements. In connection with any offering
-------------------------
involving an underwriting of shares of the Company's capital stock, the Company
shall not be required under Section 1.3 to include any of the Holders'
securities in such underwriting unless they accept the terms of the underwriting
as agreed upon between the Company and the underwriters selected by it (or by
other persons entitled to select the underwriters), and then only in such
quantity as the underwriters determine in their sole discretion will not,
jeopardize the success of the offering by the Company. If the total amount of
securities, including Registrable Securities, requested by shareholders to be
included in such offering exceeds the amount of securities sold other than by
the Company that the underwriters determine in their sole discretion is
compatible with the success of the offering, then the Company shall be required
to include in the offering only that number of such securities, including
Registrable Securities, which the underwriters determine in their sole
discretion will not jeopardize the success of the offering (the securities so
included to be apportioned pro rata among the selling shareholders according to
the total amount of securities entitled to be included therein owned by each
selling shareholder or in such other proportions as shall mutually be agreed to
by such selling shareholders) but in no event shall the amount of securities of
the selling shareholders included in the offering be reduced below twenty
percent (20%) of the total amount of securities included in such offering,
unless such offering is the initial public offering of the Company's securities
in which case the selling shareholders may be excluded if the underwriters make
the determination described above and no other shareholder's securities are
included. For purposes of the preceding parenthetical concerning apportionment,
for any selling shareholder which is a holder of Registrable Securities and
which is a partnership or corporation, the partners, retired partners and
shareholders of such holder, or the estates and family members of any such
partners and retired partners and any trusts for the benefit of any of the
foregoing persons shall be deemed to be a single "selling shareholder", and any
pro-rata reduction with respect to such "selling shareholder" shall be based
upon the aggregate amount of shares carrying registration rights owned by all
entities and individuals included in such "selling shareholder", as defined in
this sentence.
1.8 Delay of Registration. No Holder shall have any right to obtain
---------------------
or seek an injunction restraining or otherwise delaying any such registration as
the result of any controversy that might arise with respect to the
interpretation or implementation of this Section 1.
1.9 Indemnification. In the event any Registrable Securities are
---------------
included in a registration statement under this Section 1:
(a) To the extent permitted by law, the Company will indemnify and
hold harmless each Holder, any underwriter (as defined in the Act) for such
Holder and each person, if any, who controls such Holder or underwriter within
the meaning of the Act or the 1934 Act, against any losses, claims, damages, or
liabilities (joint or several) or action to which they may become subject under
the Act, the 1934 Act or other federal or state law or regulation, insofar as
such losses, claims, damages, or liabilities (or actions in respect thereof)
arise out of or are based upon any of the following statements, omissions or
violations (collectively a "Violation"): (i) any untrue statement or alleged
untrue statement of a material fact contained in such registration statement,
including any preliminary prospectus or final prospectus contained therein or
any amendments or supplements thereto, (ii) the omission or alleged omission to
state therein a material fact required to be stated therein, or necessary to
make the statements therein not misleading, or (iii) any violation or alleged
violation by the Company of the Act, the 1934 Act,
-6-
<PAGE>
any state securities law or any rule or regulation promulgated under the Act,
the 1934 Act or any state securities law; and the Company will pay to each such
Holder, underwriter or controlling person, as incurred, any legal or other
expenses reasonably incurred by them in connection with investigating or
defending any such loss, claim, damage, liability, or action; provided, however,
that the indemnity agreement contained in this subsection 1.9(a) shall not apply
to amounts paid in settlement of any such loss, claim, damage, liability, or
action if such settlement is effected without the consent of the Company (which
consent shall not be unreasonably withheld), nor shall the Company be liable in
any such case for any such loss, claim, damage, liability, or action to the
extent that it arises out of or is based upon a Violation which occurs in
reliance upon and in conformity with written information furnished expressly for
use in connection with such registration by any such Holder, underwriter or
controlling person.
(b) To the extent permitted by law, each selling Holder will
indemnify and hold harmless the Company, each of its directors, each of its
officers who has signed the registration statement, each person, if any, who
controls the Company within the meaning of the Act, any underwriter, any other
Holder selling securities in such registration statement and any controlling
person of any such underwriter or other Holder, against any losses, claims,
damages, or liabilities (joint or several) to which any of the foregoing persons
may become subject, under the Act, the 1934 Act or other federal or state law or
regulation, insofar as such losses, claims, damages, or liabilities (or actions
in respect thereto) arise out of or are based upon any Violation, in each case
to the extent (and only to the extent) that such Violation occurs in reliance
upon and in conformity with written information furnished by such Holder
expressly for use in connection with such registration; and each such Holder
will pay, as incurred, any legal or other expenses reasonably incurred by any
person intended to be indemnified pursuant to this subsection 1.9(b), in
connection with investigating or defending any such loss, claim, damage,
liability, or action; provided, however, that the indemnity agreement contained
in this subsection 1.9(b) shall not apply to amounts paid in settlement of any
such loss, claim, damage, liability or action if such settlement is effected
without the consent of the Holder, which consent shall not be unreasonably
withheld; provided, that, in no event shall any indemnity under this subsection
1.9(b) exceed the gross proceeds from the offering received by such Holder.
(c) Promptly after receipt by an indemnified party under this Section
1.9 of notice of the commencement of any action (including any governmental
action), such indemnified party will, if a claim in respect thereof is to be
made against any indemnifying party under this Section 1.9, deliver to the
indemnifying party a written notice of the commencement thereof and the
indemnifying party shall have the right to participate in, and, to the extent
the indemnifying party so desires, jointly with any other indemnifying party
similarly noticed, to assume the defense thereof with counsel mutually
satisfactory to the parties; provided, however, that an indemnified party
(together with all other indemnified parties which may be represented without
conflict by one counsel) shall have the right to retain one separate counsel,
with the fees and expenses to be paid by the indemnifying party, if
representation of such indemnified party by the counsel retained by the
indemnifying party would be inappropriate due to actual or potential differing
interests between such indemnified party and any other party represented by such
counsel in such proceeding. The failure to deliver written notice to the
indemnifying party within a reasonable time of the commencement of any such
action, if prejudicial to its ability to defend such action, shall relieve such
indemnifying party of any liability to the indemnified party under this Section
-7-
<PAGE>
1.9, but the omission so to deliver written notice to the indemnifying party
will not relieve it of any liability that it may have to any indemnified party
otherwise than under this Section 1.9.
(d) If the indemnification provided for in this Section 1.9 is held
by a court of competent jurisdiction to be unavailable to an indemnified party
with respect to any loss, liability, claim, damage, or expense referred to
therein, then the indemnifying party, in lieu of indemnifying such indemnified
party hereunder, shall contribute to the amount paid or payable by such
indemnified party as a result of such loss, liability, claim, damage, or expense
in such proportion as is appropriate to reflect the relative fault of the
indemnifying party on the one hand and of the indemnified party on the other in
connection with the statements or omissions that resulted in such loss,
liability, claim, damage, or expense as well as any other relevant equitable
considerations. The relative fault of the indemnifying party and of the
indemnified party shall be determined by reference to, among other things,
whether the untrue or alleged untrue statement of a material fact or the
omission to state a material fact relates to information supplied by the
indemnifying party or by the indemnified party and the parties' relative intent,
knowledge, access to information, and opportunity to correct or prevent such
statement or omission.
(e) Notwithstanding the foregoing, to the extent that the provisions
on indemnification and contribution contained in the underwriting agreement
entered into in connection with the underwritten public offering are in conflict
with the foregoing provisions, the provisions in the underwriting agreement
shall control.
(f) The obligations of the Company and Holders under this Section
1.9 shall survive the completion of any offering of Registrable Securities in a
registration statement under this Section 1, and otherwise.
1.10 Reports Under Securities Exchange Act of 1934. With a view to
---------------------------------------------
making available to the Holders the benefits of Rule 144 promulgated under the
Act and any other rule or regulation of the SEC that may at any time permit a
Holder to sell securities of the Company to the public without registration or
pursuant to a registration on Form S-3, the Company agrees to:
(a) make and keep public information available, as those terms are
understood and defined in SEC Rule 144, at all times after ninety (90) days
after the effective date of the first registration statement filed by the
Company for the offering of its securities to the general public;
(b) take such action, including the voluntary registration of its
Common Stock under Section 12 of the 1934 Act, as is necessary to enable the
Holders to utilize Form S-3 for the sale of their Registrable Securities, such
action to be taken as soon as practicable after the end of the fiscal year in
which the first registration statement filed by the Company for the offering of
its securities to the general public is declared effective;
(c) file with the SEC in a timely manner all reports and other
documents required of the Company under the Act and the 1934 Act; and
(d) furnish to any Holder, so long as the Holder owns any
Registrable Securities, forthwith upon request (i) a written statement by the
Company that it has complied with the reporting requirements of SEC Rule 144 and
Rule 144A (at any time after ninety (90)
-8-
<PAGE>
days after the effective date of the first registration statement filed by the
Company), the Act and the 1934 Act (at any time after it has become subject to
such reporting requirements), or that it qualifies as a registrant whose
securities may be resold pursuant to Form S-3 (at any time after it so
qualifies), (ii) a copy of the most recent annual or quarterly report of the
Company and such other reports and documents so filed by the Company, and (iii)
such other information as may be reasonably requested in availing any Holder of
any rule or regulation of the SEC which permits the selling of any such
securities without registration or pursuant to such form.
1.11 Form S-3 Registration. In case the Company shall receive from
---------------------
any Holder or Holders of twenty percent (20%) or more of the Registrable
Securities then outstanding a written request or requests that the Company
effect a registration on Form S-3 and any related qualification or compliance
with respect to all or a part of the Registrable Securities owned by such Holder
or Holders, the Company will:
(a) promptly give written notice of the proposed registration, and
any related qualification or compliance, to all other Holders; and
(b) as soon as practicable, effect such registration and all such
qualifications and compliances as may be so requested and as would permit or
facilitate the sale and distribution of all or such portion of such Holder's or
Holders' Registrable Securities as are specified in such request, together with
all or such portion of the Registrable Securities of any other Holder or Holders
joining in such request as are specified in a written request given within 15
days after receipt of such written notice from the Company; provided, however,
that the Company shall not be obligated to effect any such registration,
qualification or compliance, pursuant to this section 1.11: (1) if Form S-3 is
not available for such offering by the Holders; (2) if the Holders, together
with the holders of any other securities of the Company entitled to inclusion in
such registration, propose to sell Registrable Securities and such other
securities (if any) at an aggregate price to the public (net of any
underwriters' discounts or commissions) of less than $500,000; (3) if the
Company shall furnish to the Holders a certificate signed by the President of
the Company stating that in the good faith judgment of the Board of Directors of
the Company, it would be seriously detrimental to the Company and its
shareholders for such Form S-3 Registration to be effected at such time, in
which event the Company shall have the right to defer the filing of the Form S-3
registration statement for a period of not more than 120 days after receipt of
the request of the Holder or Holders under this Section 1.11; provided, however,
that the Company shall not utilize this right more than once in any twelve month
period; or (4) in any particular jurisdiction in which the Company would be
required to qualify to do business or to execute a general consent to service of
process in effecting such registration, qualification or compliance.
(c) Subject to the foregoing, the Company shall file a registration
statement covering the Registrable Securities and other securities so requested
to be registered as soon as practicable after receipt of the request or requests
of the Holders. Registrations effected pursuant to this Section 1.11 shall not
be counted as a demand for registration effected pursuant to Section 1.2.
1.12 Assignment of Registration Rights. The rights to cause the
---------------------------------
Company to register Registrable Securities pursuant to this Section 1 may be
assigned (but only with all related obligations) by a Holder to a transferee or
assignee of such securities who, after such assignment
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<PAGE>
or transfer, holds at least 50,000 shares of Registrable Securities (subject to
appropriate adjustment for stock splits, stock dividends, combinations and other
recapitalizations), or less, if all of such Holder's Registrable Securities are
being transferred, provided the Company is, within a reasonable time after such
transfer, furnished with written notice of the name and address of such
transferee or assignee and the securities with respect to which such
registration rights are being assigned. For the purposes of determining the
number of shares of Registrable Securities held by a transferee or assignee, the
holdings of transferees and assignees of a partnership who are partners or
retired partners of such partnership (including spouses and ancestors, lineal
descendants and siblings of such partners or spouses who acquire Registrable
Securities by gift, will or intestate succession) shall be aggregated together
and with the partnership; provided that all assignees and transferees who would
not qualify individually for assignment of registration rights shall have a
single attorney-in-fact for the purpose of exercising any rights, receiving
notices or taking any action under this Section 1.
1.13 Limitations on Subsequent Registration Rights. From and after
---------------------------------------------
the date of this Agreement, the Company shall not, without the prior written
consent of the Holders of a majority of the outstanding Registrable Securities,
enter into any agreement with any holder or prospective holder of any securities
of the Company which would allow such holder or prospective holder (a) to
include such securities in any registration filed under Section 1.2 hereof,
unless under the terms of such agreement, such holder or prospective holder may
include such securities in any such registration only to the extent that the
inclusion of his securities will not reduce the amount of the Registrable
Securities of the Holders which is included or (b) to make a demand registration
which could result in such registration statement being declared effective prior
to the earlier of either of the dates set forth in subsection 1.2(a) or within
one hundred twenty (120) days of the effective date of any registration effected
pursuant to Section 1.2.
1.14 "Market Stand-Off" Agreement. Each Holder hereby agrees that,
----------------------------
during the period of duration specified by the Company or an underwriter of
Common Stock or other securities of the Company, following the date of the first
sale to the public pursuant to a registration statement of the Company filed
under the Act, it shall not, to the extent requested by the Company and such
underwriter, directly or indirectly sell, offer to sell, contract to sell
(including, without limitation, any short sale), grant any option to purchase or
otherwise transfer or dispose of (other than to donees who agree to be similarly
bound) any securities of the Company held by it at any time during such period
except Common Stock included in such registration; provided, however, that:
(a) such agreement shall be applicable only during the period that
the registration rights granted hereunder are in effect;
(b) all shareholders and optionees of the Company and all other
persons with registration rights (whether or not pursuant to this Agreement)
enter into similar agreements;
(c) such period shall not exceed one hundred eighty (180) days
beginning the day after the date of such first sale to the public.
In order to enforce the foregoing covenant, the Company may impose
stop-transfer instructions with respect to the Registrable Securities of each
Investor (and the
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<PAGE>
shares or securities of every other person subject to the foregoing restriction)
until the end of such period.
1.15 Termination of Registration Rights. No Holder shall be entitled
----------------------------------
to exercise any right provided for in this Section 1 after five (5) years
following the consummation of the sale of securities pursuant to a registration
statement filed by the Company under the Act in connection with the initial firm
commitment underwritten offering of its securities to the general public.
2. Covenants of the Company.
------------------------
2.1 Delivery of Financial Statements. The Company shall deliver to
--------------------------------
Merifin Capital N.V., the Michael P. Galvin 1994 Trust and to each Investor who
holds at least 200,000 shares of the Company's Series C, Series D and/or Series
E Preferred Stock ("Major Investor"):
(a) as soon as practicable, but in any event within ninety (90) days
after the end of each fiscal year of the Company, an income statement for such
fiscal year, a balance sheet of the Company and statement of changes in
financial positions as of the end of such year, and a schedule as to the sources
and applications of funds for such year, such year-end financial reports to be
in reasonable detail, prepared in accordance with generally accepted accounting
principles ("gaap"), and audited and certified by independent public accountants
of nationally recognized standing selected by the Company pursuant to Section
2.5 below. If applicable the Company shall also distribute the management
letter delivered by such accountants.
(b) as soon as practicable, but in any event within forty-five (45)
days after the end of each of the first three (3) quarters of each fiscal year
of the Company, an unaudited profit or loss statement, schedule as to the
sources and application of funds for such fiscal quarter, an unaudited balance
sheet, a statement of changes in financial positions as of the end of such
fiscal quarter, and a statement showing the number of shares of each class and
series of capital stock and securities convertible into or exercisable for
shares of capital stock outstanding at the end of the period, the number of
common shares issuable upon conversion or exercise of any outstanding securities
convertible or exercisable for common shares and the exchange ratio or exercise
price applicable thereto, all in sufficient detail as to permit the Investor to
calculate its percentage equity ownership in the Company.
(c) within thirty (30) days of the end of each month, an unaudited
income statement and schedule as to the sources and application of funds and
balance sheet for and as of the end of such month, in reasonable detail.
(d) as soon as practicable, but in any event thirty (30) days prior
to the end of each fiscal year, a budget and business plan for the next fiscal
year, prepared on a monthly basis, including balance sheets and sources and
applications of funds statements for such months and, as soon as prepared, any
other budgets or revised budgets prepared by the Company.
(e) with respect to the financial statements called for in
subsections (b) and (c) of this Section 2.1, an instrument executed by the Chief
Financial Officer or President of the Company and certifying that such financial
statements were prepared in accordance with gaap
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<PAGE>
consistently applied with prior practice for earlier periods (with the exception
of footnotes that may be required by gaap) and fairly present the financial
condition of the Company and its results of operation for the period specified,
subject to year-end audit adjustment.
(f) such other information relating to the financial condition,
business, prospects or corporate affairs of the Company as the Investor or any
assignee of the Investor may from time to time reasonably request, provided,
however, that the Company shall not be obligated under this subsection (f) or
any other subsection of Section 2.1 to provide information which it deems in
good faith to be a trade secret or similar confidential information.
The Company shall also deliver to each party hereto who holds at least
25,000 shares of the Company's Series A Preferred Stock the items set forth in
Sections 2.1 (a) and (b) above.
2.2 Inspection. The Company shall permit each Major Investor, at
----------
such Major Investor's expense, to visit and inspect the Company's properties, to
examine its books of account and records and to discuss the Company's affairs,
finances and accounts with its officers, all at such reasonable times as may be
requested by the Investor; provided, however, that the Company shall not be
obligated pursuant to this Section 2.2 to provide access to any information
which it reasonably considers to be a trade secret or similar confidential
information.
2.3 Termination of Information and Inspection Covenants. The
---------------------------------------------------
covenants set forth in Sections 2.1 and 2.2 shall terminate and be of no further
force or effect when the sale of equity securities pursuant to a registration
statement filed by the Company under the Act in connection with the firm
commitment underwritten offering of its equity securities to the general public
is consummated or when the Company first becomes subject to the periodic
reporting requirements of Sections 12(g) or 15(d) of the 1934 Act based upon the
public sale of its equity securities or the widespread holding of its equity
securities, whichever of the above events shall first occur.
2.4 D&O Insurance. The Company hereby covenants to maintain
-------------
directors and officers liability insurance if adequate coverage (as determined
by the Board of Directors) is available for an annual premium of $50,000 or
less.
2.5 Selection of Auditors. The Company will continue to engage as
---------------------
its auditor a "Big-6" accounting firm.
2.6 Right of First Offer on Sales by the Company. Subject to the
--------------------------------------------
terms and conditions specified in this Section 2.6, the Company hereby grants to
each Investor and each Prior Investor a right of first offer with respect to
future sales by the Company of its Shares (as hereinafter defined). For
purposes of this Section 2.6, the terms "Investor" and "Prior Investor" include
any general partners and affiliates of an Investor. The Investor or Prior
Investor shall be entitled to apportion the right of first offer hereby granted
it among itself and its partners and affiliates in such proportions as it deems
appropriate.
Each time the Company proposes to offer any shares of, or securities
convertible into or exercisable for any shares of, any class of its capital
stock ("Shares"), the Company shall
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<PAGE>
first make an offering of such Shares to each Investor and each Prior Investor
in accordance with the following provisions:
(a) The Company shall deliver a notice by certified mail ("Notice")
to the Investors and the Prior Investors stating (i) its bona fide intention to
offer such Shares, (ii) the number of such Shares to be offered, and (iii) the
price and terms, if any, upon which it proposes to offer such Shares.
(b) Within 20 calendar days after receipt of the Notice, the
Investor or Prior Investor may elect to purchase or obtain, at the price and on
the terms specified in the Notice, up to that portion of such Shares which
equals the proportion that the number of shares of Common Stock beneficially
owned, or issuable upon conversion of the Preferred Stock then held by such
Investor or Prior Investor bears to the total number of shares of Common Stock
of the Company then outstanding (assuming full conversion and exercise of all
convertible or exercisable securities).
(c) If all Shares referred to in the Notice are not elected to be
obtained as provided in subsection 2.6(b) hereof, the Company may, during the
60-day period following the expiration of the period provided in subsection
2.6(b) hereof, offer the unsubscribed portion of such Shares to any person or
persons at a price not less than, and upon terms no more favorable to the
offeree than those specified in the Notice. If the Company does not enter into
an agreement for the sale of the Shares within such period, or if such agreement
is not consummated within 30 days of the execution thereof, the right provided
hereunder shall be deemed to be revived and such Shares shall not be offered
unless first reoffered to the Investors and the Prior Investors in accordance
herewith.
(d) The right of first offer in this Section 2.6 shall not be
applicable to (i) the issuance or sale of up to a total of 711,000 shares of
Common Stock or options therefor (subject to appropriate adjustment for stock
splits, stock dividends, combinations and other recapitalizations) issuable to
employees, directors or consultants of the Company pursuant to stock options
currently outstanding or to be granted or issued or sold directly or pursuant to
a stock benefit plan adopted or to be adopted by the Board of Directors, (ii) a
bona fide, firmly underwritten public offering of shares of Common Stock,
registered under the Act pursuant to a registration statement on Form S-1, (iii)
the issuance of securities pursuant to the conversion or exercise of convertible
or exercisable securities, including the Series A, Series B, Series C, Series D
and Series E Preferred Stock, (iv) the issuance of securities in connection with
a bona fide business acquisition of or by the Company, whether by merger,
consolidation, sale of assets, sale or exchange of stock or otherwise, (v)
pursuant to stock splits, dividends or recapitalizations with respect to the
then-outstanding securities of the Company; provided that such issuance is pro
rata to the security holdings then outstanding, or (vi) the issuance of Series E
Preferred Stock pursuant to the Purchase Agreement.
(e) The right of first offer set forth in this Section 2.6 shall
terminate as to the Investors and the Prior Investors and be of no further force
or effect when the sale of equity securities pursuant to a registration
statement filed by the Company under the Act in connection with the firm
commitment underwritten offering of its equity securities to the general public
is consummated or when the Company first becomes subject to the periodic
reporting requirements
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<PAGE>
of Sections 12(g) or 15(d) of the 1934 Act based upon the public sale of its
equity securities or the widespread holding of its equity securities, whichever
of the above events shall first occur.
3. Covenants of the Investors.
--------------------------
3.1 Right of First Offer on Sales by Series C Investors.
---------------------------------------------------
(a) Subject to the terms and conditions specified in this Section
3.1, each Series C Investor, severally but not jointly, hereby grants to the
Company and each Common Shareholder (as hereinafter defined) a right of first
offer with respect to future sales by each Series C Investor of its Investor
Shares (as hereinafter defined). "Series C Investors" are indicated by the "*"
next to such entity's name on either Schedule A or Schedule B attached hereto.
The term "Common Shareholder" means each individual listed under the
heading "Common Shareholders" on Schedule B hereto; provided, that each such
individual shall only be deemed a Common Shareholder so long as such individual
provides services to the Company as an employee, consultant or member of the
Board of Directors, provided, however, that irrespective of whether he is
employed by the Company, Mr. Sirangelo shall be deemed a Common Shareholder so
long as he owns at least 7.5% of the Company's voting securities; (ii) the term
"Offering Investor" means an Series C Investor that wishes to sell its Investor
Shares; and (ii) the term "Investor Shares" means, as to each Series C Investor,
any shares of Series C Preferred Stock of the Company and any shares of Common
Stock of the Company issued or issuable upon conversion thereof, now or
hereinafter beneficially owned, directly or indirectly, by such Series C
Investor.
Each time a Series C Investor proposes to offer any Investor Shares,
such Offering Investor shall first make an offering of such Shares to the
Company and the Common Shareholders in accordance with the following provisions:
(b) The Offering Investor shall deliver a notice ("Investor Notice")
to the Company stating (i) its bona fide intention to offer such Investor
Shares, (ii) the number of such Investor Shares to be offered, and (iii) the
price and terms, if any, upon which it proposes to offer such Investor Shares.
(c) The Company shall, upon receipt of the Investor Notice, promptly
deliver a copy of such Investor Notice to each of the Common Shareholders and
each Investor.
(d) Within 20 calendar days after receipt of the Investor Notice by
the Company, the Common Shareholders shall inform the Company in writing as to
the number of Investor Shares they are willing to purchase. In the event a
Common Shareholder does not so notify the Company within such 20-day period,
such Common Shareholder shall not be allowed to purchase any of such Investor
Shares. If at least one Common Shareholder desires to purchase Investor Shares,
the Company shall, in its sole discretion, determine the allocation of the
Investor Shares among those Common Shareholders desiring to purchase the
Investor Shares and the Company.
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<PAGE>
(e) Within 30 calendar days after receipt of the Investor Notice by
the Company, the Company shall notify the Offering Investor as to those number
of Investor Shares offered by the Offering Investor will be purchased by the
Company and the Common Shareholders, and the allocation thereof. If such
notification is not made, then the Company and the Common Shareholders shall be
deemed to have waived their right of first offer pursuant to this Section 3.1.
(f) If all Investor Shares referred to in the Notice are not elected
to be obtained as provided in subsection 3.1(e) hereof, then subject to the
provisions of Section 3.2 below, the Offering Investor may, during the 180-day
period following the expiration of the period provided in subsection 3.1(e)
hereof, offer the remaining unsubscribed portion of such Investor Shares to any
person or persons at a price not less than ninety percent (90%) of the price set
forth in the Investor Notice and, if no portion of the Investor Shares were
purchased by the Company or the Common Shareholders pursuant to this Section
3.1, for not less than ninety percent (90%) of the number of Investor Shares set
forth in the Investor Notice. If the Offering Investor does not consummate the
sale of the Investor Shares within such period the right provided hereunder
shall be deemed to be revived and such Investor Shares shall not be offered
unless first reoffered to the Company and the Common Shareholders in accordance
herewith. Any transferee of Investor Shares shall agree to become a party to
this Agreement.
(g) The right of first offer in this Section 3.1 shall not be
applicable (i) to a transfer by a Series C Investor which is a partnership to a
partner of such partnership or a retired partner of such partnership who retires
after the date hereof, or to the estate of any such partner or retired partner
or the transfer by gift, will or intestate succession of any partner to his
spouse or to the siblings, lineal descendants or ancestors of such partner or
his spouse who agrees to become a party to this Agreement, (ii) to a sale of
Investor Shares by a Series C Investor pursuant to a bona fide, firmly
underwritten public offering of shares of Common Stock of the Company,
registered under the Act pursuant to a registration statement on Form S-1, or
(iii) to a sale of Investor Shares by a Series C Investor pursuant to the rights
set forth in Section 1 hereof.
(h) In the case of any transfer of title or beneficial ownership of
any Investor Shares upon death, bankruptcy, foreclosure, forfeit, divorce, court
order, or any other similar act having similar long-term consequences that is
not a voluntary decision of a Series C Investor, the Company shall have the
right to purchase such Investor Shares subject to the terms and conditions
specified in this Section 3.1.
(i) In the event of any transfers pursuant to subsections 3.1(g)(i)
and (h) above, the restrictions set forth in this Section 3.1 and in Section 3.2
shall continue to apply.
(j) The Series C Investors agree that they and any representative of
theirs shall abstain from any vote as to whether the Company's right of first
offer under this Section 3.1 shall be exercised with respect to their Investor
Shares.
(k) Subject to subsection 3.1(j) above, the Company agrees that it
may not exercise the right of first offer set forth in this Section 3.1 if the
holders of a majority of the shares held by the Investors object in writing to
the exercise of such right of first offer; provided, that
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<PAGE>
such objection by an Investor must be received by the Company within 14 calendar
days after receipt of the Investor Notice by such Investor and must be based on
reasonable grounds.
(l) No transfer of Investor Shares may be made except as
pursuant to this Section 3.1.
3.2 Right of Co-Sale held by Mr. Sirangelo on Sales by
--------------------------------------------------
Series C Investors.
- -------------------
(a) If, after the exercise or non-exercise (as the case may
be) of the right of first offer held by the Company and the Common Shareholders
and set forth in Section 3.1 there remains available all or any portion of the
Investor Shares (such remaining portion are hereinafter referred to as the "Co-
Sale Shares"), and the Offering Investor is selling the Co-Sale Shares pursuant
to subsection 3.1(f) above, Mr. Mark Sirangelo, one of the Common Shareholders,
shall have the right to sell shares of the Company owned by him, to such third
party upon written notice to the Offering Investor within ten (10) days after
the expiration of the 30-day period set forth in subsection 3.1(e) in an amount
equal to the product obtained by multiplying (i) the shares held by Mr.
Sirangelo at the time of such notice by (ii) a fraction the numerator of which
is the number of Co-Sale Shares and the denominator of which is the number of
shares at the time owned by the Offering Investor, upon substantially the terms
and conditions that the Offering Investor is selling the Co-Sale Shares to the
third party. To the extent Mr. Sirangelo exercises such right of co-sale, the
number of Co-Sale Shares which the Offering Investor may sell shall be
correspondingly reduced.
(b) The right of co-sale set forth in this Section 3.2 shall
not be applicable if the price per share paid by such purchasing third party
represents less than a 10% annual compounded growth rate with respect to an
initial price per share as of November 19, 1993 of $2.60, as appropriately
adjusted for any stock split, dividend, combination or other recapitalization.
3.3 Notification of Investments. In the event that an
---------------------------
Investor, Prior Investor or Potential Investor determines to purchase an
ownership interest in an entity that such Investor, Prior Investor or Potential
Investor has actual knowledge of the nature of its business and reasonably
determines is a competitor of the Company, such Investor, Prior Investor or
Potential Investor shall notify the Company within two business days after
execution of a binding agreement with respect to such investment.
3.4 Termination of Investors Covenants. The covenants set
----------------------------------
forth in Sections 3.1, 3.2 and 3.3 shall terminate as to the Investors, the
Prior Investors and Potential Investors and be of no further force or effect
upon the earlier of: (i) the consummation of the sale of equity securities
pursuant to a registration statement filed by the Company under the Act in
connection with the firm commitment underwritten offering of its equity
securities to the general public, (ii) the date the Company first becomes
subject to the periodic reporting requirements of Sections 12(g) or 15(d) of the
1934 Act based upon the public sale of its equity securities or the widespread
holding of its equity securities, (iii) November 19, 1997, or (iv) the date Mr.
Sirangelo is no longer Chief Executive Officer of the Company.
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<PAGE>
4. Miscellaneous.
-------------
4.1 Successors and Assigns. Except as otherwise provided
----------------------
herein, the terms and conditions of this Agreement shall inure to the benefit of
and be binding upon the respective successors and assigns of the parties
(including transferees of any shares of Registrable Securities). Nothing in this
Agreement, express or implied, is intended to confer upon any party other than
the parties hereto or their respective successors and assigns any rights,
remedies, obligations, or liabilities under or by reason of this Agreement,
except as expressly provided in this Agreement.
4.2 Governing Law. This Agreement shall be governed by and
-------------
construed under the laws of the Commonwealth of Virginia without giving effect
to the conflict of law provisions.
4.3 Counterparts. This Agreement may be executed in two or
------------
more counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
4.4 Titles and Subtitles. The titles and subtitles used in
--------------------
this Agreement are used for convenience only and are not to be considered in
construing or interpreting this Agreement.
4.5 Notices. Unless otherwise provided, any notice required
-------
or permitted under this Agreement shall be given in writing and shall be deemed
effectively given upon personal delivery to the party to be notified or upon
deposit with the United States Post Office, by registered or certified mail,
postage prepaid and addressed to the party to be notified at the address
indicated for such party on the signature page hereof, or at such other address
as such party may designate by ten (10) days' advance written notice to the
other parties.
4.6 Expenses. If any action at law or in equity is
--------
necessary to enforce or interpret the terms of this Agreement, the prevailing
party shall be entitled to reasonable attorneys' fees, costs and necessary
disbursements in addition to any other relief to which such party may be
entitled.
4.7 Amendments and Waivers. Any term of this Agreement may
----------------------
be amended and the observance of any term of this Agreement may be waived
(either generally or in a particular instance and either retroactively or
prospectively), only with the written consent of the Company and the holders of
a majority of the Common Stock issued or issuable upon conversion of the Series
C, Series D and Series E Preferred Stock then held; provided that (i) an
amendment or waiver of Section 1 shall also require the written consent of the
holders of a majority of the Registrable Securities then outstanding, (ii) an
amendment or waiver of Section 2 shall only require the written consent of the
holders of at least 60% of the securities then outstanding and held by Investors
and Prior Investors, considered as a single class, (iii) an amendment or waiver
of Section 3 shall also require the written consent of (A) the holders of a
majority of the Common Stock then held by the then-current Common Shareholders,
(B) Mr. Sirangelo, (C) the Company, and (D) holders of a majority of the shares
of Series C Preferred Stock held by the Series C
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<PAGE>
Investors. Notwithstanding the foregoing, but subject to the terms and
conditions of this Agreement, transferees of shares held by the Investors, the
Prior Investors and the Potential Investors may be added as parties to this
Agreement and parties who no longer beneficially own any shares of the Company's
stock may be removed as parties from this Agreement without the consent of the
parties hereto. Any amendment or waiver effected in accordance with this
paragraph shall be binding upon each holder of any of such securities (including
the securities into which such securities are convertible or exercisable) then
outstanding, each future holder of all such Registrable Securities and the
Company.
4.8 Severability. If one or more provisions of this
------------
Agreement are held to be unenforceable under applicable law, such provision
shall be excluded from this Agreement and the balance of the Agreement shall be
interpreted as if such provision were so excluded and shall be enforceable in
accordance with its terms.
4.9 Termination of Prior Agreements. The Company, the
-------------------------------
Investors, the Potential Investors and the Prior Investors agree that all rights
granted and covenants previously made with respect to the subject matter of
Sections 1, 2 and 3 of this Agreement, including without limitation the Prior
Agreement are hereby waived, released and terminated in their entirety and shall
have no further force or effect whatsoever.
4.10 Aggregation of Stock. All securities held or acquired by
--------------------
affiliated entities or persons shall be aggregated together for the purpose of
determining the availability of any rights under this Agreement.
4.11 Entire Agreement. This Agreement (including the
----------------
Schedules and Exhibits hereto, if any) constitutes the full and entire
understanding and agreement between the parties with regard to the subjects
hereof and thereof.
[REST OF PAGE LEFT INTENTIONALLY BLANK]
-18-
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of
the date first above written.
PRODUCTION GROUP INTERNATIONAL, INC.
By:
---------------------------------
Mark N. Sirangelo, President
Address: One Courthouse Metro
Suite 200
2200 Wilson Boulevard
Arlington, Virginia 22201
SIGNATURE PAGE TO SECOND RESTATED INVESTORS' RIGHTS AGREEMENT
<PAGE>
MELLON BANK, N.A., as Trustee for First Plaza
Group Trust (as directed by General Motors
Investment Management Corporation)
By:
-----------------------------------------------
Name:
---------------------------------------------
Title:
--------------------------------------------
Address: One Mellon Bank Center
Pittsburgh, PA 15258-0001
SIGNATURE PAGE TO SECOND RESTATED INVESTORS' RIGHTS AGREEMENT
<PAGE>
SIERRA VENTURES IV, a
California Limited Partnership
By its General Partner,
SV ASSOCIATES IV, L.P., a California Limited
Partnership
By:
------------------------------------
Peter C. Wendell
General Partner
Address: 3000 Sand Hill Road, Bldg 4, Suite 210
Menlo Park, California 94025
SIERRA VENTURES IV INTERNATIONAL, a California
Limited Partnership
By its General Partner,
SV ASSOCIATES IV, L.P., a California Limited
Partnership
By:
------------------------------------
Peter C. Wendell
General Partner
Address: 3000 Sand Hill Road, Bldg 4, Suite 210
Menlo Park, California 94025
SIGNATURE PAGE TO SECOND RESTATED INVESTORS' RIGHTS AGREEMENT
<PAGE>
MERIFIN CAPITAL N.V.
By:
--------------------------
Name:
--------------------------
Title:
--------------------------
Address: c/o Finabel S.A.
254 Route de Lausanne
CH-1292 Geneva, Chambesy, Switzerland
Attn: Guillaume de Rham
with a copy to: Merifin Capital
200 Park Avenue, 25th Floor
New York, NY 10166
Attn: Christopher Wright
SIGNATURE PAGE TO SECOND RESTATED INVESTORS' RIGHTS AGREEMENT
<PAGE>
ORCHID & CO., nominee for T. Rowe Price
Theshold Fund III, L.P.
By: T. Rowe Price Threshold Fund
Associates, Inc.
General Partner
By:
-------------------------------------
Name:
-----------------------------------
Title:
----------------------------------
Address: 100 East Pratt Street
Baltimore, Maryland 21202
SIGNATURE PAGE TO SECOND RESTATED INVESTORS' RIGHTS AGREEMENT
<PAGE>
TRIDENT CAPITAL PARTNERS FUND-I, L.P., a
Limited Partnership
By: TRIDENT CAPITAL, L.P., a Delaware
Limited Partnership
Title: General Partner
By: TRIDENT CAPITAL, INC.
Title: General Partner
By:
-------------------------------
Robert C. McCormack
Address: 2480 Sand Hill Road, Suite 201
Menlo Park, California 94025
190 South LaSalle Street, Suite 2760
Chicago, Illinois 60603
SIGNATURE PAGE TO SECOND RESTATED INVESTORS' RIGHTS AGREEMENT
<PAGE>
TRIDENT CAPITAL PARTNERS FUND-I, C.V., a
Netherlands Antilles Limited Partnership
By: TRIDENT CAPITAL, L.P., a Delaware
Limited Partnership
Title: Investment General Partner
By: TRIDENT CAPITAL, INC.
Title: General Partner
By:
----------------------------------
Robert C. McCormack, Co-Chairman
Address: 2480 Sand Hill Road, Suite 201
Menlo Park, California 94025
190 South LaSalle Street, Suite 2760
Chicago, Illinois 60603
SIGNATURE PAGE TO SECOND RESTATED INVESTORS' RIGHTS AGREEMENT
<PAGE>
MICHAEL P. GALVIN 1994 TRUST
By:
----------------------------
Title:
----------------------------
Address: 2000 L Street, Suite 200
Washington, D.C. 20036
SIGNATURE PAGE TO SECOND RESTATED INVESTORS' RIGHTS AGREEMENT
<PAGE>
MERCURY PARTNERS, LLC
By:
------------------------------
Bradley W. de Koning
Managing Director
Address: Mercury Partners, LLC
11100 Santa Monica Blvd.
Suite 2020
Los Angeles, CA 90025
SIGNATURE PAGE TO SECOND RESTATED INVESTORS' RIGHTS AGREEMENT
<PAGE>
-----------------------------------------
Frederic C. Hamilton
Address: The Hamilton Companies
1560 Broadway, Suite 2200
Denver, Colorado 80202
SIGNATURE PAGE TO SECOND RESTATED INVESTORS' RIGHTS AGREEMENT
<PAGE>
WLD/LAMONT PARTNERS
By:
------------------------------------
Douglas S. Luke, General Partner
Address: One E. Broward Blvd., #101
Ft. Lauderdale, FL 33301
SIGNATURE PAGE TO SECOND RESTATED INVESTORS' RIGHTS AGREEMENT
<PAGE>
ABS EMPLOYEES' VENTURE FUND L.P.
By:
----------------------------
Mayo A. Shattuck, III
President, Alex. Brown Investments, Inc.
G.P. of Partnership
Address: 135 E. Baltimore Street
Baltimore, MD 21202
SIGNATURE PAGE TO SECOND RESTATED INVESTORS' RIGHTS AGREEMENT
<PAGE>
THE LEGACY FUND, INC.
By:
------------------------------
Jonathan J. Ledecky, President
Address: c/o U.S. Office Products
1440 New York Avenue
N.W., Suite 310
Washington, D.C. 20005
SIGNATURE PAGE TO SECOND RESTATED INVESTORS' RIGHTS AGREEMENT
<PAGE>
STANFORD UNIVERSITY
By:
----------------------------------
Name:
--------------------------------
Title:
-------------------------------
Address: 2770 Sand Hill Road
Menlo Park, CA 94025
SIGNATURE PAGE TO SECOND RESTATED INVESTORS' RIGHTS AGREEMENT
<PAGE>
----------------------------------------
Edward J. Mathias
----------------------------------------
Rockwell A. Schnabel
SIGNATURE PAGE TO SECOND RESTATED INVESTORS' RIGHTS AGREEMENT
<PAGE>
----------------------------------------
Mark N. Sirangelo
----------------------------------------
Cyril Wismar
----------------------------------------
Samuel Smith
----------------------------------------
Alexander MacKenzie
----------------------------------------
John Zeller
----------------------------------------
Gerald Lewis
SIGNATURE PAGE TO SECOND RESTATED INVESTORS' RIGHTS AGREEMENT
<PAGE>
SCHEDULE A
SCHEDULE OF INVESTORS
Number of Shares
of Series E
Name and Address Preferred Stock
- ---------------- ---------------
Mellon Bank, N.A., as Trustee 419,161
for First Plaza Group Trust
*Sierra Ventures IV, L. P. 115,149
*Sierra Ventures IV International 4,611
Merifin Capital N.V. 119,760
Orchid & Co. 59,880
*Trident Capital 49,991
Partners Fund-I, L. P.
Trident Capital 9,889
Partners Fund-I, C.V.
Michael P. Galvin 1994 Trust 59,880
TOTAL 838,321
"*" indicates Series C Investor
<PAGE>
SCHEDULE B
LIST OF PRIOR INVESTORS AND COMMON SHAREHOLDERS
Prior Investors
---------------
Mark N. Sirangelo 550,000 Shares Common Stock
Jonathan J. Ledecky 120,000 Shares Series A Preferred
Stock and option for 25,000 shares of
Common Stock
*The Legacy Fund, Inc. 10,000 Shares Series C Preferred Stock
*Cyril Wismar Options for 70,000 shares of Common
Stock and 10,000 Shares Series C
Preferred Stock
*Gerald Lewis Options for 70,000 shares of Common
Stock and 5,000 Shares Series C Prefer
red Stock
*Samuel Smith Options for 70,000 shares of Common
Stock and 10,000 Shares Series C
Preferred Stock
*Alexander MacKenzie Options for 70,000 shares of Common
Stock and 10,000 Shares Series C
Preferred Stock
*John Zeller 4,000 Shares Series C Preferred Stock
"*" indicates Series C Investor
<PAGE>
Common Shareholders
-------------------
Mark Sirangelo
Cyril Wismar (once he exercises his option to acquire 70,000
shares of the Company's Common Stock)
Alexander MacKenzie (once he exercises his option to acquire 70,000
shares of the Company's Common Stock)
Samuel Smith (once he exercises his option to acquire 70,000
shares of the Company's Common Stock)
Gerald Lewis (once he exercises his option to acquire 70,000
shares of the Company's Common Stock)
Jonathan J. Ledecky (once he exercises his option to acquire 25,000
shares of the Company's Common Stock)
<PAGE>
EXHIBIT 21.1
- --------------------------------------------------------------------------------
SUBSIDIARIES OF STATE OF
THE REGISTRANT INCORPORATION d/b/a
- --------------------------------------------------------------------------------
PGI ACQUISITION COMPANY A Virginia
- --------------------------------------------------------------------------------
PGI ACQUISITION COMPANY B Virginia
- --------------------------------------------------------------------------------
PGI ACQUISITION COMPANY F Virginia Destination showcase
- --------------------------------------------------------------------------------
California Leisure
PGI ACQUISITION COMPANY I Virginia Consultants - Palm Springs
- --------------------------------------------------------------------------------
PGI COMPANY S Virginia
- --------------------------------------------------------------------------------
PGI COMPANY H Virginia
- --------------------------------------------------------------------------------
PGI COMPANY P Virginia
- --------------------------------------------------------------------------------
PGI COMPANY Q Virginia Regency Productions/PGI
- --------------------------------------------------------------------------------
PGI COMPANY R Virginia
- --------------------------------------------------------------------------------
PGI COMPANY J Virginia
- --------------------------------------------------------------------------------
PGI COMPANY X Virginia
- --------------------------------------------------------------------------------
SPEARHEAD EXHIBITIONS LIMITED United Kingdom Spearhead Exhibitions
- --------------------------------------------------------------------------------
PGI EUROPE LIMITED United Kingdom PGI Europe
- --------------------------------------------------------------------------------
RAY BLOCH PRODUCTIONS, District of Columbia Ray Bloch Productions/PGI
WASHINGTON, D.C., INC.
- --------------------------------------------------------------------------------
RAY BLOCH PRODUCTIONS, INC. New York Ray Bloch Productions/PGI
- --------------------------------------------------------------------------------
RAY BLOCH PRODUCTIONS, NEW New Jersey Ray Bloch Productions/PGI
JERSEY, INC.
- --------------------------------------------------------------------------------
RAY BLOCH PRODUCTIONS- Georgia Ray Bloch Productions/PGI
ATLANTA, INC.
- --------------------------------------------------------------------------------
RAY BLOCH PRODUCTIONS WEST, California Ray Bloch Productions/PGI
INC.
- --------------------------------------------------------------------------------
RMR PRODUCTION SERVICES, INC. Arizona Timberline Productions/PGI
- --------------------------------------------------------------------------------
- 1 -
<PAGE>
- --------------------------------------------------------------------------------
TIMBERLINE WORLDWIDE, INC. Arizona Timberline Productions/PGI
- --------------------------------------------------------------------------------
EPIC ENTERPRISES, INC. California Epic Enterprises/PGI
- --------------------------------------------------------------------------------
EPIC ENTERPRISES OF NEVADA, Nevada Reservatons Plus
INC. Housing On-Line
- --------------------------------------------------------------------------------
EXECUTOURS, INC. Massachusetts Executours/PGI
- --------------------------------------------------------------------------------
SAFARIS EVENTS, INC. Virginia Safaris/PGI
- --------------------------------------------------------------------------------
KALEIDOSCOPE EVENTS, INC. Virginia Kaleidoscope Decor
- --------------------------------------------------------------------------------
AGENDA WASHINGTON INC. Virginia Agenda Boston, Dallas,
Southern California
- --------------------------------------------------------------------------------
WASHINGTON INC. District of Columbia Washington Inc./PGI
- --------------------------------------------------------------------------------
C.H.L. VENTURES, INC. California California Leisure
Consultants-San Diego
- --------------------------------------------------------------------------------
PGI ACQUISITION COMPANY E Virginia
- --------------------------------------------------------------------------------
-2-
<PAGE>
Exhibit 23.1
CONSENT
We consent to the reference to our firm under the caption "SELECTED CONSOLIDATED
FINANCIAL AND OPERATING DATA" and under the caption "Experts" and to the
use of our reports dated October 24, 1996, in the Registration Statement (Form
S-1 No. 333-XXXX) and related Prospectus of Production Group International, Inc.
for the registration of XXX,XXX shares of its common stock.
Ernst & Young LLP
Vienna, Virginia
October 24, 1996
- --------------------------------------------------------------------------------
The foregoing consent is in the form that will be signed upon the completion of
the net income (loss) per share calculation once the initial public offering
price is known.
/s/ Ernst & Young LLP
Vienna, Virginia
October 25, 1996
<PAGE>
CONSENT
We consent to the reference to our firm under the caption "SELECTED CONSOLIDATED
FINANCIAL AND OPERATING DATA" and under the caption "Experts" and to the
use of our report of Ray Bloch Productions, Inc. dated October 4, 1996, in
the Registration Statement (Form S-1 No. 333-XXXX) and related Prospectus of
Production Group International, Inc. for the registration of XXX,XXX shares of
its common stock.
/s/ Ernst & Young LLP
Vienna, Virginia
October 25, 1996
<PAGE>
CONSENT
We consent to the reference to our firm under the caption "SELECTED CONSOLIDATED
FINANCIAL AND OPERATING DATA" and under the caption "Experts" and to the
use of our report of Epic Enterprises, Inc. dated October 4, 1996, in the
Registration Statement (Form S-1 No. 333-XXXX) and related Prospectus of
Production Group International, Inc. for the registration of XXX,XXX shares of
its common stock.
/s/ Ernst & Young LLP
Vienna, Virginia
October 25, 1996
<PAGE>
CONSENT
We consent to the reference to our firm under the caption "SELECTED CONSOLIDATED
FINANCIAL AND OPERATING DATA" and under the caption "Experts" and to the
use of our report of Epic Enterprises of Nevada, Inc. dated October 4, 1996,
in the Registration Statement (Form S-1 No. 333-XXXX) and related Prospectus of
Production Group International, Inc. for the registration of XXX,XXX shares of
its common stock.
/s/ Ernst & Young LLP
Vienna, Virginia
October 25, 1996
<PAGE>
CONSENT
We consent to the reference to our firm under the caption "SELECTED CONSOLIDATED
FINANCIAL AND OPERATING DATA" and under the caption "Experts" and to the use of
our report of Timberline Productions, Inc. dated October 7, 1996, in the
Registration Statement (Form S-1 No. 333-XXXX) and related Prospectus of
Production Group International, Inc. for the registration of XXX,XXX shares of
its common stock.
/s/ Ernst & Young LLP
Vienna, Virginia
October 25, 1996
<PAGE>
EXHIBIT 23.2
CONSENT
We have been requested by Production Group International, Inc. to allow
reference to our Firm under the caption 'Experts' and to the use of our report
as Independent Auditors dated October 25, 1996 in the Registration statement
(Form S-1 No:[not yet known]) and related Prospectus of Production Group
International, Inc. for the registration of [not yet known] shares of its common
stock.
Our audit of the consolidated financial statements of Spearhead Exhibitions
Limited at March 31, 1994 and 1995 and for the years then ended, were not
planned or conducted in contemplation nor for the purpose of the proposed sale
of shares in Production Group International, Inc. to the public.
Our role as 'Experts' has been confined to that of Registered Auditors
regulated by the Institute of Chartered Accountants in England and Wales, solely
for the purpose of forming an opinion on the stated consolidated financial
statements of Spearhead Exhibitions Limited referred to above in accordance with
the statutory requirements for the audit of United Kingdom companies.
On the above understanding, we consent to the reference of our Firm under the
caption 'Experts' and to the use of our report dated October 25, 1996 in the
Registraton statement (Form S-1 No [not yet known]) and related Prospectus of
Production Group International, Inc. for the registration of [not yet known]
shares in its common stock.
/s/ KINGSTON SMITH
Chartered Accountants
and Registered Auditors
London
England
October 25, 1996
<PAGE>
Exhibit 23.3
CONSENT
We consent to the reference to our firm under the caption "Experts" and to the
use of our report of Spearhead Exhibitions Limited dated September 26, 1996, in
the Registration Statement (Form S-1 No. 333-____) and related Prospectus of
Production Group International, Inc. for the registration of XXX,XXX shares of
its common stock.
/s/ Ernst & Young
Chartered Accountants
London, England
25 October 1996
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> AUG-31-1996
<PERIOD-END> AUG-31-1996
<CASH> 3,599,446
<SECURITIES> 0
<RECEIVABLES> 8,836,187
<ALLOWANCES> 0
<INVENTORY> 825,000
<CURRENT-ASSETS> 0
<PP&E> 4,091,003
<DEPRECIATION> 1,349,289
<TOTAL-ASSETS> 2,741,714
<CURRENT-LIABILITIES> 32,326,842
<BONDS> 0
0
50,772
<COMMON> 551,000
<OTHER-SE> 8,408,439
<TOTAL-LIABILITY-AND-EQUITY> 43,722,513
<SALES> 78,290,083
<TOTAL-REVENUES> 78,290,083
<CGS> 53,152,958
<TOTAL-COSTS> 35,817,129
<OTHER-EXPENSES> (426,894)
<LOSS-PROVISION> 716,000
<INTEREST-EXPENSE> 1,116,807
<INCOME-PRETAX> (11,369,917)
<INCOME-TAX> (12,085,917)
<INCOME-CONTINUING> 12,085,917
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (12,085,917)
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
