<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON FEBRUARY 14, 1997
REGISTRATION NO. 333-14879
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- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------
AMENDMENT NO. 4
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
----------------
PGI, INC.
(FORMERLY, PRODUCTION GROUP INTERNATIONAL, INC.)
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
2200 WILSON BOULEVARD
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
PGI, INC.
2200 WILSON BOULEVARD
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 $0(2)
</TABLE>
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(1) Estimated solely for purposes of determining the registration fee pursuant
to Rule 457(o) under the Securities Act.
(2) A registration fee of $17,215 was previously paid in connection with the
initial filing of the Registration Statement.
----------------
The registrant hereby amends this registration statement on such date or
dates as may be necessary to delay its effective date until the registrant
shall file a further amendment which specifically states that this
registration statement shall thereafter become effective in accordance with
Section 8(a) of the Securities Act of 1933, 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
FEBRUARY 14, 1997
[LOGO OF PGI APPEARS HERE]
Shares
Common Stock
--------
All of the shares of Common Stock offered hereby are being offered by
PGI, 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>
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<CAPTION>
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
, 1997.
--------
Alex. Brown & Sons
INCORPORATED
Montgomery Securities
Robertson, Stephens & Company
THE DATE OF THIS PROSPECTUS IS , 1997.
<PAGE>
[PHOTOS OF PGI EXHIBITIONS AND BUSINESS COMMUNICATIONS EVENTS AND A
DESCRIPTION THEREOF]
----------------
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.
PGI, 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.
3
<PAGE>
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.
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 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) stable
revenue streams from successful shows that often sell out in advance and (iv)
the ability to benefit from utilizing initial marketing costs for 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.
RECENT DEVELOPMENTS
On January 31, 1997, the Company entered into an agreement (the "ASM
Acquisition") to purchase all of the outstanding stock of American Show
Management, Inc. ("ASM"). ASM owns and manages regional high-technology
exhibitions and is a provider of event management services throughout the U.S.
In calendar 1996, ASM produced Information Technology Expositions and
Conferences (ITEC) in 22 markets, attracting approximately 2,300 exhibitors and
100,000 attendees. ASM had revenues of approximately $7.4 million for the
eleven months ended November 30, 1996. The aggregate purchase price for the ASM
Acquisition is $20.0 million in cash, 10,000 shares of Common Stock payable at
closing and additional cash purchase price payable contingent upon achieving
certain gross margin targets and exceeding operating income targets during
calendar years 1997 and 1998. The consummation of the ASM Acquisition is
contingent upon the completion of this offering, and the Company plans to use a
portion of the proceeds of the offering to complete the ASM Acquisition. See
"Company Overview," "Risk Factors--Management of Growth, Growth Through
Acquisitions; Contingent Payments," "Use of Proceeds" and "Business--Structure
and Integration of Acquisitions."
4
<PAGE>
RISK FACTORS
The Company's business, results of operations, financial condition and
ability to implement its growth strategy involve a high degree of risk. These
risks include: (i) the Company's limited operating history, including a history
of operating and net losses in excess of losses created by writing off goodwill
and recording reorganization expenses, (ii) the Company's vulnerability to
quarterly fluctuations in operating results and the episodic nature of its
business, (iii) the Company's ability to manage growth, both internally and
through acquisitions, (iv) the risks associated with future acquisitions, (v)
the dependence of the Company's success upon key personnel, in particular Mark
N. Sirangelo, Chairman of the Board, President and Chief Executive Officer,
(vi) competition with the Company's services and for acquisition candidates,
and (vii) the Company's dependence upon third party contractors and temporary
employees to perform certain functions. Before purchasing shares of Common
Stock offered hereby, prospective investors should consider carefully all of
the information set forth in this Prospectus including, in particular,
information set forth under "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 the expansion of the
Company's business, including the ASM
Acquisition and possible future
acquisitions, to repay indebtedness
related to prior acquisitions and bank
financing and for working capital and
general corporate purposes.
Proposed Nasdaq National Market
symbol............................... PGII
</TABLE>
- --------
(1) Excludes (i) 1,040,028 shares of Common Stock issuable upon exercise of
stock options outstanding at December 31, 1996 at a weighted average
exercise price of approximately $1.27 per share and (ii) 380,561 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."
5
<PAGE>
SUMMARY CONSOLIDATED FINANCIAL AND OPERATING DATA
(IN THOUSANDS, EXCEPT PER SHARE AND OPERATING DATA)
<TABLE>
<CAPTION>
PRO FORMA(1)
THREE MONTHS THREE MONTHS
ENDED ENDED
FISCAL YEAR ENDED AUGUST 31, NOVEMBER 30, NOVEMBER 30,
----------------------------------------- ------------ ------------
1992 1993 1994 1995 1996 1995 1996 1996
------ ------ ------- ------- ------- ------- ------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT
OF OPERATIONS DATA:
Revenues............... $3,755 $8,724 $25,213 $41,950 $78,290 $15,612 $25,601 27,597
Gross profit........... 1,296 2,478 6,237 9,678(2) 25,137 4,364 8,882 10,411
Reorganization and
consolidation expenses
(3)................... -- -- -- 2,122 6,897 -- -- --
Operating income
(loss)................ 289 176 (1,787) (7,632) (10,680)(4) (910) 488 1,011
Net income (loss)...... 130 120 (1,551) (7,452) (12,086) (1,059) 184 526
Pro forma net income
(loss) per share (5)..
Pro forma weighted
average common shares
outstanding (5).......
OPERATING DATA:
Number of significant
clients served during
period (6)............ N/A N/A 156 204 648 100 119
Number of proprietary
exhibitions at end of
period................ -- -- -- -- 18 1 3
Number of managed
exhibitions held
during period......... 1 5 5 10 16 2 3
Number of employees at
end of period......... 37 60 180 180 365 230 379
Number of offices at
end of period......... 1 3 16 18 24 19 24
</TABLE>
<TABLE>
<CAPTION>
NOVEMBER 30, 1996
-------------------------
ACTUAL AS ADJUSTED (7)
-------- ---------------
<S> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Working capital.................................... $(17,880)
Total assets....................................... 50,594
Total debt (8)..................................... 16,058
Total stockholders' equity ........................ 9,789
</TABLE>
- --------
(1) Reflects the ASM Acquisition scheduled to be completed subsequent to the
offering as if it had occurred on September 1, 1995.
(2) Includes $1.1 million of accelerated amortization expense related to
capitalized video library costs.
(3) For fiscal 1995, includes a 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
and accruals related to consolidation of certain operations. See Notes 2
and 4 of Notes to Consolidated Financial Statements.
(4) 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 exercise prices below the deemed fair value and
(iii) $215,000 of expenses primarily associated with the write down of
certain property and equipment, the operating loss would have been $2.2
million.
(5) For a description of the computation of the number of shares and the pro
forma 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) 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."
(8) 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 9 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 PGI, Inc., all of its subsidiaries and its predecessor. The Company's
fiscal year ends August 31.
6
<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. These losses were attributable to operating losses arising from the
Company's rapid expansion, costs associated with integrating acquisitions and
additions to the senior management team. In addition, over the past two fiscal
years, the Company has recognized a write-off of a portion of the excess
purchase price over net assets acquired, the write-down of certain investments
and non-cash compensation expense related to the grant of stock options at
exercise prices below deemed fair value. As of November 30, 1996, the Company
had an accumulated deficit of $21.1 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 "Company 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; Contingent
Payments. 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.
7
<PAGE>
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. 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, including
the ASM Acquisition, 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 has entered into an agreement to purchase ASM for an
aggregate purchase price of $20.0 million in cash and 10,000 shares of Common
Stock payable at closing and additional contingent consideration. The closing
of the acquisition is contingent upon the closing of the offering and upon the
satisfaction of customary closing conditions. There can be no assurance that
these closing conditions will be satisfied. 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. In the event certain predetermined revenue and net income levels are
achieved by the acquired companies, including ASM, the Company may be required
to pay additional consideration of up to $1.4 million in fiscal 1997, $4.2
million in fiscal 1998 and $3.0 million in fiscal 1999. See "Company
Overview," "Management's Discussion and Analysis of Financial Condition and
Results of Operations" and Note 4 of Notes to Consolidated Financial
Statements.
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 plans to use $20.0 million of the
proceeds of this offering to complete the ASM Acquisition. Further, to the
extent such acquisitions involve contingent consideration, the Company's
payment of such consideration may have an adverse effect on the Company's
financial condition at the time of such payment. 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
8
<PAGE>
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 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."
International Activities. In fiscal 1996, approximately 9.3% of the
Company's revenues were generated from its subsidiary in the United Kingdom.
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
9
<PAGE>
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 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. To the extent that currently outstanding options (some of which have
nominal exercise prices) to purchase shares of the Company's Common Stock are
exercised, investors will experience substantial further dilution.
See "Dilution." As of December 31, 1996, there were outstanding options to
purchase 1,040,028 shares of Common Stock at a weighted average exercise price
of approximately $1.27 per share, of which 760,489 shares are fully vested and
exercisable. 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.
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")
10
<PAGE>
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."
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 December 31, 1996,
there were options outstanding under the 1995 Stock Plans and outside the
plans to purchase 1,040,028 shares of Common Stock at a weighted average
purchase price of $1.27 per share. Substantially all of the 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."
11
<PAGE>
COMPANY 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. ("Ray Bloch"), 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. ("Timberline"), a Phoenix-based
business communications company specializing in event production, and in July
1996, PGI acquired Epic Enterprises of Nevada, Inc. ("Epic"), 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. ("Spearhead"), 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.
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. The Company may, as it deems appropriate, use Common Stock as
consideration in future acquisitions.
12
<PAGE>
On January 31, 1997, the Company entered into an agreement to purchase ASM.
ASM owns and manages regional high-technology exhibitions and is a provider of
event management services throughout the U.S. ASM had revenues of
approximately $7.4 million for the eleven months ended November 30, 1996. The
aggregate purchase price for the ASM Acquisition is $20.0 million in cash and
10,000 shares of Common Stock payable at closing and additional cash purchase
price payable upon achieving certain gross margin targets and exceeding
certain operating income targets during calendar years 1997 and 1998. The
agreement also provides that because PGI is wholly responsible for the
preparation of the Registration Statement of which this Prospectus is a part,
PGI will indemnify ASM's owners against any liability, including liability
which may arise under the federal securities laws, that they may incur based
on the contents of this Prospectus. The consummation of the ASM Acquisition is
contingent upon the completion of this offering and upon the satisfaction of
customary closing conditions. The Company plans to use a portion of the
proceeds of the offering to complete the ASM Acquisition. In calendar 1996,
ASM produced regional high-technology trade shows known as Information
Technology Expositions and Conferences (ITEC), in 22 markets, attracting
approximately 2,300 exhibitors and 100,000 attendees. ASM also owns and
manages Technology Recruitment Expos (TRE), a complementary exhibition held in
conjunction with ITEC Expos in several markets. In addition, ASM provides
event management services to its clients.
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). The Company
expects to use a portion of the proceeds as follows: (i) $20.0 million to pay
for all the outstanding stock of ASM, (ii) approximately $10.8 million to
repay outstanding seller notes issued in connection with certain of the
Company's acquisitions and (iii) approximately $5.3 million to repay
outstanding bank debt.
As of November 30, 1996, the indebtedness related to the Ray Bloch
acquisition had a balance of $2.7 million, accrues interest at an imputed
interest rate of 8.5% per annum, with the balance due in four equal quarterly
installments beginning on June 27, 1997. As of November 30, 1996, the
indebtedness related to the Timberline acquisition had a balance of $500,000,
accrues interest at an imputed rate of 8.25% per annum and matures April 12,
1998. As of November 30, 1996, the indebtedness related to the Epic
acquisition had a balance of $1.5 million, bears interest at 5% per annum and
matures on June 28, 1997. As of November 30, 1996, the indebtedness related to
the Spearhead acquisition had a balance of $3.6 million, accrues interest at
an imputed rate of 7.5% per annum and matures on April 1, 1997. Indebtedness
related to certain other acquisitions has an aggregate balance of $2.5
million, bears interest at rates ranging from 8.5% to prime plus 1.0% per
annum, and matures between the first quarter of fiscal 1997 and the second
quarter of fiscal 1999. See Note 6 of Notes to Consolidated Financial
Statements.
As of November 30, 1996, the outstanding balance on the bank arrangement was
approximately $5.3 million, bears interest at the rate of prime plus .25% per
annum and matures on March 31, 1997. See "Management's Discussion and Analysis
of Financial Condition and Results of Operations--Liquidity and Capital
Resources" and Notes 5, 6 and 14 of Notes to Consolidated Financial
Statements.
A substantial portion of the remaining net proceeds is 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
13
<PAGE>
acquisitions and negotiate with several potential acquisition candidates.
While the Company is currently a party to a definitive agreement as to the ASM
Acquisition, there can be no assurance that this 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.
DILUTION
The pro forma net tangible book value of the Company's Common Stock as of
November 30, 1996, was $(16.7) million, or $(2.88) 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 November 30, 1996. $(2.88)
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 November 30, 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........... 5,782,846 $29,501,000 $5.10
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 November 30, 1996, there were
outstanding options to purchase 1,032,847 shares of Common Stock at a weighted
average exercise price of approximately $1.23 per share, of which
754,241 shares are fully vested and exercisable. 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.
14
<PAGE>
CAPITALIZATION
The following table sets forth the capitalization of the Company as of
November 30, 1996 (i) on an actual basis and (ii) as adjusted to give effect
to 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>
NOVEMBER 30, 1996
--------------------
ACTUAL AS ADJUSTED
------- -----------
(IN THOUSANDS)
<S> <C> <C>
Short term debt:
Current portion of notes payable ................... $10,613
Bank lines of credit................................ 3,250
------- ----
Total short-term debt............................. 13,863
======= ====
Notes payable, less current portion................... 2,195
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; 5,231,555 shares
issued and outstanding actual; no shares
outstanding as adjusted (1)........................ 52
Common Stock, $.01 par value, 30,000,000 shares
authorized; 551,291 shares issued and outstanding
actual; shares issued and outstanding as
adjusted (1)....................................... 5
Additional paid-in capital.......................... 30,896
Unearned stock compensation......................... (120)
Foreign currency translation adjustment............. 14
Accumulated deficit................................. (21,058)
------- ----
Total stockholders' equity........................ 9,789
------- ----
Total capitalization............................ $25,847
======= ====
</TABLE>
- --------
(1) Excludes (i) 1,032,847 shares of Common Stock issuable upon exercise of
stock options at November 30, 1996 of which 754,241 shares are exercisable
at the date of this prospectus at a weighted average exercise price of
$1.23 per share, and (ii) 287,862 additional shares of Common Stock
reserved for future issuance at November 30, 1996 under the 1995 Stock
Plans. Subsequent to November 30, 1996, stock options to purchase 9,000
shares of Common Stock at an exercise price of $6.50 per share were
granted. See "Management--Employee Stock and Other Benefit Plans" and Note
9 of Notes to Consolidated Financial Statements.
15
<PAGE>
SELECTED CONSOLIDATED FINANCIAL AND OPERATING DATA
(IN THOUSANDS, EXCEPT PER SHARE AND OPERATING DATA)
The consolidated statement of operations data set forth below for fiscal
years ended August 31, 1994, 1995 and 1996 and consolidated balance sheet data
as of August 31, 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 following selected consolidated financial data for the three month periods
ended November 30, 1995 and November 30, 1996 are derived from unaudited
consolidated financial statements included in this Prospectus. The
consolidated financial data for fiscal 1992 and 1993 and the consolidated
balance sheet as of August 31, 1994 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>
THREE MONTHS
ENDED
FISCAL YEAR ENDED AUGUST 31, NOVEMBER 30,
--------------------------------------------- -----------------
1992 1993 1994 1995 1996 1995 1996
------ ------ ------- ------- -------- ------- --------
CONSOLIDATED STATEMENT OF
OPERATIONS DATA: (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
Revenues............... $3,755 $8,724 $25,213 $41,950 $ 78,290 $15,612 $ 25,601
Cost of services....... 2,459 6,246 18,976 32,272 (1) 53,153 11,248 16,719
------ ------ ------- ------- -------- ------- --------
Gross profit........... 1,296 2,478 6,237 9,678 25,137 4,364 8,882
Selling and operating
expenses.............. 685 1,647 6,474 11,792 22,328 (2) 4,065 6,992
Corporate general and
administrative ex-
penses................ 322 655 1,458 3,167 5,923 (3) 1,101 1,194
Amortization of acqui-
sition costs.......... -- -- 92 229 669 108 208
Reorganization and con-
solidation expenses
(4)................... -- -- -- 2,122 6,897 -- --
------ ------ ------- ------- -------- ------- --------
Operating income
(loss)................ 289 176 (1,787) (7,632) (10,680)(5) (910) 488
Interest expense (in-
come), net............ 1 -- (14) (39) 935 91 312
Other income (expense). -- (9) 103 24 245 59 40
------ ------ ------- ------- -------- ------- --------
Income (loss) before
minority interests and
income taxes.......... 288 167 (1,670) (7,569) (11,370) (942) 216
Minority interests of
consolidated subsidi-
aries................. -- -- 101 (117) -- -- --
Income tax expense
(benefit)............. 158 47 (220) -- 716 117 32
------ ------ ------- ------- -------- ------- --------
Net income (loss)...... $ 130 $ 120 $(1,551) $(7,452) $(12,086) $(1,059) $ 184
====== ====== ======= ======= ======== ======= ========
Pro forma net income
(loss) per share (6)..
Pro forma weighted av-
erage common shares
outstanding (6).......
OPERATING DATA:
Number of significant
clients served during
period (7)............ N/A N/A 156 204 648 100 119
Number of proprietary
exhibitions at end of
period................ -- -- -- -- 18 1 18
Number of managed exhi-
bitions held during
period................ 1 5 5 10 16 2 --
Number of employees at
end of period......... 37 60 180 180 365 230 379
Number of offices at
end of period......... 1 3 16 18 24 19 24
CONSOLIDATED BALANCE
SHEET DATA (AT YEAR OR
PERIOD END):
Working capital (defi-
cit).................. $ (228) $ (397) $(3,308) $ (470) $(18,588) $(5,339) $(17,880)
Total assets........... 454 4,214 11,847 15,238 43,723 25,671 50,594
Total debt (8)......... 16 1,314 2,341 2,085 16,935 9,033 16,058
Total stockholders' eq-
uity.................. (112) 957 (2,321) 5,427 8,408 4,368 9,789
</TABLE>
- --------
(1) Includes $1.1 million of accelerated amortization expense related to
capitalized video library costs.
(2) Includes approximately $215,000 of expenses primarily associated with the
write down of certain property and equipment.
(3) Includes a $1.3 million non-cash compensation expense related to the grant
of stock options at exercise prices below deemed fair value.
(4) Includes for fiscal 1995, a 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.
(5) In fiscal 1996, excluding the reorganization and consolidation expenses
and the expenses referred to in notes (2) and (3), the operating loss
would have been $2.2 million.
(6) For a description of the computation of the number of shares and the pro
forma net income (loss) per share, see Note 2 of Notes to Consolidated
Financial Statements.
(7) Includes only clients whose annual billings were in excess of $25,000.
(8) Includes bank debt, subordinated notes and outstanding borrowings on lines
of credit.
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
"Company 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 event management projects on a
completed contract basis. The Company recognizes revenues from business
communications projects and from the ownership and management of exhibitions
using the proportional performance method. Under the completed contract
method, revenues and costs are recognized when a project is completed. Under
the proportional performance 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 events industry has historically been characterized by a high degree of
non-recurring revenue, especially those revenues related to event management
and business communication services. Although a client may use the Company's
services from year to year, the Company is often limited in its ability to
estimate the amount of revenue it derives from a particular client as the
frequency, type and magnitude of the client's event needs vary from year to
year. Accordingly, 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
17
<PAGE>
use of the completed contract method to recognize event management services
revenues and expenses. See "Risk Factors--Fluctuations in Quarterly Operating
Results; Episodic Nature of Business."
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 November 30, 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>
THREE MONTHS
FISCAL YEAR ENDED AUGUST 31, ENDED NOVEMBER 30,
--------------------------------- ---------------------
1994 1995 1996 1995 1996
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Revenues................ 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of services........ 75.3 76.9 67.9 72.0 65.3
--------- --------- --------- --------- ---------
Gross profit.......... 24.7 23.1 32.1 28.0 34.7
Selling and operating
expenses............... 25.6 28.1 28.5 26.0 27.3
Corporate general and
administrative ex-
penses................. 5.8 7.6 7.6 7.1 4.7
Amortization of acquisi-
tion costs............. 0.4 0.5 0.8 0.7 0.8
Reorganization and con-
solidation expenses.... -- 5.1 8.8 -- --
--------- --------- --------- --------- ---------
Operating income
(loss)............... (7.1) (18.2) (13.6) (5.8) 1.9
Interest expense (in-
come), net............. (0.1) (0.1) 1.2 0.6 1.2
Other income (expense).. 0.4 0.1 0.3 0.4 0.1
--------- --------- --------- --------- ---------
Income (loss) before
minority interests
and income taxes..... (6.6) (18.0) (14.5) (6.0) 0.8
Minority interests of
consolidated subsidiar-
ies.................... 0.5 (0.2) -- -- --
Income tax expense (ben-
efit).................. (0.9) 0.0 0.9 0.8 0.1
--------- --------- --------- --------- ---------
Net income (loss)..... (6.2)% (17.8)% (15.4)% (6.8)% 0.7%
========= ========= ========= ========= =========
</TABLE>
THREE MONTHS ENDED NOVEMBER 30, 1996 COMPARED TO THREE MONTHS ENDED NOVEMBER
30, 1995
Revenues. Revenues increased $10.0 million, or 64.0%, to $25.6 million in
the fiscal 1997 period from $15.6 million in the fiscal 1996 period. This
increase in revenues was primarily due to (i) $8.3 million in revenue from
businesses acquired during fiscal 1996 and (ii) $1.7 million in revenues, or
an increase of 11%, from operations owned by the Company prior to fiscal 1996.
Revenues from exhibitions owned or managed increased 21% in the fiscal 1997
period from the fiscal 1996 period. As a percentage of revenues, revenues from
exhibitions owned or managed by the Company decreased to 19.3% in the fiscal
1997 period from 26.2% in the fiscal 1996 period due to the increased revenues
from business communications services resulting from the acquisitions
completed in the second half of fiscal 1996.
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 $4.5 million, or 103.5%, to $8.9 million in the
fiscal 1997 period from $4.4 million in the fiscal 1996 period. This increase
was due to the growth realized by the exhibitions and business communications
operations. As a percentage of revenues, gross profit increased to 34.7% in
the fiscal 1997 period from 28.0% in the fiscal 1996 period.
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
18
<PAGE>
field operations. Selling and operating expenses increased $2.9 million, or
72.0%, to $7.0 million in the fiscal 1997 period from $4.0 million in the
fiscal 1996 period. Selling and operating expenses as a percentage of total
revenues increased to 27.3% in the fiscal 1997 period from 26.0% in the fiscal
1996 period. This increase reflects the impact of cost structures associated
with the acquisitions completed 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 and administrative
expenses increased by $93,000, or 8.5%, to $1.2 million in the fiscal 1997
period from $1.1 million in the fiscal 1996 period, primarily reflecting the
actions taken during the second half of fiscal 1996 to build a corporate
senior management team to manage a significantly larger company. Excluding
non-recurring items incurred in the fiscal 1996 period (related primarily to
expenses associated with building the senior management team), corporate
general and administrative expenses would have increased by $365,000, or 44.0%
in the fiscal 1997 period. As a percentage of revenues, these expenses
declined to 4.7% in the fiscal 1997 period from 7.1% in the fiscal 1996
period. Excluding non-recurring items, corporate general and administrative
expenses would have declined to 5.3% in the fiscal 1996 period. The Company
anticipates that in the future corporate general and administrative expenses
will continue to decline as a percentage of revenues as it spreads central
administrative expenses over a larger revenue base.
Amortization of acquisition costs. Amortization of acquisition costs
increased $100,000, or 92.6%, to $208,000 in the fiscal 1997 period from
$108,000 in the fiscal 1996 period. As a percentage of revenues, amortization
of acquisition costs increased to 0.8% in the fiscal 1997 period from 0.7% in
the fiscal 1996 period. This increase resulted primarily from additional
goodwill associated with the acquisitions completed during fiscal 1996.
Operating income (loss). Operating income increased $1.4 million to $488,000
in the fiscal 1997 period from a loss of $910,000 in the fiscal 1996 period.
Interest expense, net. Net interest expense increased by $221,000 to
$312,000 in the fiscal 1997 period from $91,000 in the fiscal 1996 period, due
primarily to increased bank debt and seller financing assumed in connection
with the acquisitions completed in fiscal 1995 and fiscal 1996 and higher
average debt levels under the Company's working capital line of credit.
Other income. Other income consists primarily of management fees from
affiliates. Other income decreased $19,000 to $40,000 in the fiscal 1997
period from $59,000 in the fiscal 1996 period.
Net income (loss). Net income of $184,000 in the fiscal 1997 period compares
to a net loss of $1.1 million in the fiscal 1996 period.
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 3.2%, 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 $3.4
million, or 9.4%. As a percentage of total revenues, revenues from exhibitions
owned or managed by the Company increased to 17.0% in fiscal 1996 from 3.4% in
fiscal 1995.
19
<PAGE>
Gross profit. 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. Excluding the accelerated amortization expense
related to capitalized video library costs, gross profit would have been $10.8
million in fiscal 1995, or 25.7% of revenues. 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.
Selling and operating expenses. 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 property and equipment. 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 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 were 7.6% in fiscal 1996 and 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 0.8% 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 of $2.5 million associated with acquisitions that occurred during
fiscal 1993 and 1994. Goodwill associated with Washington, Inc. ("WINC"), an
event management company acquired in July 1993, accounted for the primary
portion of the write off. The write-offs were in accordance with the Company's
goodwill impairment policy. The episodic nature of WINC's business and lack of
long-term contracts has contributed to operating losses and makes revenue
projections greater than one year difficult to predict with dependable
accuracy. Revenues attributable to WINC accounted for 28.4%, 10.6% and 5.7% of
total revenues for fiscal 1994, 1995 and 1996, respectively. For the same
periods, WINC generated operating losses of $2,000, $153,000 and $225,000,
respectively, and break even cash flows for the same periods. As a result of
the losses, WINC's office is being consolidated with the Company's other
office located in Washington, D.C. The Company believes that this
consolidation and the elimination of certain redundant operations may aid in
bringing WINC's operations to break even. There can be no assurance that the
Company will be able to achieve these operating results, and the failure to do
so may have an adverse effect on the Company's cash flows, results of
operations and financial condition. See "Risk Factors--Limited Operating
History; Losses" and "--Fluctuations in Quarterly Operating Results; Episodic
Nature of Business." Given WINC's historical operating losses, the episodic
nature of its business, the lack of expectations for future profitability and
the estimated undiscounted cash flows analysis to assess the recoverability of
the goodwill balance, the Company determined that the future results would not
support the recoverability of the remaining goodwill balance, and, therefore,
wrote down the goodwill balance to the estimated fair value. See Note 2 of
Notes to Consolidated Financial Statements.
20
<PAGE>
During fiscal 1996, the Company wrote off assets in the amount of $1,731,000
related to certain investments. The write-off primarily consisted of $463,000
related to an agreement for concert ticket sales, $458,000 related to a
theatrical production, and $278,000 related to the acquisition of an
exposition business. The Company has realized insignificant income and costs
related to these three investments.
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 increased $221,000 to $245,000 in fiscal 1996
from $24,000 in fiscal 1995.
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) $15.1 million related to a full year of revenues from
acquisitions made during fiscal 1994 and (iii) $304,000, or an increase of
1.2%, 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 an accelerated amortization expense of $1.1 million in 1995
related to capitalized video library costs. Excluding the accelerated
amortization expense related to capitalized video library costs, gross profit
would have been $10.8 million in fiscal 1995, or 25.7% of revenues due to an
increase 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 4.1% 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 25.6% in fiscal 1994. This increase resulted primarily from a
full year of selling and operating expenses associated with acquisitions
completed during fiscal 1994.
21
<PAGE>
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 7.6% 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 of $2.1 million associated with the Safaris Events, Inc.
("Safaris") acquisition completed in April 1994 in accordance with the
Company's goodwill impairment policy. Subsequent to the acquisition, the
Company closed or consolidated seven of Safaris' offices considered to be
unprofitable, representing 58% of the twelve Safaris' offices operating at the
acquisition date. These factors contributed significantly to the decreased
revenue base and the operating losses recognized since the acquisition. The
episodic nature of Safaris' business and the lack of long-term contracts has
contributed to operating losses and makes revenue projections greater than one
year difficult to predict with dependable accuracy. Revenues attributable to
Safaris accounted for 23.5% (5 months), 37.6% and 17.0% of total revenues for
fiscal 1994, 1995 and 1996, respectively. For the same periods, Safaris
generated operating losses of $101,000 (5 months), $1.5 million and $649,000,
respectively, and negative cash flows of $68,000 (5 months), $1.3 million and
$560,000, respectively. Given Safaris' historical operating losses, the
episodic nature of its business, the lack of expectations for future
profitability, the closing of the unprofitable offices and the estimated
undiscounted cash flows analysis to assess the recoverability of the goodwill
balance, the Company determined that the future results would not support the
recoverability of the remaining goodwill balance, and, therefore, wrote down
the goodwill balance to the estimated fair value. See Note 2 of Notes to
Consolidated Financial Statements. The Company believes that its process of
consolidating operations and marketing the services provided by Safaris as
complements to its business communications and exhibition businesses may aid
in bringing the remaining Safaris operations to break even. There can be no
assurance that the Company will be able to achieve these operating results,
and the failure to do so may have a material adverse effect on the Company's
results of operations and financial condition. See "Risk Factors--Limited
Operating History; Losses" and "--Fluctuations in Quarterly Operating Results;
Episodic Nature of Business."
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.
22
<PAGE>
QUARTERLY RESULTS OF OPERATIONS AND SEASONALITY
The following tables set forth certain unaudited consolidated statement of
operations data for the first quarter of fiscal 1997 and 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, NOVEMBER 30,
1995 1996 1996 1996 1996
------------ ------------ ------- ---------- ------------
<S> <C> <C> <C> <C> <C>
Revenues................ $15,612 $15,275 $24,165 $23,238 $25,601
Cost of services........ 11,248 10,234 16,491 15,180 16,719
------- ------- ------- ------- -------
Gross profit........... 4,364 5,041 7,674 8,058 8,882
Selling and operating
expenses (1)........... 4,065 5,794 5,979 6,489 6,992
Corporate general and
administrative expenses
(2).................... 1,101 1,099 1,183 2,540 1,194
Amortization of
acquisition costs...... 108 138 197 226 208
Reorganization and
consolidation expenses. -- -- -- 6,897 --
------- ------- ------- ------- -------
Operating income (loss)
(3)................... (910) (1,990) 315 (8,094) 488
Interest expense
(income), net.......... 91 212 251 381 312
Other income (expense).. 59 120 48 18 40
------- ------- ------- ------- -------
Income (loss) before
minority interests and
income taxes.......... (942) (2,082) 112 (8,457) 216
Minority interests of
consolidated
subsidiaries........... -- -- -- -- --
Income tax expense
(benefit).............. 117 182 242 175 32
------- ------- ------- ------- -------
Net income (loss)...... $(1,059) $(2,264) $ (130) $(8,632) $ 184
======= ======= ======= ======= =======
<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 $10,149
Cost of services........ 9,520(4) 5,905 9,275 7,572
------- ------- ------- -------
Gross profit........... 2,298 2,011 2,793 2,577
Selling and operating
expenses............... 2,353 2,622 3,077 3,740
Corporate general and
administrative
expenses............... 578 814 894 882
Amortization of
acquisition costs...... 53 53 53 71
Reorganization and
consolidation expenses. -- -- -- 2,122
------- ------- ------- -------
Operating income
(loss)................ (686) (1,478) (1,231) (4,238)
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) (4,211)
Minority interests of
consolidated
subsidiaries........... 10 (84) 5 (48)
Income tax expense
(benefit).............. -- -- -- --
------- ------- ------- -------
Net income (loss)...... $ (706) $(1,408) $(1,176) $(4,163)
======= ======= ======= =======
</TABLE>
- -------
(1) Excluding the write down of certain fixed assets, selling and operating
expenses would have been $4,065, $5,579, $5,979 and $6,489 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, $1,183 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.
(4) Includes $1.1 million of accelerated amortization expense related to
capitalized video library costs.
23
<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 is secured by a first
lien on all of the Company's assets and matures on March 31, 1997, and a $1.0
million equipment line, which is secured by a first lien on all of the
Company's assets and matures on March 31, 1997. 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 Notes 5 and
6 of Notes to Consolidated Financial Statements.
On November 27, 1996, the Company and the Bank entered into an amendment and
restatement of the October 18, 1995 bank financing arrangement. The prior bank
financing arrangement had three facilities under which the Company could
borrow. Two of these facilities had matured and were due and payable on
September 30, 1996. Pending refinancing negotiations, the Company did not pay
the amounts owed under the matured facilities and was in technical default
under the third facility. Further, the Company incurred certain subordinated
seller financing that amortized at a rate in excess of that permitted under
the facilities. Pursuant to the amendment, among other things, the maturity
dates of the working capital and equipment lines of credit were extended. The
covenant involving seller financing was also amended. The Company would have
been in compliance with such covenant at August 31, 1996. As of November 30,
1996, the outstanding balance on the three lines of credit was approximately
$5.3 million.
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.
24
<PAGE>
Cash used in operating activities in the first three months fiscal 1997 was
$1.3 million. This was the result of $655,000 of net income before
depreciation and amortization and other non-cash charges offset by $1.9
million of changes in operating assets and liabilities. Cash used in investing
activities in the first three months of fiscal 1997 was $641,000 and was used
primarily for the purchase of property and equipment. Net cash provided by
financing activities in the first three months of fiscal 1997 was $314,000,
which resulted from the issuance of Convertible Preferred Stock and bank
borrowings reduced by debt repayment.
Cash used in 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
in investing activities in fiscal 1996 was $14.3 million and was used
primarily for acquisitions and the 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 in 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 in 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 in
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
$1,420,000 under employment agreements and payments of contingent purchase
prices. See Notes 4 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, the payment of contingent considerations for prior
acquisitions, if any, and the payment of consideration for the ASM Acquisition
and other future acquisitions consistent with the Company's acquisition
strategy, for at least the next twelve months. However, if the Company has the
opportunity to make 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
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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.
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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
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exhibitions being held during 1996 in North America. 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.
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 the first quarter of fiscal 1997, 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
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States and three offices abroad as of January 31, 1997. 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 relationship-building opportunities
through client referrals and its 60-person sales force. The Company
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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.
Underlying the Company's growth strategy is a focus on leveraging its
infrastructure, overhead and systems to expand its business base while
increasing overall efficiency. Eliminating redundant costs through the
integration of acquired operations into its corporate administrative
infrastructure and utilizing its sales force to capitalize on cross-selling
opportunities with existing clients and add new clients is central to the
Company's ability to realize profits from its acquisitions and ongoing
operations. The Company's inability to control costs successfully as it
pursues its growth strategy may inhibit its growth and ability to operate
profitably.
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
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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
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
. 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.
The Company's services are provided in accordance with contractual
relationships entered into with the Company's clients or are utilized in
proprietary and sponsored events. 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
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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 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
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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 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 focuses on acquiring companies with a broad and diverse
client base and a strong brand name to be maintained post acquisition. The
Company also considers the ability of the candidate's management team and
infrastructure 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
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Financial Condition and Results of Operations" and Notes 2 and 4 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.
In accordance with its strategy to acquire proprietary exhibitions, on
January 31, 1997, the Company entered into an agreement to acquire ASM,
contingent upon the completion of this offering and the satisfaction of
customary closing conditions. See "Company Overview." The Company believes
that ASM fits the Company's strategic acquisition model because ASM owns and
manages well-established high-technology exhibitions and has long-term
relationships with exhibitors, attendees and community organizations in the
markets where the exhibitions are held. The Company intends to retain ASM's
experienced management team following the ASM Acquisition. During calendar
1996, ASM produced regional high-technology exhibitions known as Information
Technology Expositions and Conferences (ITEC) in 22 markets, attracting
approximately 2,300 exhibitors and 100,000 attendees. ASM also owns and
manages Technology Recruitment Expos (TRE), a complementary exhibition held in
conjunction with ITEC Expos in several markets. ASM also provides event
management services to its clients. The Company intends to integrate ASM's
services into PGI's existing operations.
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 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, including United Newspapers (U.K.) and Reed/Cahners, a
subsidiary of Reed/Elsevier, two of the largest exhibition owners, based on
the
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number of owned exhibitions. 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. PGI
considers other exhibition owners or managers competitors only to the extent
they own or manage exhibitions in the same industry as those exhibitions owned
or managed by PGI.
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 January 31, 1997, 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 January 31, 1997, the Company had 380 full-time and 22 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.
35
<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)... 36 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 and Chief Operating Officer
of U.S. Operations
Richard S. Bartell...... 44 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............ 36 Senior Vice President and Secretary
Robert A. Kirkland...... 54 Senior Vice President
Cyril M. Wismar......... 52 Senior Vice President
Robert C. McCormack
(1)(2)................. 57 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 and the Chief Operating Officer of U.S. Operations since
November 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.
36
<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.
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.
37
<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.
38
<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 $ 860 (3)
Chairman of the Board of
Directors,
President and Chief Executive
Officer
Edward P. Doody................. 147,503 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 $150,000. See "--Employment Agreements."
39
<PAGE>
OPTION GRANTS AND HOLDINGS
The following table summarizes the options which were granted during the
fiscal year ended August 31, 1996 to the Named Executive Officers.
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
INDIVIDUAL GRANTS VALUE AT
-------------------------------------------------- ASSUMED ANNUAL
% OF TOTAL RATES OF STOCK
NUMBER OF OPTIONS PRICE APPRECIATION
SECURITIES GRANTED TO EXERCISE FOR OPTION TERM (3)
UNDERLYING EMPLOYEES IN PRICE EXPIRATION ---------------------
NAME OPTIONS (1) FISCAL YEAR (2) ($/SH) DATE 5% ($) 10% ($)
---- ----------- --------------- ----------- ---------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Mark N. Sirangelo....... 170,000 28.1% $1.40-$3.00 2006 $432,330 $434,660
Edward P. Doody......... 30,000 5.0 1.40 2006 43,398 44,796
Douglas L. Ducate....... 25,000 4.1 1.40 2006 36,165 37,330
Robert A. Kirkland...... 25,000 4.1 1.40 2006 36,165 37,330
Cyril M. Wismar......... 2,000 * 1.40 2006 2,894 2,989
</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.
40
<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
January 31, 1997, 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. As of December 31, 1996, options for 1,411 shares
were exercised, options for 874,028 shares were
41
<PAGE>
outstanding and 280,561 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 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
42
<PAGE>
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, at an exercise price of $3.00 per share.
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, at an exercise price of $1.67 per share. 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.
43
<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 $175,000, 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, at an exercise
price of $1.40 per share.
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
$180,000 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, at an exercise price of $1.40 per share.
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 in January 1996, Mr. Ducate was awarded an option to purchase 25,000
shares of Common Stock, at an exercise price of $1.40 per share, and, in
November 1996, an option to purchase 2,500 shares of Common Stock at an
exercise price of $6.50 per share.
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 February 1996, Mr. Green was awarded an
option to purchase 50,000 shares of Common Stock, at an exercise price of
$1.40 per share, and, in November 1996, an option to purchase 5,000 shares of
Common Stock, at an exercise price of $6.50 per share. 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, at an exercise price of $1.40 per share.
Mr. Wismar has an employment agreement with the Company, which expires on
April 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, at an exercise price of $1.40 per share, and in
December 1996, an option to purchase 2,000 shares of Common Stock, at an
exercise price of $6.50 per share.
The agreements are automatically renewable for additional periods and
contain confidentiality, non-compete and severance provisions.
44
<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 an aggregate of 600,000 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 $500,000, of which 120,000 shares
were sold to the Robert C. McCormack Revocable Trust, an affiliate of Mr.
McCormack.
In November 1993, Sierra Ventures ("Sierra"), Trident Capital Partners Fund-
I, L.P. and affiliated entities ("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 "Company Overview" and Note 4 of Notes to Consolidated
Financial Statements.
45
<PAGE>
PRINCIPAL STOCKHOLDERS
The following table sets forth information regarding the beneficial
ownership of the Company's Common Stock as of December 31, 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
Mellon Bank, N.A. (3) as
trustee for 1,336,184 23.1
First Plaza Group
Trust..................
One Mellon Bank Center
Pittsburgh PA 15258-
0001
Trident Capital Partners 1,046,784 18.0
Funds (4)..............
2480 Sand Hill Road
Menlo Park, CA 94025
WLD/LAMONT Partners (5). 633,474 11.0
One East Broward Blvd.
Suite 1101
Fort Lauderdale, FL
33301
Michael P. Galvin 1994 299,385 5.2
Trust (6)..............
2000 L Street
Washington, D.C. 20036
Mark N. Sirangelo (7) .. 625,000 10.3
Darryl Hartley-Leonard . -- --
Edward P. Doody (8) .... 21,250 *
Douglas L. Ducate (9) .. 13,020 *
Robert A. Kirkland (10). 7,812 *
Cyril M. Wismar (11).... 80,583 1.4
Robert C. McCormack 1,046,784 18.0
(12)...................
Peter C. Wendell (13)... 1,405,715 24.2
All executive officers
and directors as a
group (11 persons)
(14)................... 3,237,664 51.8
</TABLE>
- --------
* Less than 1%.
(1) Applicable percentage of ownership as of December 31, 1996 is based upon
5,782,966 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 December 31, 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.
(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
(collectively, "Sierra Ventures").
46
<PAGE>
(3) Mellon Bank, N.A., acts as the trustee (the "Trustee") for First Plaza
Group Trust ("First Plaza"), a trust under and for the benefit of certain
employee benefit plans of General Motors Corporation ("GM") and its
subsidiaries. These shares may be deemed to be owned beneficially by
General Motors Investment Management Corporation ("GMIMCo"), a wholly
owned subsidiary of GM. GMIMCo's principal business is providing
investment advice and investment management services with respect to the
assets of certain employee benefit plans of GM and its subsidiaries and
with respect to the assets of certain direct and indirect subsidiaries of
GM and associated entities. GMIMCo is serving as First Plaza's investment
manager with respect to these shares and in that capacity it has the sole
power to direct the Trustee as to the voting and disposition of these
shares. Because of the Trustee's limited role, beneficial ownership of the
shares by the Trustee is disclaimed.
(4) Includes (i) 856,950 and 169,522 shares beneficially owned by Trident
Capital Partners Fund-I, L.P., and Trident Capital Partners Fund-I, C.V.,
respectively (such funds are referred to collectively as the "Trident
Capital Funds"), and (ii) 20,312 shares issuable upon exercise of
outstanding options granted to Trident Capital, L.P., on August 31, 1996.
(5) Douglas S. Luke is the General Partner of WLD/LAMONT Partners and as such
may be deemed to be the beneficial owner of all shares owned by WLD/LAMONT
Partners. Except to the extent of his pecuniary interest therein, Mr. Luke
disclaims beneficial ownership with respect to these shares.
(6) Michael P. Galvin is the trustee of Michael P. Galvin 1994 Trust and as
such he may be deemed to be the beneficial owner of all the shares held by
the trust.
(7) Includes 270,000 shares issuable upon exercise of outstanding options and
5,000 shares issuable upon exercise of outstanding options held by Mr.
Sirangelo's mother.
(8) Includes 21,250 shares issuable upon exercise of outstanding options.
(9) Includes 13,020 shares issuable upon exercise of outstanding options.
(10) Includes 7,812 shares issuable upon exercise of outstanding options.
(11) Includes 70,583 shares issuable upon exercise of outstanding options.
(12) Includes (i) 1,026,472 shares beneficially owned by Trident Capital Funds
and (ii) 20,312 shares issuable upon exercise of outstanding options
granted to Trident Capital, L.P., on August 31, 1996. Mr. McCormack is
the Co-Chairman of Trident Capital, Inc., the general partner of Trident
Capital, L.P. which is the general partner of the Trident Capital Funds,
and, as such, 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 beneficial ownership with
respect to these shares.
(13) Includes (i) 1,385,403 shares beneficially owned by Sierra Ventures and
(ii) 20,312 shares issuable upon exercise of outstanding options granted
on August 31, 1996. Mr. Wendell is a General Partner of Sierra Ventures
and as such he may be deemed to be the beneficial owner of all shares
owned by Sierra Ventures. Except to the extent of his pecuniary interest
therein, Mr. Wendell disclaims beneficial ownership with respect to such
shares.
(14) Includes 465,789 shares issuable upon exercise of outstanding options.
47
<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
48
<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 The First National Bank of Boston as the transfer
agent and registrar for the Common Stock.
49
<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 5,782,966 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.
50
<PAGE>
As of December 31, 1996, options to purchase 1,040,028 shares of Common
Stock were outstanding, of which 760,489 were exercisable. An additional
380,561 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."
51
<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.......................................
---
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
52
<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
5,782,966 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 PGI, 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.
53
<PAGE>
The financial statements of Epic Enterprises of Nevada, Inc. at December 31,
1994 and 1995 and 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, 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 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 for
the five month period ended August 31, 1995, appearing in this Prospectus and
Registration Statement have been audited by Ernst & Young, chartered
accountants, 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.
The financial statements of American Show Management, Inc. at December 31,
1995 and November 30, 1996 and for each of the two years in the period ended
December 31, 1995 and for the eleven month period ended November 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.
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.
54
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<S> <C>
PGI, INC.
(FORMERLY PRODUCTION GROUP INTERNATIONAL, INC.)
Report of Ernst & Young LLP, Independent Auditors F-3
Consolidated Balance Sheets as of August 31, 1995 and 1996 and November
30, 1996 (unaudited) F-4
Consolidated Statements of Operations for the years ended August 31,
1994, 1995, and 1996 and for the three months ended November 30, 1995
and 1996 (unaudited) F-5
Consolidated Statements of Stockholders' Equity for the years ended
August 31, 1994, 1995, and 1996 and for the three months ended November
30, 1996 (unaudited) F-6
Consolidated Statements of Cash Flows for the years ended August 31,
1994, 1995, and 1996 and for the three months ended November 30, 1995
and 1996 (unaudited) F-7
Notes to Consolidated Financial Statements F-8
RAY BLOCH PRODUCTIONS, INC.
Report of Ernst & Young LLP, Independent Auditors F-21
Consolidated Balance Sheets as of December 31, 1994 and 1995 F-22
Consolidated Statements of Operations for the years ended December 31,
1993, 1994 and 1995 F-23
Consolidated Statements of Stockholder's Equity for the years ended
December 31, 1993, 1994 and 1995 F-24
Consolidated Statements of Cash Flows for the years ended December 31,
1993, 1994 and 1995 F-25
Notes to Consolidated Financial Statements F-26
EPIC ENTERPRISES, INC.
Report of Ernst & Young LLP, Independent Auditors F-30
Combined Balance Sheets as of January 31, 1995 and 1996 F-31
Combined Statements of Operations for the years ended January 31, 1994,
1995 and 1996 F-32
Combined Statements of Stockholders' Deficit for the years ended January
31, 1994, 1995 and 1996 F-33
Combined Statements of Cash Flows for the years ended January 31, 1994,
1995 and 1996 F-34
Notes to Combined Financial Statements F-35
EPIC ENTERPRISES OF NEVADA, INC.
Report of Ernst & Young LLP, Independent Auditors F-39
Balance Sheets as of December 31, 1994 and 1995 F-40
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-41
Statements of Stockholders' Deficit for the period from July 5, 1993
(inception) to December 31, 1993, for the years ended December 31, 1994
and 1995 F-42
Statements of Cash Flows 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-43
Notes to Financial Statements F-44
TIMBERLINE PRODUCTIONS, INC.
Report of Ernst & Young LLP, Independent Auditors F-46
Balance Sheets as of December 31, 1994 and 1995 F-47
Statements of Operations for the years ended December 31, 1993, 1994 and
1995 and for the three month ended March 31, 1996 F-48
Statements of Stockholders' Equity for the years ended December 31, 1993,
1994 and 1995 F-49
Statements of Cash Flows for the years ended December 31, 1993, 1994 and
1995 and for the three month ended March 31, 1996 F-50
Notes to Financial Statements F-51
</TABLE>
F-1
<PAGE>
<TABLE>
<S> <C>
SPEARHEAD EXHIBITIONS LIMITED
Report of Ernst & Young Chartered Accountants, Independent Auditors F-55
Report of Kingston Smith Chartered Accountants, Independent Auditors F-56
Consolidated Balance Sheets as of March 31, 1994 and 1995 F-57
Consolidated Statements of Operations for the years ended March 31, 1994
and 1995 and for the five months ended August 31, 1995 F-58
Consolidated Statements of Shareholders' Equity for the years ended March
31, 1994 and 1995 F-59
Consolidated Statements of Cash Flows for the years ended March 31, 1994
and 1995 and for the five months ended August 31, 1995 F-60
Notes to Consolidated Financial Statements F-61
AMERICAN SHOW MANAGEMENT, INC.
Report of Ernst & Young LLP, Independent Auditors F-65
Balance Sheets as of December 31, 1995 and November 30, 1996 F-66
Statements of Income for the years ended December 31, 1994 and 1995 and
for the eleven months ended November 30, 1996 F-67
Statements of Stockholders' Deficit for the years ended December 31, 1994
and 1995 and for the eleven months ended November 30, 1996 F-68
Statements of Cash Flows for the years ended December 31, 1994 and 1995
and for the eleven months ended November 30, 1996 F-69
Notes to Financial Statements F-70
Unaudited Pro Forma Combined Balance Sheet as of November 30, 1996 F-74
Unaudited Pro Forma Combined Statement of Operations for the year ended
August 31, 1996 F-75
Unaudited Pro Forma Combined Statement of Operations for the three months
ended November 30, 1996 F-76
</TABLE>
F-2
<PAGE>
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
The Board of Directors
PGI, Inc.
We have audited the accompanying consolidated balance sheets of PGI, Inc.,
formerly 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 consolidated
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the 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 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, except Note 12, as to which the date is January 31, 1997
- -------------------------------------------------------------------------------
The foregoing report is in the form that will be signed upon the completion
of the net (loss) income per share calculation once the initial public
offering price is known.
/s/ Ernst & Young LLP
Vienna, Virginia
February 13, 1997
F-3
<PAGE>
PGI, INC.
(FORMERLY PRODUCTION GROUP INTERNATIONAL, INC.)
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
AUGUST 31,
PRO FORMA
NOVEMBER 30, NOVEMBER 30,
1995 1996 1996 1996 (NOTE 12)
----------- ----------- ------------ --------------
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash
equivalents............ $ 4,421,115 $ 3,599,446 $ 2,000,996 $ 2,000,996
Accounts receivable,
less allowance of
$444,000, $825,000 and
$829,210 at August 31,
1995 and 1996 and
November 30, 1996,
respectively.......... 2,310,291 8,011,187 14,880,530 14,880,530
Deferred costs......... 426,845 1,211,115 1,282,016 1,282,016
Prepaid expenses and
other current assets... 624,810 917,085 2,150,656 2,150,656
----------- ----------- ----------- -----------
Total current assets.... 7,783,061 13,738,833 20,314,198 20,314,198
Property and equipment,
net..................... 1,391,043 2,741,714 3,150,635 3,150,635
Intangible assets, net.. 4,970,111 26,644,182 26,455,484 26,455,484
Other assets............ 1,093,787 597,784 673,642 673,642
----------- ----------- ----------- -----------
Total assets............ $15,238,002 $43,722,513 $50,593,959 $50,593,959
=========== =========== =========== ===========
LIABILITIES AND
STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and
accrued expenses....... $ 4,959,959 $12,541,085 $16,786,755 $16,786,755
Income taxes payable... 28,692 776,300 860,431 860,431
Deferred revenues...... 2,495,230 4,715,203 6,684,239 6,684,239
Bank lines of credit... -- 3,000,000 3,250,000 3,250,000
Current portion of
notes payable.......... 768,839 11,294,254 10,612,881 10,612,881
----------- ----------- ----------- -----------
Total current
liabilities............. 8,252,720 32,326,842 38,194,306 38,194,306
Deferred rent and other
liabilities............. 242,034 346,325 416,216 416,216
Notes payable, less
current portion......... 1,316,231 2,640,907 2,194,750 2,194,750
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 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 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 15,750 --
Series E, 1,796,407
shares authorized;
1,641,975 and
1,796,407 shares
issued and
outstanding at August
31, 1996 and November
30, 1996,
respectively;
liquidation
preference of
$15,000,000.......... -- 16,420 17,964 --
Undesignated Preferred
Stock, $.01 par value;
5,000,000 shares
authorized; no shares
issued and
outstanding........... -- -- -- --
Common stock, $0.01 par
value; 30,000,000
shares authorized;
550,000, 551,000 and
551,291 shares issued
and outstanding at
August 31, 1995 and
1996 and November 30,
1996, respectively
(5,782,846 pro forma
shares)............... 5,500 5,510 5,513 57,829
Additional paid-in
capital................ 14,543,160 29,608,357 30,895,624 30,895,624
Unearned stock
compensation........... -- (133,134) (120,092) (120,092)
Foreign currency
translation adjustment. -- 118,846 13,629 13,629
Accumulated deficit.... (9,155,995) (21,241,912) (21,058,303) (21,058,303)
----------- ----------- ----------- -----------
Total stockholders'
equity.................. 5,427,017 8,408,439 9,788,687 9,788,687
----------- ----------- ----------- -----------
Total liabilities and
stockholders' equity.... $15,238,002 $43,722,513 $50,593,959 $50,593,959
=========== =========== =========== ===========
</TABLE>
See accompanying notes.
F-4
<PAGE>
PGI, INC.
(FORMERLY PRODUCTION GROUP INTERNATIONAL, INC.)
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEARS ENDED AUGUST 31, NOVEMBER 30,
1994 1995 1996 1995 1996
----------- ----------- ------------ ----------- -----------
<S> <C> <C> <C> <C> <C>
Revenues $25,212,845 $41,950,495 $ 78,290,083 $15,612,000 $25,601,278
Cost of services 18,975,369 32,272,312 53,152,958 11,247,998 16,719,424
----------- ----------- ------------ ----------- -----------
Gross profit 6,237,476 9,678,183 25,137,125 4,364,002 8,881,854
Selling and operating
expenses 6,474,695 11,792,239 22,327,367 4,064,855 6,991,822
Corporate general and
administrative expenses 1,457,704 3,167,243 5,923,000 1,101,147 1,194,049
Amortization of
acquisition costs 91,748 228,722 669,365 107,996 208,312
Reorganization and
consolidation expenses -- 2,122,468 6,897,397 -- --
----------- ----------- ------------ ----------- -----------
Operating income (loss) (1,786,671) (7,632,489) (10,680,004) (909,996) 487,671
Other income (expense) 103,231 23,633 245,000 58,998 39,758
Interest income 33,981 203,433 181,894 14,226 22,786
Interest expense (20,811) (163,970) (1,116,807) (105,231) (334,606)
----------- ----------- ------------ ----------- -----------
Income (loss) before
minority interests and
income taxes (1,670,270) (7,569,393) (11,369,917) (942,003) 215,609
Minority interests of
consolidated
subsidiaries 100,606 (117,412) -- -- --
Income tax (benefit)
expense (220,000) -- 716,000 117,000 32,000
----------- ----------- ------------ ----------- -----------
Net (loss) income $(1,550,876) $(7,451,981) $(12,085,917) $(1,059,003) $ 183,609
=========== =========== ============ =========== ===========
Pro forma net (loss)
income per share $ $
============ ===========
Pro forma weighted
average shares
outstanding
============ ===========
</TABLE>
See accompanying notes.
F-5
<PAGE>
PGI, INC.
(FORMERLY PRODUCTION GROUP INTERNATIONAL, INC.)
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<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
Issuance of
Preferred Stock -- -- -- -- -- -- 154,432 1,544 -- -- 1,286,863
Exercise of
Common Stock
options -- -- -- -- -- -- -- -- 291 3 404
Stock
compensation
expenses related
to stock options -- -- -- -- -- -- -- -- -- -- --
Foreign currency
translation
adjustment -- -- -- -- -- -- -- -- -- -- --
Net income -- -- -- -- -- -- -- -- -- -- --
-------- ------- --------- ------- --------- ------- --------- ------- ------- ------ -----------
Balance at
November 30, 1996 600,000 $ 6,000 1,260,151 $12,602 1,574,997 $15,750 1,796,407 $17,964 551,291 $5,513 $30,895,624
======== ======= ========= ======= ========= ======= ========= ======= ======= ====== ===========
<CAPTION>
FOREIGN
UNEARNED CURRENCY TOTAL
STOCK TRANSLATION (ACCUMULATED STOCKHOLDERS'
COMPENSATION ADJUSTMENT DEFICIT) EQUITY
------------ ----------- ------------- -------------
<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
Issuance of
Preferred Stock -- -- -- 1,288,407
Exercise of
Common Stock
options -- -- -- 407
Stock
compensation
expenses related
to stock options 13,042 -- -- 13,042
Foreign currency
translation
adjustment -- (105,217) -- (105,217)
Net income -- -- 183,609 183,609
------------ ----------- ------------- -------------
Balance at
November 30, 1996 $(120,092) $ 13,629 $(21,058,303) $ 9,788,687
============ =========== ============= =============
</TABLE>
See accompanying notes.
F-6
<PAGE>
PGI, INC.
(FORMERLY PRODUCTION GROUP INTERNATIONAL, INC.)
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEARS ENDED AUGUST 31 NOVEMBER 30,
1994 1995 1996 1995 1996
----------- ----------- ------------ ----------- ----------
<S> <C> <C> <C> <C> <C>
OPERATING ACTIVITIES
Net (loss) income $(1,550,876) $(7,451,981) $(12,085,917) $(1,059,003) $ 183,609
Adjustments to reconcile
net (loss) income to
net cash (used in)
provided by operating
activities:
Loss on disposal of
property and equipment -- 15,667 132,272 -- --
Provision for doubtful
accounts 264,400 77,939 407,095 (14,383) 3,716
Depreciation and
amortization 640,306 1,121,049 1,672,267 273,492 454,345
Minority interests in
consolidated
subsidiaries 100,606 (117,412) -- 29,313 --
Reorganization and
consolidation expenses -- 2,122,468 4,257,859 -- --
Stock option
compensation expense -- -- 1,319,000 -- 13,042
Changes in operating
assets and liabilities:
Accounts receivable (396,406) 698,195 (1,688,906) 1,306,503 (6,873,059)
Prepaid expenses and
other current assets 72,210 24,720 (12,166) 218,062 (1,233,571)
Deferred costs (482,474) 226,721 (119,441) (296,125) (70,901)
Income taxes
receivable (289,437) -- -- -- --
Other assets (356,848) (328,457) (15,666) 37,266 (75,858)
Accounts payable and
accrued expenses 239,307 (6,160) (597,000) (1,295,430) 4,245,670
Income taxes payable -- (49,119) (170,319) 457,177 84,131
Deferred revenues 455,558 67,635 1,919,564 864,249 1,969,036
Deferred rent and
other liabilities 18,914 (35,270) (105,247) (96,505) 28,563
----------- ----------- ------------ ----------- ----------
Net cash (used in)
provided by operating
activities (1,284,740) (3,634,005) (5,086,605) 424,616 (1,271,277)
INVESTING ACTIVITIES
Acquisitions of
businesses, net of cash
acquired (506,447) (648,928) (13,289,030) (4,205,418) --
Purchases of property
and equipment (686,593) (972,408) (997,553) (163,106) (641,047)
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) (4,368,524) (641,047)
FINANCING ACTIVITIES
Net proceeds from
issuance of convertible
Preferred Stock 2,915,193 10,558,094 13,628,093 -- 1,288,407
Net proceeds from
issuance of Common Stock -- -- 1,400 -- 407
Proceeds from notes
payable -- -- 3,300,000 779,452 --
Repayments of notes
payable (570,047) (1,165,921) (1,383,090) -- (1,224,940)
Net proceeds
(repayments) of bank
lines of credit 200,000 (700,000) 3,000,000 2,500,000 250,000
----------- ----------- ------------ ----------- ----------
Net cash provided by
financing activities 2,545,146 8,692,173 18,546,403 3,279,452 313,874
----------- ----------- ------------ ----------- ----------
Net increase (decrease)
in cash and cash
equivalents 67,366 3,536,832 (821,669) (664,456) (1,598,450)
Cash and cash
equivalents at beginning
of period 816,917 884,283 4,421,115 4,421,115 3,599,446
----------- ----------- ------------ ----------- ----------
Cash and cash
equivalents at end of
period $ 884,283 $ 4,421,115 $ 3,599,446 $ 3,756,659 $2,000,996
=========== =========== ============ =========== ==========
SUPPLEMENTAL SCHEDULE OF
NON CASH INVESTING AND
FINANCING ACTIVITIES:
Fair value of assets
acquired $ 6,352,083 $ 3,054,861 $ 38,799,825 $13,388,748 $ --
Cash paid 934,303 500,000 16,265,856 4,531,823 --
Notes payable issued 900,231 1,512,656 6,418,010 3,553,432 --
----------- ----------- ------------ ----------- ----------
Liabilities assumed $ 4,517,549 $ 1,042,205 $ 16,115,959 $ 5,303,493 $ --
=========== =========== ============ =========== ==========
</TABLE>
See accompanying notes.
F-7
<PAGE>
PGI, INC.
(FORMERLY PRODUCTION GROUP INTERNATIONAL, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. ORGANIZATION AND NATURE OF OPERATIONS
PGI, Inc., formerly 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. These services
are provided in accordance with contractual relationships entered into with
the Company's clients or are utilized in proprietary and sponsored events.
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.
Long-lived Assets, Including Intangible Assets and Goodwill
In accordance with FAS 121, "Accounting for the Impairment of Long-Lived
Assets and Long-Lived Assets to Be Disposed Of", the Company evaluates on a
quarterly basis its long-lived assets to be held and used, including certain
identifiable intangible assets and goodwill, to determine whether any events
or changes in circumstances indicate that the carrying amount of the asset may
not be recoverable. Goodwill is included in accordance with FAS 121 only to
the extent that goodwill is associated with assets acquired in a business
combination accounted for using the purchase method as part of the asset
grouping in determining recoveribility. Certain identifiable intangible assets
include the rights to proprietary events and trade shows and resulted from the
Company's acquisitions of two exhibition businesses. For long-lived assets to
be held and used, including certain identifiable intangible assets and
goodwill, the Company bases its evaluation on such impairment indicators as
the nature of the assets, the future economic benefit of the assets, any
historical or future profitability measurements, as well as other external
market conditions or factors that may be present. If such impairment
indicators are present or other factors exist that indicate that the carrying
amount of the asset may not be recoverable, the Company determines whether an
impairment has occurred through the use of an undiscounted cash flows analysis
of assets at the lowest level for which indentifiable cash flows exist. If an
impairment has occurred, the Company recognizes a loss for the difference
between the carrying amount and the estimated fair value of the asset. The
fair value of the asset is measured using quoted market prices or, in the
absence of quoted market prices, fair value is based on an estimate of
discounted cash flow analysis. In accordance with this policy, the Company
charged $2,122,468 and $2,526,691 to expense in fiscal 1995 and 1996,
respectively, to reduce the goodwill balances to the estimated fair value.
F-8
<PAGE>
PGI, INC.
(formerly Production Group International, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Intangible Assets
Intangible assets, consisting of rights to proprietary events and goodwill,
represent the excess of purchase price over the fair value of net assets
acquired. The amortization periods of such intangible assets are based on the
number of years in business, historical profitability, the nature of the
business and any other relevant factors. In accordance with APB 17,
"Intangible Assets," the Company continues to evaluate the amortization
periods to determine whether events or circumstances warrant revised
amortization periods. Additionally, the Company considers whether the estimate
of value and future benefits of the intangible asset indicate whether the
carrying value of such assets should be reduced. This policy was considered in
the write-down of goodwill described previously. At August 31, 1995 and 1996
and November 30, 1996, intangible assets and related amoritization periods are
as follows:
<TABLE>
<CAPTION>
AUGUST 31, 1995
---------------
GOODWILL
---------------
<S> <C> <C> <C>
Event Management........... $ 5,300,185
Accumulated amortization... (330,074)
-----------
Intangibles, net........... $4,970,111
===========
<CAPTION>
AUGUST 31, 1996
---------------
RIGHTS TO TOTAL
GOODWILL PROPRIETARY EVENTS INTANGIBLES
--------------- ------------------ -----------
Exhibitions................ $ 579,000 $12,646,094 $13,225,094
Business Communications.... 7,431,722 -- 7,431,722
Event Management........... 6,691,807 -- 6,691,807
Accumulated amortization... (704,441)
-----------
Intangibles, net........... $26,644,182
===========
<CAPTION>
NOVEMBER 30, 1996
-----------------
RIGHTS TO TOTAL
GOODWILL PROPRIETARY EVENTS INTANGIBLES
--------------- ------------------ -----------
Exhibitions................ $ 579,000 $12,646,094 $13,225,094
Business Communications.... 7,431,722 -- 7,431,722
Event Management........... 6,712,721 -- 6,712,721
Accumulated amortization... (914,053)
-----------
Intangibles, net........... $26,455,484
===========
</TABLE>
Goodwill related to acquired exhibition and business communications
businesses is amortized over 40 years. Rights to proprietary events related to
acquired exhibition businesses is amortized over 40 years. Goodwill related to
acquired event management businesses is amortized over 15 to 20 years.
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.
F-9
<PAGE>
PGI, INC.
(FORMERLY PRODUCTION GROUP INTERNATIONAL, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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 generally accounts for revenues under business communication
contracts and exhibition management contracts as services are rendered using
the proportional performance method. Under the proportional performance
method, revenues are recognized as specific acts or tasks are performed. The
performance of specific acts or tasks is generally measured by the ratio that
direct costs incurred to date bear to the total anticipated costs of the
entire contract. The duration of the business communication and exhibition
management contracts generally varies from six months to two years. From the
signing of the contract through the occurrence of the event, the Company
provides planning, concept creation and development services, as well as
execution and general management services for the entire event. Specific
services may include speeches, staging design, video and media development and
production, production of brochures, handouts and other material. Services are
rendered on a fee basis, requiring periodic non-refundable installment
payments over the contract term. At August 31, 1995 and 1996 and November 30,
1996, the Company had received $171,230, $2,821,850 and $5,167,239,
respectively, related to future events and has classified these amounts as
deferred revenues in the consolidated balance sheets.
The Company uses the completed contract method to record revenues for event
management contracts. Event management contracts are short-term in nature,
typically one to four months in duration from contract signing to event
occurrence. Generally, a non-refundable deposit is received from the
customer upon contract execution. The remaining amount owed for services
provided is payable upon the completion of the event. Costs typically incurred
in the months prior to the event are labor costs to develop the event plan and
to make necessary reservations and deposits for facilities, transportation and
other requested entertainment activities. As a result of the relatively
limited amount of effort involved in the months prior to the occurrence of an
event, the economic substance of the transaction requires that the occurrence
of the event triggers revenue recognition. Consequently, the completed
contract method is used whereby costs and revenues are deferred until the
event occurs. At August 31, 1995 and 1996 and November 30, 1996, the Company
had made payments of approximately $427,000, $1,211,000 and $1,282,000,
respectively, and had recorded these amounts as deferred costs in the
consolidated balance sheets. As of August 31, 1995 and 1996 and November 30,
1996, the Company had billings in excess of costs of approximately $2,324,000,
$1,893,000 and $1,517,000, respectively, related to future events and had
classified these amounts as deferred revenues in the consolidated balance
sheets.
Revenues related to the video library are recognized either under the
percentage-of-completion or completed contract method. The determinant factor
is based on the long-term or short-term nature of the related business
communications contract.
The Company recognizes revenues associated with proprietary and sponsored
events pursuant to contractual obligations using the proportional performance
method as various acts or tasks are performed, once executed contracts and
non-refundable payments have been received from contracting exhibitors or
sponsors. The revenues recognized upon the performance of specific acts or
tasks are generally measured
F-10
<PAGE>
PGI, INC.
(FORMERLY PRODUCTION GROUP INTERNATIONAL, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
by the ratio that direct costs incurred to perform these acts or tasks bear to
the total anticipated direct costs of the entire contractual relationship with
exhibitors or sponsors, as the case may be. Such acts or tasks may include,
but are not limited to, preparation of market research analyses, periodic
newsletters, profiles of buyers and their buying habits, and updates about
happenings in a particular industry. For new proprietary and sponsored events
for which the Company may not be able to demonstrate viability and
realizability of revenues and costs, the Company defers recognition of revenue
and direct external costs until the occurrence of the event.
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% and $2,700,000 or 10.6% of consolidated net
revenues during the year ended August 31, 1996 and during the three months
ended November 30, 1996, respectively.
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>
YEARS 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>
In fiscal 1996, the Company wrote off goodwill of $2,527,000 associated with
acquisitions that occurred during fiscal 1993 and 1994. Goodwill associated
with Washington, Inc. (" WINC") accounted
for the primary portion of the write-off. In fiscal 1995, the Company wrote
off the goodwill balance of $2,122,000 associated with the Safaris Events,
Inc. acquisition that occurred during fiscal 1994. The write-offs were in
accordance with the Company's long-lived assets impairment policy. Given the
historical operating losses, the episodic nature of the business, the lack of
expectation for profits and the estimated undiscounted cash flows (to assess
the recoverability of the goodwill balance), the Company determined that the
future financial forecasts did not support the recoverability of the remaining
goodwill balance, and, therefore, wrote down the goodwill balance to the
estimated fair value. The fair value, in the absence of quoted market prices,
was determined using an estimated discounted cash flows analysis.
During 1996, the Company expensed $1,731,168 related to certain investments
in accordance with the Company's long-lived asset and goodwill impairment
policy. The investments primarily related to 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 $1,877,686
related to the consolidation of unprofitable or redundant field offices in
accordance with a plan set forth and approved
F-11
<PAGE>
PGI, INC.
(FORMERLY PRODUCTION GROUP INTERNATIONAL, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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) Income Per Share
The Company's net (loss) income 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) income 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 Stock have been included from the computation if the effect of their
inclusion would be dilutive. 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
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.
The historical net (loss) income per share and weighted average shares
outstanding is as follows:
<TABLE>
<CAPTION>
THREE
MONTHS
ENDED
YEARS ENDED NOVEMBER
AUGUST 31, 30,
----------------- -----------
1994 1995 1996 1995 1996
----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C>
Net (loss) income per share $ $ $ $ $
===== ===== ===== ===== =====
Weighted average shares outstanding
===== ===== ===== ===== =====
</TABLE>
Statements of Cash Flows
The supplemental cash flow information includes:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEARS ENDED AUGUST 31, NOVEMBER 30,
------------------------- ------------------
<S> <C> <C> <C> <C> <C>
1994 1995 1996 1995 1996
------- -------- -------- -------- ---------
Interest paid $20,811 $127,907 $582,623 $ 84,386 $ 148,312
Income taxes paid $ -- $ 64,189 $244,250 $ -- $ --
</TABLE>
F-12
<PAGE>
PGI, INC.
(FORMERLY PRODUCTION GROUP INTERNATIONAL, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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, NOVEMBER 30,
1995 1996 1996
---------- ---------- ------------
<S> <C> <C> <C>
Office furniture and fixtures $ 434,058 $1,040,970 $1,201,088
Computer and production equipment 1,317,256 2,265,449 2,428,363
Leasehold improvements 49,950 422,228 740,243
Capitalized video library costs 236,663 362,356 362,356
---------- ---------- ------------
2,037,927 4,091,003 4,732,050
Accumulated depreciation and
amortization (646,884) (1,349,289) (1,581,415)
---------- ---------- ------------
$1,391,043 $2,741,714 $3,150,635
========== ========== ============
</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. As of August 31, 1996 and November 30, 1996, all
videos have been released and no videos are in production. The costs are
stated at the lower of the unamortized cost or estimated net realizable value,
as periodically 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 video
library sales and as a result, accelerated the amortization of the capitalized
video library costs by approximately $1,100,000. This additional amortization
expense of $1,100,00 has been classified as cost of services in the statements
of operations.
F-13
<PAGE>
PGI, INC.
(FORMERLY PRODUCTION GROUP INTERNATIONAL, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
4. ACQUISITIONS
Since fiscal 1993, the Company has completed fourteen 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 intangible assets consisting of rights to
proprietary events and goodwill. Accordingly, the results of operations of the
Acquired Business have been consolidated with those of the Company 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 $1,174,000, 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 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
F-14
<PAGE>
PGI, INC.
(FORMERLY PRODUCTION GROUP INTERNATIONAL, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
4. ACQUISITIONS (CONTINUED)
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 intangible assets consisting of rights to proprietary
events and 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 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 was not in compliance with
certain covenants. As a result, at August 31, 1996, the outstanding bank
borrowings were classified as current. See Note 14.
Subsequent to August 31, 1996, on November 27, 1996, the Company and the
bank amended and restated the financing and security agreement, pursuant to
which among other things, the maturity dates of the working capital and
equipment lines of credit were extended and an additional $250,000 was
borrowed under the working capital facility. A certain covenant relating to
the amortization of seller financing was also amended.
The Company is charged an annual interest rate of prime plus 2% on
outstanding borrowings under the credit facilities. The credit facilities are
secured by a first lien on all of the 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 fiscal 1995 and the
agreement was then terminated.
F-15
<PAGE>
PGI, INC.
(FORMERLY PRODUCTION GROUP INTERNATIONAL, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
6. NOTES PAYABLE
Notes payable balances are as follows:
<TABLE>
<CAPTION>
AUGUST 31, NOVEMBER 30,
1995 1996 1996
---------- ------------ ------------
<S> <C> <C> <C>
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, 1997 with the balance due in four
equal quarterly installments
beginning on June 27, 1997. $ -- $ 2,673,886 $ 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 at August 31, 1996 and
November 30, 1996. Note is due and
payable in full on April 12, 1998. -- 506,502 506,502
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 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 and $457,732 at August 31,
1996 and November 30, 1996,
respectively. Note is due and payable
in full on April 1, 1997. -- 3,553,432 3,642,268
Subordinated notes payable related to
certain acquisitions since fiscal
1994, which bear interest rates
ranging from 8.5% to prime plus 1.0%.
These notes are scheduled to mature
between first quarter 1997 and second
quarter 1999. 2,085,070 2,723,563 2,465,531
Notes payable to a bank, due in
monthly installments through December
1997. Interest is charged at an
annual rate of prime plus .25%. The
notes payable are secured by certain
assets of the Company (weighted
average rate of 8.25% at August 31,
1996 and November 30, 1996). -- 2,977,778 2,019,444
---------- ------------ ------------
2,085,070 13,935,161 12,807,631
Less current portion (768,839) (11,294,254) (10,612,881)
---------- ------------ ------------
$1,316,231 $ 2,640,907 $ 2,194,750
========== ============ ============
</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 and November 30, 1996 are as follows:
<TABLE>
<CAPTION>
AUGUST 31, NOVEMBER 30,
1996 1996
----------- ------------
<S> <C> <C>
1997 $11,294,254 $10,612,881
1998 2,569,931 2,123,774
1999 70,976 70,976
----------- ------------
$13,935,161 $12,807,631
=========== ============
</TABLE>
F-16
<PAGE>
PGI, INC.
(FORMERLY 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>
<S> <C>
1997 (nine months ended August 31, 1997) $ 1,642,355
1998 1,985,286
1999 1,807,039
2000 1,305,112
2001 and thereafter 3,600,323
-----------
$10,340,115
===========
===========
</TABLE>
Rent expense for fiscal years 1994, 1995 and 1996 and the three months ended
November 30, 1995 and 1996 amounted to $578,168, $1,387,834, $1,849,455,
$490,712, and $548,139, respectively.
Pursuant to employment agreements, the Company has obligations to pay
minimum salaries of approximately $1,420,000 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 $39 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>
THREE MONTHS
ENDED NOVEMBER
YEARS ENDED AUGUST 31, 30,
------------------------ ----------------
1994 1995 1996 1995 1996
--------- ---- -------- -------- -------
<S> <C> <C> <C> <C> <C>
Current:
Federal............................. $(176,000) $-- $ -- $ -- $ 1,000
State............................... (44,000) -- 290,000 73,000 29,000
Foreign............................. -- -- 426,000 44,000 2,000
--------- ---- -------- -------- -------
$(220,000) $-- $716,000 $117,000 $32,000
========= ==== ======== ======== =======
</TABLE>
Significant components of the Company's net deferred tax assets are
approximately:
<TABLE>
<CAPTION>
AUGUST 31, NOVEMBER 30,
1995 1996 1996
----------- ----------- ------------
<S> <C> <C> <C>
Deferred tax assets:
Restructuring reserve....... $ -- $ 3,130,000 $3,026,000
Net operating loss carry
forwards................... 1,675,000 1,950,000 1,923,000
Goodwill amortization....... 791,000 810,000 796,000
Allowance for bad debts..... 174,000 324,000 325,000
Accrued expenses............ 377,000 383,000 386,000
Other....................... 390,000 285,000 277,000
----------- ----------- ----------
Total deferred tax assets..... 3,407,000 6,882,000 6,733,000
Deferred tax liabilities:
Depreciation................ (91,000) (243,000) (253,000)
Valuation allowance......... (3,316,000) (6,639,000) (6,480,000)
----------- ----------- ----------
Net deferred tax assets....... $ -- $ -- $ --
=========== =========== ==========
</TABLE>
F-17
<PAGE>
PGI, INC.
(FORMERLY PRODUCTION GROUP INTERNATIONAL, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
8. INCOME TAXES (CONTINUED)
At August 31, 1996 and November 30, 1996, the Company has net operating loss
carryforwards of approximately $5,000,000 expiring through 2011. The Company
has had ownership changes for tax purposes but has no current significant net
operating loss carryover limitation.
The Company has recorded a 100% valuation allowance against the net deferred
tax assets due to the uncertainties surrounding realizability of the asset.
The reconciliation of income tax from the statutory rate of 34% is:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEARS ENDED AUGUST 31, NOVEMBER 30,
----------------------------------- -------------------
1994 1995 1996 1995 1996
--------- ----------- ----------- --------- --------
<S> <C> <C> <C> <C> <C>
Tax (benefit) at statu-
tory rates............. $(568,000) $(2,574,000) $(3,866,000) $(967,000) $ 73,000
Non-deductible expenses. 27,000 67,000 1,084,000 271,000 79,000
Valuation allowance
change................. 381,000 2,900,000 3,323,000 831,000 (159,000)
Future state tax bene-
fit.................... -- (324,000) (461,000) (115,000) 22,000
State income tax net of
federal benefit........ (29,000) -- 191,000 48,000 19,000
Foreign taxes........... -- -- 426,000 44,000 2,000
Other................... (31,000) (69,000) 19,000 5,000 (4,000)
--------- ----------- ----------- --------- --------
$(220,000) $ -- $ 716,000 $ 117,000 $ 32,000
========= =========== =========== ========= ========
</TABLE>
9. STOCKHOLDERS' EQUITY
CONVERTIBLE PREFERRED STOCK
On May 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 consolidated balance sheets 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. Subsequent to August 31,
1996, the Company's articles of incorporation were amended to provide that
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 $9.00 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-18
<PAGE>
PGI, INC.
(FORMERLY PRODUCTION GROUP INTERNATIONAL, INC.)
NOTES TO THE 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.
During the first quarter 1997, the Company sold 154,432 shares of Series E
Convertible Preferred Stock for $8.35 per share to new and existing investors
resulting in net proceeds of approximately $1,290,000.
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 $0.01--$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
Granted 10,500 $5.00--$6.50
Canceled (2,578) $1.40--$1.67
Exercised (291) $ 1.40
--------- ------------
Balance at November 30, 1996 1,032,847 $0.01--$6.50
========= ============
Exercisable at August 31, 1996 731,902
=========
Exercisable at November 30 1996 754,241
=========
</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.
F-19
<PAGE>
PGI, INC.
(FORMERLY PRODUCTION GROUP INTERNATIONAL, INC.)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
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 6,233,123 shares of common stock as of August 31,
1996 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") for substantially all employees of the Company. Employees
may elect to contribute a percentage of their 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 filed a Registration Statement on Form S-1 with the Securities
and Exchange Commission on 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
Subsequent to August 31, 1996, the Board of Directors increased by 250,000
the number of shares available under the 1995 stock plans and adopted the
Directors' Plan.
On January 31, 1997, the Company entered into a stock purchase agreement
with American Show Management, Inc. ("ASM") whereby the Company agreed to
purchase all of the outstanding shares of ASM. The aggregate purchase price is
(i) $20,000,000 in cash, payable upon the closing of the Company's initial
public offering, (ii) 10,000 shares of Common Stock of the Company and (iii)
additional cash consideration to be paid upon the achievement of certain
operating results. The transaction is contingent upon the closing of the
Company's initial public offering and upon the satisfaction of customary
closing conditions.
On January 31, 1997, the Company filed Articles of Incorporation to change
its name to PGI, Inc.
The financial statements include pro forma information as of November 30,
1996 to reflect the conversion of all outstanding Convertible Preferred Stock
to shares of Common Stock on a one-to-one basis upon the closing of a
qualified public offering of Common Stock.
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............................................. $78,096,000 $ 91,526,000
Net loss............................................. $(7,988,000) $(11,854,000)
Net loss per share................................... $ $
</TABLE>
F-20
<PAGE>
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
The Board of DirectorsRay 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 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 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-21
<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
Commitments.............................................. -- --
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-22
<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-23
<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-24
<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
Changes in 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)
Collections on loans to stockholder...... -- 26,000 --
Loans to stockholder..................... (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 on line of
credit.................................. (443,316) -- 350,000
Proceeds from loan from stockholder...... -- -- 500,000
Repayments on loan from 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-25
<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 accounts for revenues pursuant to contractual relationships using
the completed contract method and records revenues and costs of revenues upon
completion of the event. 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 advance non-refundable payments of $1,492,400 and
$1,803,795, respectively, related to future events and had recorded these
amounts as deferred revenues in the consolidated 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 consolidated 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 provides for income taxes in accordance with 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-26
<PAGE>
RAY BLOCH PRODUCTIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
3. PROPERTY AND EQUIPMENT (CONTINUED)
Property and equipment are recorded at cost and are depreciated using the
straight-line method over the estimated useful lives of the related assets
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 repaid 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 was $272,881, $277,301 and $278,526 for 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 the allowance for
doubtful accounts, the excess of tax depreciation and amortization over book
depreciation and amortization, and other accrued expenses. Ray Bloch's net
deferred tax assets and liabilities are:
<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-27
<PAGE>
RAY BLOCH PRODUCTIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
6. INCOME TAXES (CONTINUED)
Significant components of the income tax provision are as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
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>
YEAR ENDED DECEMBER
31,
1993 1994 1995
------ ------ ------
<S> <C> <C> <C>
Statutory federal income tax rate................... 34% 34% 34%
Non-deductible expenses............................. 10% 3% 802%
State taxes......................................... 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 $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, respectively, 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
consolidated 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-28
<PAGE>
RAY BLOCH PRODUCTIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
8. EMPLOYEE BENEFIT PLANS (CONTINUED)
Pension Plan (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 to
the pension plan approximately $65,000, $75,000, and $49,536 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 consolidated 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 assumptions 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 $1,804 and
$35,748 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 PGI, Inc. ("PGI") whereby all of
the issued and outstanding shares of common stock of Ray Bloch were sold to
PGI for $3,372,000 in cash and $3,000,000 in notes payable. The agreement also
stipulates additional payments of up to $1,500,000.
F-29
<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-30
<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-31
<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 (loss) income.......................... $ (7,996) $ 989 $ (48,904)
========== ========== ==========
</TABLE>
See accompanying notes.
F-32
<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 loss..................................... -- (7,996) (7,996)
Dividends.................................... -- (1,200) (1,200)
------ -------- --------
Balance at January 31, 1994.................... 3,974 (5,225) (1,251)
Net income................................... -- 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-33
<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)
Loans to officers........................ (173,500) (106,181) 16,389
Loans related to note receivable from a
customer................................ -- (103,284) --
Collections on note receivable from a
customer................................ -- -- 31,878
---------- ---------- -----------
Net cash (used in) provided by investing
activities.............................. (187,068) (220,766) 42,273
FINANCING ACTIVITIES
Dividends................................ (1,200) (1,200) (1,200)
---------- ---------- -----------
Net cash used in financing activities.... (1,200) (1,200) (1,200)
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-34
<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, PGI, 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 income tax provision (benefit) 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 records revenues and costs of revenues related to owned exhibitions
upon completion of the event. Epic accounts for revenues under exhibition
management contracts over the term of the contract. Provisions for anticipated
losses are made in the period in which they first become determinable. As of
January 31, 1995 and 1996, Epic had made payments of $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 $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
income tax provision (benefit) for Epic and Goren Epic has been calculated on
a combined basis.
F-35
<PAGE>
EPIC ENTERPRISES, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
3. PROPERTY AND EQUIPMENT
Property and equipment consisted 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 are recorded at cost. Depreciation is computed using
the straight-line method over the estimated useful lives of the related assets
ranging from five to seven years.
4. DUE FROM OFFICERS
As of January 31, 1995 and 1996, Epic loaned $333,681 and $317,292,
respectively, 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-36
<PAGE>
EPIC ENTERPRISES, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
6. INCOME TAXES (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 income tax provision (benefit) 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............................ 9.3 122.4 12.3
State taxes........................................ 7.8 28.2 .8
Valuation allowance................................ 67.2 (101.6) 1.3
------ ------- -------
118.3% 83.0% (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 approximately
$105,000, $80,000, and $50,000 for the years ended January 31, 1994, 1995, and
1996, respectively.
F-37
<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 PGI, 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-38
<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-39
<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-40
<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-41
<PAGE>
EPIC ENTERPRISES OF NEVADA, INC.
STATEMENTS OF STOCKHOLDERS' DEFICIT
<TABLE>
<CAPTION>
TOTAL
COMMON ACCUMULATED STOCKHOLDERS'
STOCK DEFICIT DEFICIT
------ ----------- -------------
<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-42
<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
(used in) provided by
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 loans 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
======== =========== =========== ========
Supplemental
information:
Interest paid.......... $ -- $ -- $ -- $ 24,748
======== =========== =========== ========
</TABLE>
See accompanying notes.
F-43
<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 pursuant to contractual relationships 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-refundable payments of $338,044
related to future events, and had 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 various promissory notes with certain officers; the balance
of the promissory notes at December 1994 and 1995 was $226,000, respectively.
The notes bear interest at 6%. All accrued and unpaid interest and remaining
principal on the notes are due and payable upon demand from August 19, 1998
through May 31, 2001. Interest expense related to these notes amounted to
$1,305, $9,660, $13,783, and $0 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.
Subsequent to June 30, 1996, the outstanding loan balance from officers of
$371,000 was forgiven by the officers and reclassified to equity.
F-44
<PAGE>
EPIC ENTERPRISES OF NEVADA, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
5. COMMITMENTS
Leases
Epic NV has entered into an operating lease agreement for office space.
Future minimum lease payments may be periodically adjusted based on changes in
the lessors' operating costs.
Future minimum lease payments under the non-cancelable operating lease 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 Boxes 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...................... $ 69,004 $ 162,048
-------- ---------
Total deferred tax assets............................... 69,004 162,048
Valuation allowance................................... (69,004) (162,048)
-------- ---------
Net deferred tax assets................................. $ -- $ --
======== =========
</TABLE>
AT December 31, 1995, the Company had net operating loss carryforwards of
approximately $475,000 that will expire by 2010. 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 PGI, Inc. ("PGI") whereby PGI acquired all of the outstanding
common stock of Epic NV. The aggregate purchase price was $1,085,000 in cash
and additional cash consideration of up to $5,000,000.
F-45
<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 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 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-46
<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
Note payable to bank, net of current portion............... 187,500 125,000
Capital lease obligations, net of current portion.......... -- 40,072
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-47
<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 income
tax provision (benefit)...... 288,621 (81,649) (36,339) (212,789)
Income tax provision (bene-
fit)......................... 117,250 (27,707) 8,251 (81,443)
---------- ---------- ---------- ----------
Net income (loss)............. $ 171,371 $ (53,942) $ (44,590) $ (131,346)
========== ========== ========== ==========
</TABLE>
See accompanying notes.
F-48
<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-49
<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 pro-
vided by operating activities:
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
current assets............... (10,931) (6,703) (7,047) (4,003)
Accounts payable and accrued
expenses..................... (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
activities..................... 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 ac-
tivities....................... (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 obli-
gations........................ -- -- (16,572) (8,687)
--------- --------- --------- ---------
Net cash (used in) provided by
financing 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-50
<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 provides 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 PGI, Inc. (see Note 8).
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 pursuant to contractual relationships 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 total revenues
during the years December 31, 1993, 1994, and 1995, respectively, and two
customers accounted for approximately 47% of total 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-51
<PAGE>
TIMBERLINE PRODUCTIONS, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
3. PROPERTY AND EQUIPMENT (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 8), 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 of .75% 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 8), and the
agreement was then terminated.
5. COMMITMENTS
Timberline 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.
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 $83,548 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 8).
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 of capital lease obligations...... (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-52
<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 income tax provision (benefit) are as follows:
<TABLE>
<CAPTION>
THREE
MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 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-53
<PAGE>
TIMBERLINE PRODUCTIONS, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
7. INCOME TAXES (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.
8. SUBSEQUENT EVENT
On April 1, 1996, the stockholders of Timberline entered into a stock
purchase agreement with PGI, 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-54
<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
Spearhead Exhibitions Limited's management. Our responsibility is to express
an opinion on these financial statements based on our audit.
We conducted our audit 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 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 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 operations and 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 Kingdom which differ in certain respects from those followed in the
United States (see Note 8 of Notes to Consolidated Financial Statements).
/s/ Ernst & Young
Chartered
Accountants
London, England
October 23, 1996
F-55
<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
Spearhead Exhibitions Limited'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.
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 Kingdom.
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 Spearhead Exhibitions Limited's
accounting policies, consolidated financial position, results of operations,
cash flows and changes in shareholders' equity beyond that date.
/s/ Kingston Smith
Chartered
Accountants and
Registered Auditors
London, England
October 25, 1996
F-56
<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 capital 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 capital 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-57
<PAGE>
SPEARHEAD EXHIBITIONS LIMITED
CONSOLIDATED STATEMENTS OF OPERATIONS
(POUNDS STERLING)
<TABLE>
<CAPTION>
FIVE
YEAR ENDED MARCH MONTHS ENDED
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
--------- --------- --------
Profit (loss) on ordinary activities before
taxation................................... 382,340 (209,881) (36,478)
Income tax (benefit) provision.............. (97,700) 66,265 13,045
--------- --------- --------
Net income (loss)........................... 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-58
<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)
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-59
<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>
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 liabilities and deferred income, tax
liabilities, and other current liabilities... 688,704 236,842 (280,919)
-------- -------- --------
Net cash provided by (used in) operating
activities..................................... 666,161 (170,330) 131,469
-------- -------- --------
INVESTING ACTIVITIES
Proceeds from disposal of property and
equipment.................................... 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
-------- -------- --------
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 and cash
equivalents.................................... 617,763 (267,968) 119,317
Cash and cash equivalents at beginning of
period......................................... 120,252 738,015 470,047
-------- -------- --------
Cash and cash equivalents 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-60
<PAGE>
SPEARHEAD EXHIBITIONS LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF FINANCIAL STATEMENTS
(a) Principles of consolidation
The consolidated financial statements include the financial statements of
Spearhead Exhibitions Limited ("Spearhead") 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"). Spearhead'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 sheets 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 sheets. The interest elements of
F-61
<PAGE>
SPEARHEAD EXHIBITIONS LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
2. SIGNIFICANT ACCOUNTING POLICIES (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. The Company expenses such costs upon
occurrence of the exhibition. Losses are recognized when known.
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 comprise:
<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 for the five month period
ended August 31, 1995, Spearhead 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-62
<PAGE>
SPEARHEAD EXHIBITIONS LIMITED
NOTES TO 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>
FIVE
MONTHS ENDED
YEAR ENDED MARCH 31 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
Spearhead leases its facilities under non-cancelable operating lease
agreements which expire at various dates through 2014. In addition, Spearhead
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
--------------------- --------- --------
(Pounds) (Pounds)
<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 of capital lease obligations...... (29,690)
-------
Long-term portion of capital lease obligations......... 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-63
<PAGE>
SPEARHEAD EXHIBITIONS LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
7. CONCENTRATIONS OF CREDIT RISK AND SIGNIFICANT CUSTOMERS
Potential concentrations of credit risk to Spearhead consist principally of
cash, cash equivalents and trade receivables. Spearhead 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
accounting principles generally accepted in the U.K. (U.K. GAAP), which differ
in certain 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 applicable to Spearhead is set out below:
Revaluation Reserve
Under U.K. GAAP the group's investment in the Offshore Europe Partnership
has been shown at a valuation of (Pounds)600,000. Under U.S. GAAP such a
valuation is not permitted and the investment would be carried at its
historical cost of (Pounds)nil. Accordingly, under U.S. GAAP, the revaluation
reserve would be eliminated and shareholders' equity would be reduced by
(Pounds)600,000 at March 31, 1994 and 1995.
9. SUBSEQUENT EVENT
Effective September 1, 1995, the shareholders of Spearhead Exhibitions
Limited entered into a stock purchase agreement with PGI, Inc. ("PGI") whereby
PGI purchased all of the outstanding shares of Spearhead for $4,532,000 in
cash and $4,000,000 in notes payable.
F-64
<PAGE>
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
The Board of Directors
American Show Management, Inc.
We have audited the accompanying balance sheets of American Show Management,
Inc. ("ASM") as of December 31, 1995 and November 30, 1996, and the related
statements of income, stockholders' deficit and cash flows for each of the two
years in the period ended December 31, 1995 and for the eleven months ended
November 30, 1996. These financial statements are the responsibility of ASM'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 American Show Management,
Inc. at December 31, 1995 and November 30, 1996, and the results of its
operations and its cash flows for each of the two years in the period ended
December 31, 1995 and for the eleven months ended November 30, 1996, in
conformity with generally accepted accounting principles.
Ernst & Young LLP
Vienna, Virginia
January 18, 1997, except Note 9, as to which the date is
January 31, 1997
F-65
<PAGE>
AMERICAN SHOW MANAGEMENT, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31, NOVEMBER 30,
1995 1996
------------ ------------
<S> <C> <C>
ASSETS
Current assets:
Cash............................................... $ 493,274 $1,164,679
Accounts receivable................................ 37,303 182,782
Prepaid expenses and other assets.................. 111,857 128,707
--------- ----------
Total current assets................................. 642,434 1,476,168
Property and equipment, net.......................... 217,626 253,015
--------- ----------
Total assets......................................... $ 860,060 $1,729,183
========= ==========
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
Accounts payable................................... $ 65,000 $ 148,435
Accrued expenses................................... 42,616 276,874
Deferred revenues and customer deposits............ 1,074,077 1,288,543
Deferred rent...................................... -- 22,722
--------- ----------
Total current liabilities............................ 1,181,693 1,736,574
Commitments.......................................... -- --
Stockholders' deficit:
Common stock; $1.00 par value; 1,000 shares autho-
rized, 100 shares issued and outstanding.......... 100 100
Retained (deficit) earnings........................ (321,733) (7,491)
--------- ----------
Total stockholders' deficit.......................... (321,633) (7,391)
--------- ----------
Total liabilities and stockholders' deficit.......... $ 860,060 $1,729,183
========= ==========
</TABLE>
See accompanying notes.
F-66
<PAGE>
AMERICAN SHOW MANAGEMENT, INC.
STATEMENTS OF INCOME
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER ELEVEN MONTHS
31, ENDED
--------------------- NOVEMBER 30,
1994 1995 1996
---------- ---------- -------------
<S> <C> <C> <C>
Revenues.................................... $3,906,822 $5,962,714 $7,365,903
Cost of services............................ 1,011,015 1,327,501 2,194,827
---------- ---------- ----------
Gross profit................................ 2,895,807 4,635,213 5,171,076
Selling, general and administrative......... 1,888,594 3,355,868 3,261,247
---------- ---------- ----------
Income from operations...................... 1,007,213 1,279,345 1,909,829
Other income:
Interest income........................... 8,803 -- 14,224
Other income.............................. -- 6,056 24,427
---------- ---------- ----------
Net income.................................. $1,016,016 $1,285,401 $1,948,480
========== ========== ==========
Unaudited Pro Forma Data:
Historical net income..................... $1,016,016 $1,285,401 $1,948,480
Pro forma tax provision................... 392,385 500,344 757,885
---------- ---------- ----------
Pro forma net income........................ $ 623,631 $ 785,057 $1,190,595
========== ========== ==========
</TABLE>
See accompanying notes.
F-67
<PAGE>
AMERICAN SHOW MANAGEMENT, INC.
STATEMENTS OF STOCKHOLDERS' DEFICIT
<TABLE>
<CAPTION>
TOTAL
COMMON ACCUMULATED STOCKHOLDERS'
STOCK DEFICIT DEFICIT
------ ----------- -------------
<S> <C> <C> <C>
Balance at December 31, 1993................. $100 $ (523,214) $ (523,114)
Net income................................. -- 1,016,016 1,016,016
Distributions.............................. -- (753,297) (753,297)
---- ----------- -----------
Balance at December 31, 1994................. 100 (260,495) (260,395)
Net income................................. -- 1,285,401 1,285,401
Distributions.............................. -- (1,346,639) (1,346,639)
---- ----------- -----------
Balance at December 31, 1995................. 100 (321,733) (321,633)
Net income................................. -- 1,948,480 1,948,480
Distributions.............................. -- (1,634,238) (1,634,238)
---- ----------- -----------
Balance at November 30, 1996................. $100 $ (7,491) $ (7,391)
==== =========== ===========
</TABLE>
See accompanying notes.
F-68
<PAGE>
AMERICAN SHOW MANAGEMENT, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
ELEVEN MONTHS
YEAR ENDED DECEMBER 31, ENDED
------------------------ NOVEMBER 30,
1994 1995 1996
----------- ----------- -------------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income $ 1,016,016 $ 1,285,401 $1,948,480
Adjustments to reconcile net income to
net cash provided by operating
activities:
Depreciation and amortization....... 17,548 38,511 61,000
Changes in operating assets and
liabilities:
Accounts receivable................. (109,430) 72,127 (145,479)
Prepaid expenses and other current
assets.............................. (51,024) (60,833) (16,850)
Accounts payable.................... 145,852 (182,352) 83,435
Accrued expenses.................... 99,957 (82,523) 234,258
Deferred revenues................... 132,689 190,027 20,176
Customer deposits................... 105,312 149,954 194,290
Deferred rents...................... -- -- 22,722
----------- ----------- ----------
Net cash provided by operating
activities............................ 1,356,920 1,410,312 2,402,032
INVESTING ACTIVITIES
Purchases of property and equipment... (44,098) (195,723) (96,389)
----------- ----------- ----------
Net cash used in investing activities. (44,098) (195,723) (96,389)
FINANCING ACTIVITIES
Distributions......................... (753,297) (1,346,639) (1,634,238)
----------- ----------- ----------
Net increase (decrease) in cash....... 559,525 (132,050) 671,405
Cash at beginning of period........... 65,799 625,324 493,274
----------- ----------- ----------
Cash at end of period................. $ 625,324 $ 493,274 $1,164,679
=========== =========== ==========
</TABLE>
See accompanying notes.
F-69
<PAGE>
AMERICAN SHOW MANAGEMENT, INC.
NOTES TO FINANCIAL STATEMENTS
1. ORGANIZATION
American Show Management, Inc. ("ASM") was incorporated on April 2, 1984 in
the state of Oregon. ASM specializes in managing trade shows and conventions
to serve the needs of individual and corporate clients.
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
ASM records revenues and cost of services related to owned exhibitions and
events upon completion of the event. Provisions for anticipated losses are
made in the period for which they first become determinable. As of December
31, 1995 and November 30, 1996, ASM had made payments of approximately
$112,000 and $129,000, respectively, related to future events and had
classified these payments as prepaid expenses in the balance sheets. As of
December 31, 1995 and November 30, 1996, ASM had received advance non-
refundable payments of approximately $1,074,000 and $1,289,000, respectively,
related to future events and had recorded these amounts as deferred revenues
and customer deposits in the balance sheets.
INCOME TAXES
The Company has elected to be taxed under the provisions of Subchapter S of
the Internal Revenue Code. Under those provisions, the Company does not pay
federal corporate income taxes on its taxable income. Instead, the
stockholders are liable for individual federal income taxes on their
respective shares of the corporate income. Accordingly, no provision has been
made for federal income tax on a historical basis for the years ended December
31, 1994, 1995, and for the eleven months ended November 30, 1996 in the
accompanying financial statements.
3. PROPERTY AND EQUIPMENT
Property and equipment consisted of the following:
<TABLE>
<CAPTION>
DECEMBER NOVEMBER
31, 1995 30, 1996
-------- --------
<S> <C> <C>
Furniture and fixtures................................... $134,561 $146,271
Computer equipment....................................... 176,200 253,828
Leasehold improvements................................... -- 7,051
-------- --------
310,761 407,150
Less accumulated depreciation and amortization........... (93,135) (154,135)
-------- --------
$217,626 $253,015
======== ========
</TABLE>
Property and equipment are recorded at cost. Depreciation and amortization
are computed using the straight-line method over 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.
F-70
<PAGE>
AMERICAN SHOW MANAGEMENT, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
4. COMMITMENTS
Lease Agreements
ASM has entered into various operating lease agreements for office space and
equipment. The operating leases have various renewal terms. 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
November 30, 1996 are:
<TABLE>
<S> <C>
1997......................................................... $202,210
1998......................................................... 184,212
1999......................................................... 155,242
2000......................................................... 134,210
2001......................................................... 51,000
--------
Total minimum lease payments................................. $726,874
========
In 1995, the Company sublet office space under a noncancelable lease which
expires in 1999. Future minimum rents to be received under the sublease are as
follows:
1997......................................................... $ 49,000
1998......................................................... 50,000
1999......................................................... 13,000
--------
Total minimum lease payments................................. $112,000
========
</TABLE>
Rent expense was $65,000, $88,000 and $200,000 for the years ended December
31, 1994 and 1995 and for the eleven months ended November 30, 1996,
respectively.
ASM has certain non-cancelable contracts related to commitments for rental
of hotels and convention centers for its events. As of November 30, 1996, ASM
had commitments of approximately $137,000 related to these contracts.
Employment Agreements
During 1994 and 1995, the Company executed employment agreements with two
employees. Pursuant to these employment agreements, the employees are to
receive 25% (per employee) of the total consideration should the Company be
sold. This payment is considered to be compensation for past services. To
satisfy the obligations under the employment agreements, the two employees of
ASM will be given shares of ASM common stock. ASM will record compensation
expense for the fair value of the shares of common stock. The fair value will
be based on the pending transaction to sell all of ASM's outstanding shares to
PGI, Inc. ("PGI"). (See Note 9)
5. 401(K) PLAN
Effective January 1, 1995, ASM established the ASM, Inc. 401(k) Plan (the
"Plan") covering eligible employees. Contributions by ASM are discretionary.
ASM has not made any contributions to the Plan since inception of the Plan
through November 30, 1996.
F-71
<PAGE>
AMERICAN SHOW MANAGEMENT, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
6. NONMONETARY TRANSACTIONS
ASM engages in nonmonetary transactions whereby ASM exchanges exhibit booth
space at trade shows for services or products provided by various vendors,
such as temporary help during the events, advertising and marketing services,
direct mailing services, and other show-related services. ASM values the
exchange based on fees for similar exhibit booth space rentals at the same
show, and ASM estimates that the value of services received is comparable. As
such, no gain or loss is recognized associated with the transfer. During the
eleven months ended November 30, 1996, the Company recorded an aggregate of
approximately $788,000 of revenues and cost of services associated with
nonmonetary transactions.
7. RELATED PARTY TRANSACTIONS
ASM has purchased marketing services from a marketing company, owned by
ASM's sole stockholder, for the year ended December 31, 1995, of approximately
$298,000.
8. INCOME TAXES
ASM has historically been taxed under the provisions of Subchapter S of the
Internal Revenue Code and, accordingly, no provision for income taxes has been
recorded in the historical financial statements.
The following disclosure has been presented to reflect on a pro forma basis
income taxes, as if ASM had been taxed as a C-Corporation. The income taxes
have been calculated using the liability method whereby 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 ASM's pro
forma net deferred tax (liabilities) assets are:
<TABLE>
<CAPTION>
DECEMBER 31, NOVEMBER 30,
1995 1996
------------ ------------
<S> <C> <C>
Deferred tax assets:
Accrued expenses.................................... $60,940 $136,985
Allowance for bad debts............................. -- 7,671
------- --------
Total deferred tax assets............................. 60,940 144,656
Deferred tax liabilities:
Tax depreciation in excess of book depreciation....... (5,266) (19,227)
------- --------
Net deferred tax (liabilities) assets................. $55,674 $125,429
======= ========
</TABLE>
Significant components of the pro forma income tax provision (benefit) are
as follows:
<TABLE>
<CAPTION>
YEAR ENDED ELEVEN MONTHS
DECEMBER 31, ENDED
------------------ NOVEMBER 30,
1994 1995 1996
-------- -------- -------------
<S> <C> <C> <C>
Current:
Federal...................................... $396,336 $394,699 $685,226
State........................................ 82,373 82,032 142,414
-------- -------- --------
478,709 476,731 827,640
Deferred:
Federal...................................... (71,470) 19,550 (57,752)
State........................................ (14,854) 4,063 (12,003)
-------- -------- --------
(86,324) 23,613 (69,755)
-------- -------- --------
$392,385 $500,344 $757,885
======== ======== ========
</TABLE>
F-72
<PAGE>
AMERICAN SHOW MANAGEMENT, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
8. INCOME TAXES (CONTINUED)
ASM's effective tax rate on a pro forma basis differs from the statutory
federal income tax rate as follows:
<TABLE>
<CAPTION>
YEAR
ENDED
DECEMBER ELEVEN MONTHS
31, ENDED
---------- NOVEMBER 30,
1994 1995 1996
---- ---- -------------
<S> <C> <C> <C>
Statutory federal income tax rate................. 34% 34% 34%
State taxes....................................... 4% 4% 4%
--- --- ---
38% 38% 38%
=== === ===
</TABLE>
9. SUBSEQUENT EVENT
On January 31, 1997, ASM entered into a stock purchase agreement with PGI,
Inc. ("PGI") whereby PGI agreed to purchase all of the outstanding shares of
ASM. The aggregate purchase price is (i) $20,000,000 in cash, payable upon the
closing of PGI's initial public offering, (ii) 10,000 shares of PGI Common
Stock and (iii) additional cash consideration to be paid upon the achievement
of certain operating results. The transaction is contingent upon the closing
of PGI's initial public offering and upon the satisfaction of customary
closing conditions.
F-73
<PAGE>
UNAUDITED PRO FORMA COMBINED BALANCE SHEET AND STATEMENTS OF OPERATIONS
The unaudited pro forma combined balance sheet gives effect to the
acquisition of American Show Management, Inc. ("ASM") scheduled to be
completed by the Company subsequent to the completion of the Company's initial
public offering.
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. ("Ray Bloch"), (ii) Timberline Productions, Inc. ("Timberline"), (iii)
Epic Enterprises, Inc. ("Epic"), (iv) Epic Enterprises of Nevada, Inc. ("Epic
Nevada"), (v) other acquisitions completed during fiscal year 1996, and (vi)
the acquisition of ASM scheduled to be completed during fiscal year 1997, as
if they had occurred on September 1, 1995. The unaudited pro forma combined
statement of operations for the quarter ended November 30, 1996 gives effect
to the acquisition of ASM as if it had occured on September 1, 1995.
The unaudited pro forma combined statements of operations are based on
available information and on certain assumptions and adjustments described in
the accompanying notes which the Company believes are reasonable. The
unaudited pro forma combined statements of operations are provided for
informational purposes only and do 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 statements of operations should be read in conjunction with
Management's Discussion and Analysis of Financial Conditions and Results of
Operations and the consolidated financial statements of the Company, including
the notes thereto, included elsewhere in this Prospectus.
PRO FORMA BALANCE SHEET AS OF NOVEMBER 30, 1996
<TABLE>
<CAPTION>
HISTORICAL HISTORICAL ACQUISITION PRO FORMA
PGI(A) ASM(A) ADJUSTMENTS(B) COMBINED
------------ ----------- -------------- ------------
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash
equivalents........... $ 2,000,996 $ 1,164,679 $(20,000,000) $(16,834,325)
Accounts receivable.... 14,880,530 182,782 -- 15,063,312
Deferred costs......... 1,282,016 -- -- 1,282,016
Prepaid expenses and
other current assets.. 2,150,656 128,707 -- 2,279,363
------------ ----------- ------------ ------------
Total current assets.... 20,314,198 1,476,168 (20,000,000) 1,790,366
Property and equipment,
net..................... 3,150,635 253,015 -- 3,403,650
Intangible assets, net.. 26,455,484 -- 20,084,891 46,540,375
Other assets............ 673,642 -- -- 673,642
------------ ----------- ------------ ------------
Total assets............ $ 50,593,959 $ 1,729,183 $ 84,891 $ 52,408,033
============ =========== ============ ============
LIABILITIES AND
STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable and
accrued expenses...... $ 16,786,755 $ 448,031 $ -- $ 17,234,786
Income taxes payable... 860,431 -- -- 860,431
Deferred revenues...... 6,684,239 1,288,543 -- 7,972,782
Bank lines of credit... 3,250,000 -- -- 3,250,000
Current portion of
notes payable......... 10,612,881 -- -- 10,612,881
------------ ----------- ------------ ------------
Total current
liabilities............. 38,194,306 1,736,574 -- 39,930,880
Deferred rent and other
liabilities............. 416,216 -- -- 416,216
Notes payable, less
current portion......... 2,194,750 -- -- 2,194,750
Commitments............. -- -- -- --
Stockholders' equity:
Series A Convertible
Preferred Stock....... 6,000 -- -- 6,000
Series C Convertible
Preferred Stock....... 12,602 -- -- 12,602
Series D Convertible
Preferred Stock....... 15,750 -- -- 15,750
Series E Convertible
Preferred Stock....... 17,964 -- -- 17,964
Common Stock........... 5,513 100 -- 5,613
Additional paid-in
capital .............. 30,895,624 -- 77,400 30,973,024
Unearned stock
compensation.......... (120,092) -- -- (120,092)
Foreign currency
translation
adjustment............ 13,629 -- -- 13,629
Accumulated deficit ... (21,058,303) (7,491) 7,491 (21,058,303)
------------ ----------- ------------ ------------
Total stockholders'
equity.................. 9,788,687 (7,391) 84,891 9,866,187
------------ ----------- ------------ ------------
Total liabilities and
equity.................. $ 50,593,959 $ 1,729,183 $ 84,891 $ 52,408,033
============ =========== ============ ============
</TABLE>
F-74
<PAGE>
YEAR ENDED AUGUST 31, 1996
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
HISTORICAL HISTORICAL HISTORICAL
HISTORICAL HISTORICAL HISTORICAL EPIC EPIC AMERICAN SHOW OTHER ACQUISITION
PGI(C) RAY BLOCH(D) TIMBERLINE(E) SAN DIEGO(F) NEVADA(G) MANAGEMENT(H) ACQUISITIONS(I) ADJUSTMENTS
---------- ------------ ------------- ------------ ---------- ------------- --------------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues......... $ 78,290 $4,571 $2,620 $1,410 $2,095 $6,905 $1,066 $ 987 (j)
Cost of
services........ 53,153 3,442 1,559 631 1,061 1,614 697 776 (j)
-------- ------ ------ ------ ------ ------ ------- -----
Gross profit.... 25,137 1,129 1,061 779 1,034 5,291 369 211
Selling and
operating
expenses........ 22,328 1,090 1,203 798 1,072 3,977 476 --
Corporate general
and
administrative
expenses........ 5,923 -- -- -- -- -- -- --
Amortization of
acquisition
costs........... 669 -- -- -- -- -- -- 749(k)
Reorganization
and
consolidation
expenses........ 6,897 -- -- -- -- -- -- --
-------- ------ ------ ------ ------ ------ ------- -----
Operating income
(loss)......... (10,680) 39 (142) (19) (38) 1,314 (107) (538)
Interest income
(expense), net.. (935) 39 (11) 46 (4) 26 -- (69)(l)
Other income..... 245 4 22 12 28 14 11
-------- ------ ------ ------ ------ ------ ------- -----
Income (loss)
before income
taxes........... (11,370) 82 (131) 39 (14) 1,354 (96) (607)
Income tax
(provision)
benefit......... (716) 31 -- -- -- -- -- (129)(m)
-------- ------ ------ ------ ------ ------ ------- -----
Net income
(loss)......... $(12,086) $ 113 $ (131) $ 39 $ (14) $1,354 $ (96) $(736)
======== ====== ====== ====== ====== ====== ======= =====
Pro forma net
income (loss)
per common
share(n).......
Weighted average
shares
outstanding(n).
<CAPTION>
PRO
FORMA
COMBINED
---------
<S> <C>
Revenues......... $ 97,944
Cost of
services........ 62,933
---------
Gross profit.... 35,011
Selling and
operating
expenses........ 30,943
Corporate general
and
administrative
expenses........ 5,923
Amortization of
acquisition
costs........... 1,418
Reorganization
and
consolidation
expenses........ 6,898
---------
Operating income
(loss)......... (10,171)
Interest income
(expense), net.. (908)
Other income..... 336
---------
Income (loss)
before income
taxes........... (10,743)
Income tax
(provision)
benefit......... (814)
---------
Net income
(loss)......... $(11,557)
=========
Pro forma net
income (loss)
per common
share(n)....... $
=========
Weighted average
shares
outstanding(n).
=========
</TABLE>
THREE MONTHS ENDED NOVEMBER 30, 1996
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
HISTORICAL HISTORICAL ACQUISITION PRO FORMA
PGI(O) ASM(O) ADJUSTMENTS COMBINED
---------- ---------- ----------- ---------
<S> <C> <C> <C> <C>
Revenues.......................... $25,601 $2,356 $(360)(p) $27,597
Cost of services.................. 16,719 779 (312)(p) 17,186
------- ------ ----- -------
Gross profit.................... 8,882 1,577 (48) 10,411
Selling and operating expenses.... 6,992 880 -- 7,872
Corporate general and
administrative expenses.......... 1,194 -- -- 1,194
Amortization of acquisition costs. 208 -- 126 (q) 334
Reorganization and consolidation
expenses......................... -- -- -- --
------- ------ ----- -------
Operating income (loss)......... 488 697 (174) 1,011
Interest income (expense), net.... (312) 5 -- (307)
Other income...................... 40 23 -- 63
------- ------ ----- -------
Income (loss) before income taxes. 216 725 (174) 767
Income tax (provision) benefit.... (32) -- (209)(r) (241)
------- ------ ----- -------
Net income (loss)............... $ 184 $ 725 $(383) $ 526
======= ====== ===== =======
Pro forma net income (loss) per
common share(n)................ $
=======
Weighted average shares
outstanding(n).................
=======
</TABLE>
F-75
<PAGE>
- --------
(a) Balance Sheet as of November 30, 1996 for the Company and ASM.
(b) Represents adjustments for the ASM acquisition based on a purchase price
of $20,000,000 in cash and 10,000 shares of the Company's Common Stock.
The 10,000 shares of the Company's Common Stock were recorded at fair
value of $7.75 per share, which represents the mid-point of the estimated
range at this point in time for the Company's initial public offering. The
ASM acquisition has been accounted for using the purchase method. The
purchase price has been allocated on a preliminary basis to the assets and
liabilities acquired based on fair values of such assets and liabilities
which are estimated to approximate their book value. The balance of the
purchase price of $20,084,891 was allocated to rights to proprietary
events and will be amortized on a straight-line basis over 40 years.
(c) Statement of Operations for the year ended August 31, 1996 for the
Company.
(d) Statement of Operations for the period from September 1, 1995 through
December 31, 1995 for Ray Bloch Productions, Inc.
(e) Statement of Operations for the period from September 1, 1995 through
March 31, 1996 for Timberline Productions, Inc.
(f) Statement of Operations for the period from September 1, 1995 through
January 31, 1996 for Epic Enterprises, Inc.
(g) Statement of Operations for the period from September 1, 1995 through June
30, 1996 for Epic Enterprises of Nevada, Inc.
(h) Statement of Operations for the period from September 1, 1995 through
August 31, 1996 for ASM.
(i) Statement of Operations for other acquisitions for the period from
September 1, 1995 through the acquisition date.
(j) Adjustments to conform revenue recognition policies of Historical Epic San
Diego and Historical ASM to the Company's policies. See Note 2 of Notes to
Consolidated Financial Statements of the Company for a description of the
Company's revenue recognition policies, Note 2 of Notes to Combined
Financial Statements of Epic for a description of Epic's revenue
recognition policies, and Note 2 of Notes to Financial Statements of ASM
for a description of ASM's revenue recognition policies.
(k) Adjustment to reflect $749,000 of amortization expense related to
intangibles based on amortization periods ranging from 15 to 40 years. See
Note 2 of Notes to Consolidated Financial Statements of the Company.
(l) Adjustment to reflect $69,000 of interest expense related to subordinated
notes payable for the 1996 acquisitions.
(m) Adjustments to reflect income tax benefit of $53,000 for Timberline as if
Timberline had been taxed as a C Corporation; prior to the acquisition,
Timberline was a S Corporation and accordingly, did not record any
provision for income taxes in historical financial statements. Also, an
adjustment to reflect the income tax provision of $182,000 related to ASM
as if ASM had been taxed as a C Corporation; prior to the acquisition, ASM
had been taxed as a S Corporation.
(n) See Note 2 of Notes to Consolidated Financial Statements for a description
of the determination of weighted average of common shares outstanding.
(o) Statement of Operations for the three months ended November 30, 1996 for
the Company and ASM.
(p) Adjustments to conform revenue recognition policies of Historical ASM to
the Company's policies. See Note 2 of Notes to Consolidated Financial
Statements of the Company for a description of the Company's revenue
recognition policies and Note 2 of Notes to Financial Statements of ASM
for a description of ASM's revenue recognition policies.
(q) Adjustment to reflect $127,000 of amortization expense related to
intangibles based on an amortization period of 40 years.
(r) Adjustment to reflect income tax provision of $205,000 for ASM as if it
had been taxed as a C Corporation; prior to acquisition, ASM had been
taxed as a S Corporation.
Note: The pro forma statement of operations for the three months ended
November 30, 1996 does not include an adjustment to recognize
compensation expense related to the employment agreements described in
Note 4 of the Notes to Financial Statements of ASM. ASM intends to
satisfy the contractual obligations by giving shares of ASM Stock to
employees prior to consummation of ASM acquisition by the Company. The
transfer of the ASM Common Stock will result in compensation expense to
ASM. The Company has not included this one time, non-recurring, charge
in the pro forma information which, if included would not accurately
portray the combined operations of the Company and ASM.
F-76
<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.............................................................. 7
Historical Overview....................................................... 12
Use of Proceeds........................................................... 13
Dividend Policy........................................................... 13
Dilution.................................................................. 14
Capitalization............................................................ 15
Selected Consolidated Financial and Operating Data........................ 16
Management's Discussion and Analysis of Financial Condition and Results of
Operations............................................................... 17
Business.................................................................. 27
Management................................................................ 36
Certain Transactions...................................................... 45
Principal Stockholders.................................................... 46
Description of Capital Stock.............................................. 48
Shares Eligible for Future Sale........................................... 50
Underwriting.............................................................. 52
Legal Matters............................................................. 53
Experts................................................................... 53
Additional Information.................................................... 54
Index to Consolidated Financial Statements................................ F-1
</TABLE>
------------
UNTIL , 1997 (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
, 1997
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<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....................... $17,215
National Association of Securities Dealers, Inc. filing fee......... 6,181
Nasdaq listing fee.................................................. 42,000
Transfer agent's and registrar's fees............................... 11,400
Printing expenses................................................... 250,000
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 December 31, 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 1,049,800
shares of Common Stock which are exercisable at prices ranging from $0.01 to
$6.50 per share, of which stock options for 1,411 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.
10.4.1 Registrant's Amended and Restated Financing and Security Agreement with
the First National Bank of Maryland, dated as of November 27, 1996.
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>
<C> <S>
10.21 Second Restated Investors' Rights Agreement, dated as of February 22,
1996.
10.22*# Stock Purchase and Sale Agreement by and among the Registrant and the
parties named therein, dated as of January 31, 1997.
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
<TABLE>
<CAPTION>
SCHEDULE DESCRIPTION
-------- -----------
<S> <C>
</TABLE>
- --------
* Filed herewith.
+ To be filed by amendment.
# Portions of this Exhibit were omitted and have been filed separately with the
Secretary of the Commission pursuant to the Registrant's Application
Requesting Confidential Treatment under Rule 406 of the Act, filed on
February 14, 1997.
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 Amendment No. 4 to Registration Statement to be
signed on its behalf by the undersigned, thereunto duly authorized, in the
County of Arlington, Commonwealth of Virginia, on the 14th day of February,
1997.
PGI, Inc.
/s/ Mark N. Sirangelo
By: _________________________________
MARK N. SIRANGELO
CHAIRMAN OF THE BOARD, PRESIDENT
AND
CHIEF EXECUTIVE OFFICER
Pursuant to the requirements of the Securities Act of 1933, as amended, this
Amendment No. 4 to Registration Statement has been signed below by the
following persons in the capacities and on the date indicated.
<TABLE>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ Mark N. Sirangelo Chairman of the Board, February 14, 1997
- -------------------------------
MARK N. SIRANGELO President and Chief
Executive Officer
(Principal Executive
Officer)
/s/ Richard S. Bartell Senior Vice President and February 14, 1997
- -------------------------------
RICHARD S. BARTELL Chief Financial Officer
(Principal Financial
Accounting Officer)
* Director and Vice Chairman February 14, 1997
- -------------------------------
DARRYL HARTLEY-LEONARD of the Board
* Senior Vice President and February 14, 1997
- -------------------------------
EDWARD P. DOODY Director
* Director February 14, 1997
- -------------------------------
ROBERT C. MCCORMACK
* Director February 14, 1997
- -------------------------------
PETER C. WENDELL
</TABLE>
*By: /s/ Edwin M. Martin, Jr.
--------------------------
EDWIN M. MARTIN, JR.
Attorney-in-Fact
II-5
<PAGE>
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
The Board of Directors PGI, Inc.
We have audited the consolidated financial statements of PGI, 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, except Note 12, as to which the date is
January 31, 1997
- -------------------------------------------------------------------------------
The foregoing report is in the form that will be signed upon the completion
of the net loss per share calculation once the initial public offering price
is known.
/s/ Ernst & Young LLP
Vienna, Virginia
February 13, 1997
<PAGE>
SCHEDULE 1--VALUATION AND QUALIFYING ACCOUNT AND RESERVE
PGI, 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)(1) $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
Three months ended November
30, 1996.................. $825,000 4,210 -- $829,210
</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.
10.22*# Stock Purchase and Sale Agreement by and among the Registrant and
the parties named therein, dated as of January 31, 1997.
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>
- --------
* Filed herewith.
+ To be filed by amendment.
# Portions of this Exhibit were omitted and have been filed separately with
the Secretary of the Commission pursuant to the Registrant's Application
Requesting Confidential Treatment under Rule 406 of the Act, filed on
February 14, 1997.
<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>
Confidential information has been omitted and filed
separately with the Commission
================================================================================
STOCK PURCHASE AND SALE AGREEMENT
AMONG
PGI, INC.
AMERICAN SHOW MANAGEMENT, INC.
JOHN INGLIS
JUDI INGLIS
PATRICK J. KEARNEY
AND
ROBERT DETHLEFS
JANUARY 31, 1997
===============================================================================
<PAGE>
TABLE OF CONTENTS
PAGE
------
List of Exhibits iv
ARTICLE I - THE PURCHASE AND SALE OF THE STOCK........................... 1
1.1 The Purchase and Sale of the Stock........................... 1
1.2 The Closing.................................................. 1
1.3 Actions at the Closing....................................... 2
1.4 Additional Action............................................ 2
1.5 Purchase Consideration....................................... 2
1.6 Treatment of Stock........................................... 9
1.7 Certain Tax Matters.......................................... 10
1.8 Business Plan................................................ 12
ARTICLE II - REPRESENTATIONS AND WARRANTIES OF ASM
AND THE STOCKHOLDERS................................................... 13
2.1 Organization, Qualification and Corporate Power.............. 13
2.2 Capitalization............................................... 13
2.3 Authorization of Transaction................................. 14
2.4 Non-Contravention............................................ 14
2.5 Subsidiaries................................................. 15
2.6 Financial Statements......................................... 15
2.7 Absence of Certain Changes................................... 15
2.8 Undisclosed Liabilities...................................... 16
2.9 Tax Matters.................................................. 16
2.10 Assets....................................................... 17
2.11 Owned Real Property.......................................... 18
2.12 Intellectual Property........................................ 18
2.13 Real Property Leases......................................... 20
2.14 Contracts.................................................... 20
2.15 Powers of Attorney........................................... 22
2.16 Insurance.................................................... 22
2.17 Litigation................................................... 22
2.18 Employees.................................................... 23
2.19 Employee Benefits............................................ 23
2.20 Environmental Matters........................................ 25
2.21 Legal Compliance............................................. 26
2.22 Permits. 26
- i -
<PAGE>
2.23 Certain Business Relationships With Affiliates............... 27
2.24 Fees and Brokers............................................. 27
2.25 Books and Records............................................ 27
2.26 Certain Payments............................................. 27
2.27 Accounts Receivable.......................................... 28
2.28 Customers and Suppliers...................................... 28
2.29 Access to Information; Sophistication; Investment Intent..... 29
2.30 Hart-Scott-Rodino Compliance................................. 29
2.31 Disclosure................................................... 29
ARTICLE III - REPRESENTATIONS AND WARRANTIES OF PGI...................... 30
3.1 Organization................................................. 30
3.2 Authorization of Transaction................................. 30
3.3 Non-Contravention............................................ 31
3.4 Brokers' Fees................................................ 31
3.5 Disclosure................................................... 31
3.6 Legal Compliance............................................. 31
3.7 Due Diligence................................................ 31
3.8 Purchase for Investment...................................... 32
3.9 Initial Public Offering...................................... 32
3.10 Lending Covenants............................................ 32
3.11 Hart-Scott-Rodino Compliance................................. 32
ARTICLE IV - COVENANTS................................................... 33
4.1 Best Efforts................................................. 33
4.2 Notices and Consents......................................... 33
4.3 Operation of Business........................................ 33
4.4 Full Access.................................................. 35
4.5 Notice of Breaches........................................... 35
4.6 Exclusivity.................................................. 35
4.7 Confidentiality.............................................. 36
4.8 Covenant Not to Disclose..................................... 36
4.9 Non-Compete.................................................. 37
4.10 Non-Interference............................................. 38
4.11 Cooperation.................................................. 38
4.12 Initial Public Offering...................................... 39
4.13 Postponement of Contemplated Public Financing................ 39
4.14 Employees.................................................... 39
4.15 Other Actions................................................ 39
- ii -
<PAGE>
4.16 Acceleration of Earn-Out..................................... 40
4.17 Termination of Certain Covenants............................. 41
ARTICLE V - CONDITIONS TO CONSUMMATION OF PURCHASE AND SALE.............. 42
5.1 Conditions to Each Party's Obligations....................... 42
5.2 Conditions to Obligations of PGI............................. 42
5.3 Conditions to Obligations of ASM and the Stockholders........ 45
ARTICLE VI - TERMINATION................................................. 46
6.1 Termination of Agreement..................................... 46
6.2 Effect of Termination........................................ 46
ARTICLE VII - SURVIVAL OF REPRESENTATIONS AND WARRANTIES; INDEMNITY...... 47
7.1 Survival of Representations and Warranties................... 47
7.2 Indemnification by the Stockholders.......................... 47
7.3 Indemnification by PGI....................................... 48
7.4 General Indemnification Provisions........................... 49
7.5 Limits on Indemnification.................................... 50
7.6 Adjustment of Liability...................................... 50
7.7 Indemnification as Exclusive Remedy From and After Closing... 51
7.8 Waiver of Contribution....................................... 51
ARTICLE VIII - MISCELLANEOUS............................................. 51
8.1 Press Releases and Announcements............................. 51
8.2 No Third Party Beneficiaries................................. 51
8.3 Entire Agreement............................................. 51
8.4 Succession and Assignment.................................... 52
8.5 Counterparts................................................. 52
8.6 Headings..................................................... 52
8.7 Notices...................................................... 52
8.8 Governing Law................................................ 54
8.9 Amendments and Waivers....................................... 54
8.10 Severability................................................. 54
8.11 Expenses..................................................... 55
8.12 Specific Performance......................................... 55
8.13 Construction................................................. 55
8.14 Incorporation of Exhibits and Schedules...................... 55
8.15 Arbitration.................................................. 55
- iii -
<PAGE>
LIST OF EXHIBITS
Exhibit A Form of Subordination Agreement
- ---------
Exhibit B Opinion of Counsel to ASM
- ---------
Exhibit C Inglis Employment Agreement
- ---------
Exhibit D Kearney Employment Agreement
- ---------
Exhibit E Dethlefs Employment Agreement
- ---------
Exhibit F Opinion of Counsel to PGI
- ---------
- iv -
<PAGE>
STOCK PURCHASE AND SALE AGREEMENT
THIS STOCK PURCHASE AND SALE AGREEMENT (this "Agreement") entered into
as of January 31, 1997 by and among PGI, INC., a Delaware corporation ("PGI"),
AMERICAN SHOW MANAGEMENT, INC., an Oregon corporation ("ASM"), JOHN INGLIS, a
resident of the State of Oregon ("John Inglis"), JUDI INGLIS, a resident of the
State of Oregon ("Judi Inglis"), PATRICK J. KEARNEY, a resident of the State of
Oregon ("Kearney"), and ROBERT DETHLEFS, a resident of the State of Oregon
("Dethlefs"). PGI, ASM, John Inglis, Judi Inglis, Kearney and Dethlefs are
referred to collectively herein as the "Parties." John Inglis, Judi Inglis,
Kearney and Dethlefs are referred to collectively herein as the "Stockholders."
WHEREAS, ASM is engaged in the business of (i) creating regional
communications, office equipment and automation trade shows, including high
technology solutions serving business-to-business needs, (ii) field marketing,
consulting and educational services to companies; and (iii) technology
recruitment expos (collectively, the "Business"); and
WHEREAS, the Stockholders own or will at the Closing own all of the
issued and outstanding stock of ASM (the "Stock"); and
WHEREAS, the Stockholders desire to sell the Stock to PGI and PGI
desires to purchase the Stock from the Stockholders according to the terms and
provisions of this Agreement (the "Purchase and Sale") so that, following the
Purchase and Sale, ASM will be a wholly-owned subsidiary of PGI;
NOW, THEREFORE, in consideration of the foregoing premises and the
representations, warranties, agreements and covenants herein contained, and for
other good and valuable consideration, the receipt and legal sufficiency of
which are hereby acknowledged, the Parties hereby agree as follows:
ARTICLE I
THE PURCHASE AND SALE OF THE STOCK
1.1 The Purchase and Sale of the Stock.
----------------------------------
Upon and subject to the terms and conditions of this Agreement, the
Stockholders shall sell the Stock to PGI and PGI shall purchase the Stock from
the Stockholders at the Closing (as defined below). From and after the Closing
Date (as defined below), all shares of the capital stock of ASM shall be owned
by PGI.
1.2 The Closing.
-----------
The closing of the transactions contemplated by this Agreement (the
"Closing") shall take place at the offices of James, Denecke & Harris, Portland,
Oregon, commencing at
1
<PAGE>
10:00 a.m. local time on the later to occur of the following (the "Closing
Date"): (a) February 28, 1997; (b) as soon as practicable, but in no event later
than 5 business days, after PGI has received all of the proceeds of its public
offering (the "Public Offering") under the Securities Act of 1933, as amended
(the "Securities Act"); or (c) if all of the conditions to the obligations of
the Parties to consummate the transactions contemplated hereby have not been
satisfied or waived as of the later of the dates in (a) and (b), on such
mutually agreeable later date as soon as practicable after the satisfaction or
waiver of all conditions to the obligations of the Parties to consummate the
transactions contemplated hereby, provided, however, in no event shall ASM or
the Stockholders be required to consent to a Closing Date later than March 15,
1997.
1.3 Actions at the Closing.
----------------------
At the Closing, (a) the Stockholders shall deliver to PGI all stock
certificates representing the Stock, which shall be all of the issued and
outstanding capital stock of ASM, duly endorsed and transferred to PGI, free and
clear of any restrictions, obligations, liens and encumbrances, along with the
other certificates, instruments and documents referred to in Section 5.2, (b)
ASM shall deliver to PGI the various resignations, certificates, instruments,
and documents referred to in Section 5.2; (c) PGI shall deliver to ASM and the
Stockholders the various certificates, instruments and documents referred to in
Section 5.3, along with the Purchase Consideration (as defined and calculated
pursuant to Section 1.5 hereof).
1.4 Additional Action.
-----------------
PGI may, at any time after the Closing, take any action, including
executing and delivering any document, in the name and on behalf of ASM, in
order to consummate the Purchase and Sale contemplated by this Agreement.
1.5 Purchase Consideration.
----------------------
The purchase consideration (the "Purchase Consideration") to be paid
by PGI shall be the sum of the Base Purchase Consideration (as hereinafter
defined) and the Additional Purchase Consideration (as hereinafter defined).
The Purchase Consideration shall be paid to the Stockholders when due by wire
transfer of immediately available funds to an account or accounts designated in
writing by the Stockholder Representative (as hereinafter defined) to PGI not
less than three days prior to the date on which any such payment is due. The
Purchase Consideration shall be allocated to the Stockholders on a pro rata
basis in accordance with the number of shares of Stock owned by each
Stockholder, and shall be characterized on the tax returns of each Party as
provided in Section 1.7 hereof.
(a) Base Purchase Consideration - PGI shall (i) pay the sum of Twenty
---------------------------
Million Dollars ($20,000,000) (the "Base Purchase Consideration") at the Closing
in the manner set forth above in this Section 1.5; and (ii) issue to
Stockholders 10,000 shares of PGI Common Stock, par value $.01 per share, free
and clear of all liens and encumbrances. The Base Purchase Consideration shall
be subject to adjustment as set forth in Section 1.5(b) below.
2
<PAGE>
(b) Adjustment to Base Purchase Consideration.
-----------------------------------------
(i) Within 75 days after the Closing Date, PGI shall cause its
accountants to prepare and shall deliver to Stockholders unaudited financial
statements of ASM as of the Closing Date and for the period from the date of the
Most Recent Balance Sheet (as defined in Section 2.8 hereof) through the Closing
Date (the "Closing Financial Statements"). The Closing Financial Statements
shall be prepared in accordance with generally accepted accounting principles
(on an accrual basis of accounting) from all books, records and accounts of ASM.
Such Closing Financial Statements shall be prepared using the same accounting
policies as those used to prepare the financial statements as of November 30,
1996 and for the eleven months then ended. The retained earnings (deficit)
balance, derived from the Closing Financial Statements, less any fixed assets or
intangible assets purchased during the period from November 30, 1996 to the date
of the Closing Financial Statements (unless such purchase was approved by PGI
pursuant to Section 4.3(a) hereof, or otherwise in writing) (the "Adjusted
Retained Earnings (Deficit)"), shall provide the basis for determining the
adjustment to the purchase price described in the following paragraphs. A detail
listing of accounts receivable by customer and amount as of the Closing Date
should be provided to PGI.
(ii) Stockholders and their representatives shall have the right
to review all work papers and procedures used to prepare the Closing Financial
Statements and shall have the right to perform any other reasonable procedures
necessary to verify the accuracy thereof. Unless Stockholders, within 30 days
after delivery to Stockholders of the Closing Financial Statements, notify PGI
in writing that they object to the Closing Financial Statements, and specify the
basis for such objection, such Closing Financial Statements shall become final,
binding and conclusive upon the parties for purposes of this Agreement. If
Stockholders and PGI are unable to resolve any objections to the Closing
Financial Statements within ten days after any such notification has been given,
the dispute shall be referred to Price Waterhouse LLP (the "Designated
Accountant") for resolution (or, if the Designated Accountant is unavailable, to
another nationally recognized public accounting firm mutually agreed upon by
Stockholders and PGI within five days from the date upon which the Designated
Accountant notifies the parties that it is not available). If PGI and
Stockholders are unable to agree upon the designation of such an accounting firm
within such five-day period, then either party may, within three days
thereafter, request that the President of the American Arbitration Association
make such designation. The Designated Accountant or the accounting firm
designated hereunder will make a determination as to each of the items in
dispute and shall notify the Parties of such determination within 30 days after
referral of the dispute to such accountant hereunder, which determination shall
be final, conclusive and binding upon each of the Parties hereto. PGI and
Stockholders shall cooperate with each other and with each other's authorized
representatives in order to resolve any and all matters in dispute under this
Section 1.5(b) as quickly as practicable and shall share the fees and expenses
of the Designated Accountant equally.
(iii) If the Adjusted Retained Earnings (Deficit) of ASM as set
forth on the balance sheet included in the Closing Financial Statements is less
than zero dollars, then the Base Purchase Consideration shall be decreased
dollar for dollar by the amount by which such retained earnings (deficit) is
less than zero dollars (the "Base Purchase Consideration Reduction").
Stockholders shall remit the amount of such Base Purchase Consideration
3
<PAGE>
Reduction, with interest, to PGI within five days after finalization of the
Closing Financial Statements as set forth above. Interest for purposes of this
Section 1.5(b)(iii) and of Section 1.5(b)(iv) hereof shall be calculated at the
rate of 8% per annum.
(iv) If the Adjusted Retained Earnings (Deficit) of ASM as set
forth on the balance sheet included in the Closing Financial Statements is
greater than zero dollars, then the Base Purchase Consideration shall be
increased dollar for dollar by the amount by which such retained earnings
(deficit) is greater than zero dollars (the "Base Purchase Consideration
Increase"). PGI shall remit the amount of such Base Purchase Consideration
Increase, with interest, to Stockholders within five days after finalization of
the Closing Financial Statements as set forth above.
(c) Additional Purchase Consideration for 1997 - If applicable, PGI
------------------------------------------
shall pay to Stockholders the following additional sum (the "1997 Additional
Purchase Consideration") in the manner set forth below:
(i) As used in this Section 1.5, "Pre-Tax, Pre-Executive
Compensation Net Income" or "PTPECNI" for the period in question (the
"Applicable Period") shall mean the difference between Total Revenues (as
hereinafter defined) for the Applicable Period less Expenses (as hereinafter
defined) for the Applicable Period. For purposes of calculation of PTPECNI,
"Total Revenues" shall mean all cash revenues of the Existing ASM Business (as
hereinafter defined) based on a calendar year accounting, including, without
limitation, all advance deposits received by ASM. For purposes of calculation of
PTPECNI, "Expenses" shall mean all expenses paid by ASM in the Applicable Period
(inclusive of advance expenses on shows), exclusive of (A) management fees or
other corporate expenses paid to PGI and not directly attributable to the
Existing ASM Business, (B) executive compensation paid to John Inglis or
Kearney, (C) extraordinary expenses, including professional fees and the costs
of the transaction contemplated under this Agreement, (D) interest expense,
income or other taxes. As used in this Section 1.5, "Existing ASM Business"
shall mean all business of ASM existing as of the date hereof, and all business
of ASM commenced after the date hereof other than business of ASM that (I)
competes directly or indirectly with any activity of PGI, (II) requires a
significant capital investment by PGI, (III) is outside the area of expertise of
ASM at the time of implementation, (IV) requires for implementation the addition
of staff or expertise by ASM not possessed by ASM as of the date hereof, or (V)
is conducted by a subsidiary or division of PGI included in the operations of
ASM by PGI (such ASM business commenced after the date hereof and satisfying the
conditions set forth in clauses I, II, III, IV or V above shall be separately
referred to as "New ASM Business"), provided, however, that any New ASM Business
-------- -------
subject to the exclusions set forth in clauses (I), (II), (III) (IV) or (V)
immediately above shall be included in the definition of Existing ASM Business
upon the written approval of the Chief Executive Officer of PGI. As used in this
Section 1.5, "Profit Margin" shall mean the percentage that results from
dividing PTPECNI of the Existing ASM Business generated during any calendar year
by the amount of Total Revenues generated by the Existing ASM Business during
such calendar year.
(ii) (A) On or before 30 days following the end of March, June,
September and December of 1997, PGI shall prepare a quarterly unaudited internal
calculation (each, a "Quarterly Earn-Out Estimate") to determine whether any
1997 Additional
4
<PAGE>
Purchase Consideration has been earned in 1997 prior to or during such quarter.
On or before April 30, 1998, PGI shall deliver to Stockholders a statement (the
"Final Quarterly 1997 Earn-Out Statement") setting forth whether any 1997
Additional Purchase Consideration has been earned during calendar year 1997.
(B) If (x) PTPECNI for year-to-date 1997 as set forth in a
Quarterly Earn-Out Estimate or Final Quarterly 1997 Earn-Out Statement, as the
case may be, is greater than the year to date PTPECNI target (the "Year To Date
PTPECNI Target") listed in Table 1 below and (y) the Profit Margin for year-to-
-------
date 1997 as of the end of such quarter is equal to or greater than * , then
PGI shall pay to the Stockholders in the manner set forth below an amount equal
to * of the amount by which (I) PTPECNI for year-to-date 1997 exceeds (II)
the Year to Date PTPECNI Target in Table 1 below, reduced by any 1997 Additional
-------
Purchase Consideration paid previously.
(C) Table 1 is as follows:
-------
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------
Q1-1997 Q2-1997 Q3-1997 Q4-1997 1997
-------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
QUARTERLY PTPECNI * * * * *
- ----------------------------------------------------------------------------------------
YEAR TO DATE PTPECNI TARGET * * * * *
- ----------------------------------------------------------------------------------------
</TABLE>
(iii) Stockholders and their representatives shall have the right
to review all work papers and procedures used to prepare the Final Quarterly
1997 Earn-Out Statement and shall have the right to perform any other reasonable
procedures necessary to verify the accuracy thereof. Unless Stockholders, within
30 days after delivery to Stockholders of the Final Quarterly 1997 Earn-Out
Statement, notify PGI in writing that they object to the Final Quarterly 1997
Earn-Out Statement, and specify the basis for such objection, such Final
Quarterly 1997 Earn-Out Statement shall become final, binding and conclusive
upon the Parties for purposes of this Agreement. If the Parties are unable to
resolve any objections to the Final Quarterly 1997 Earn-Out Statement within ten
days after any such notification has been given, PGI shall pay to the
Stockholders any undisputed amount of 1997 Additional Purchase Consideration and
the dispute shall be referred to Designated Accountant for resolution (or, if
the Designated Accountant is unavailable, to another nationally recognized
public accounting firm mutually agreed upon by Stockholders and PGI within five
days from the date upon which the Designated Accountant notifies the parties
that it is not available). Within 30 days the Designated Accountant will make a
determination as to each of the items in dispute, which determination shall be
final, conclusive and binding upon each of the Parties hereto, provided,
however, that if the amount of the dispute shall exceed $100,000, any Party that
disputes the Designated Accountant's determination may submit the matter for
binding arbitration in accordance with Section 8.15 hereof. PGI and the
Stockholders shall cooperate with each other and with each other's authorized
representatives in order to resolve any and all matters in dispute under this
Section 1.5(c) as soon as practicable, and each of PGI and the Shareholders
shall pay half of the fees and
- ------------
* Confidential information has been omitted and filed separately with the
Commission.
5
<PAGE>
expenses of the Designated Accountant or of arbitration. The total amount of
1997 Additional Purchase Consideration owed to Stockholders hereunder shall be
the amount set forth on the Final Quarterly 1997 Earn-Out Statement as
determined in accordance with this Section 1.5(c)(iii) (the "Final 1997 Earn-Out
Amount").
(iv) On the Closing Date, PGI shall deposit * (the "Initial
Additional Purchase Consideration Amount") to an account maintained by the
Stockholders (the "Additional Purchase Consideration Account"). The Additional
Purchase Consideration Account shall be maintained by the Stockholders at United
States National Bank, Portland, Oregon (the "Designated Bank"). The Additional
Purchase Consideration Account (A) shall require for withdrawal the signature of
John Inglis as Stockholder Representative and the Chief Executive Officer of PGI
or his designee; and (B) shall be interest bearing with all interest paid to
PGI. Any 1997 Additional Purchase Consideration shown to be owed on any
Quarterly Earn-Out Estimate in excess of the Initial Additional Purchase
Consideration Amount shall be paid by PGI into the Additional Purchase
Consideration Account within 45 days following the end of the calendar quarter.
Notwithstanding the withdrawal mechanism set forth above, all funds in the
Additional Purchase Consideration Account shall be the sole and exclusive
property of the Stockholders. Any failure of the Stockholder Representative to
approve an authorized withdrawal as set forth herein shall constitute the breach
of a material covenant pursuant to this Agreement subject to the Stockholder
indemnification obligations as set forth herein.
(v) Withdrawals shall be permitted from the Additional Purchase
Consideration Account as follows:
(A) To PGI, following the preparation of the Quarterly Earn-
Out Estimate for the third quarter of 1997 or the Final Quarterly 1997 Earn-Out
Statement: (i) in the event that PTPECNI for year-to-date 1997 as set forth in
the Quarterly Earn-Out Estimate for the third quarter of 1997 or Final Quarterly
1997 Earn-Out Statement, as the case may be, is equal to or less than the Year
To Date PTPECNI Target listed in Table 1 above, or (ii) in the event that the
-------
Profit Margin for year-to-date 1997 is less than * ; in either of which events
PGI shall be entitled to receive the full amount in the Additional Purchase
Consideration Account.
(B) To PGI, to the extent of the excess of any amount in the
Additional Purchase Consideration Account over the Final 1997 Earn-Out Amount.
(C) To Stockholders, to pay the Final 1997 Earn-Out Amount.
(D) To PGI, on or before September 30, 1997, to reimburse PGI
for up to an aggregate of $250,000 of any Hall Contract Losses (as defined in
Section 7.2(e) hereof) in the event that the Stockholders do not pay the full
amount of any Hall Contract Loss (up to $250,000) within 30 days following
notice from PGI.
(E) To Stockholders, in the event an Accelerated Earn-Out
Event occurs.
- -------------
* Confidential information has been omitted and filed separately with the
Commission.
6
<PAGE>
(vi) PGI shall be obligated to pay Stockholders any amount of the
Final 1997 Earn-Out Amount in excess of the amount in the Additional Purchase
Consideration Account within 10 days following determination of the Final 1997
Earn-Out Amount in accordance with Section 1.5(c)(iii) hereof.
(d) Additional Purchase Consideration for 1998 - If applicable, PGI
------------------------------------------
shall pay to Stockholders the following additional sum (the "1998 Additional
Purchase Consideration") in the manner set forth below (the 1997 Additional
Purchase Consideration and the 1998 Additional Purchase Consideration shall be
collectively referred to herein as the "Additional Purchase Consideration"):
(i) (A) On or before 30 days following the end of March, June,
September and December of 1998, PGI shall prepare a Quarterly Earn-Out Estimate
to determine whether any 1998 Additional Purchase Consideration has been earned
in 1998 prior to or during such quarter. On or before April 30, 1999, PGI shall
deliver to Stockholders a statement (the "Final Quarterly 1998 Earn-Out
Statement") setting forth whether any 1998 Additional Purchase Consideration has
been earned during calendar year 1998.
(B) If (x) PTPECNI for year-to-date 1998 as set forth in a
Quarterly Earn-Out Estimate or Final Quarterly 1998 Earn-Out Statement, as the
case may be, is greater than the Year To Date PTPECNI Target set forth in (C)
below and (y) the Profit Margin for year-to-date 1998 is equal to or greater
than * , then PGI shall pay to the Stockholders in the manner set forth below
an amount equal to * of the amount by which (I) PTPECNI for year-to-date 1998
exceeds (II) the Year to Date PTPECNI Target set forth in (C) below, reduced by
any 1998 Additional Purchase Consideration paid previously.
(C) (a) Table 2 is as follows:
-------
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------
Q1-1998 Q2-1998 Q3-1998 Q4-1998 1998
-------- ---------- ----------- ---------- ----------
<S> <C> <C> <C> <C> <C>
QUARTERLY PTPECNI * * * * *
- -------------------------------------------------------------------------------------------
YEAR TO DATE PTPECNI TARGET * * * * *
- -------------------------------------------------------------------------------------------
</TABLE>
(b) Notwithstanding the amounts set forth for Year to Date PTPECNI
Target in Table 2, such amounts shall be increased to the greater of the amount
for such target set forth in Table 2 and actual quarterly PTPECNI for 1997 as
-------
set forth on the Final Quarterly 1997 Earn-Out Statement.
(ii) Stockholders and their representatives shall have the right
to review all work papers and procedures used to prepare the Final Quarterly
1998 Earn-Out Statement and shall have the right to perform any other reasonable
procedures necessary to verify the accuracy thereof. Unless Stockholders, within
30 days after delivery to Stockholders of the Final Quarterly 1998 Earn-Out
Statement, notify PGI in writing that they object to the Final Quarterly 1998
Earn-Out Statement, and specify the basis for such objection, such Final
Quarterly
- -------------
* Confidential information has been omitted and filed separately with the
Commission
7
<PAGE>
1998 Earn-Out Statement shall become final, binding and conclusive upon
the Parties for purposes of this Agreement. If the Parties are unable to
resolve any objections to the Final Quarterly 1998 Earn-Out Statement within ten
days after any such notification has been given, PGI shall pay to the
Stockholders any undisputed amount of 1998 Additional Purchase Consideration and
the dispute shall be referred to the Designated Accountant for resolution.
Within 30 days the Designated Accountant will make a determination as to each of
the items in dispute, which determination shall be final, conclusive and binding
upon each of the Parties hereto, provided, however, that if the amount of the
dispute shall exceed $100,000, any Party that disputes the Designated
Accountant's determination may submit the matter for binding arbitration
pursuant to Section 8.15 hereof. PGI and the Stockholders shall cooperate with
each other and with each other's authorized representatives in order to resolve
any and all matters in dispute under this Section 1.5(d) as soon as practicable,
and each of PGI and the Shareholders shall pay half of the fees and expenses of
the Designated Accountant or of arbitration. The total amount of 1998
Additional Purchase Consideration owed to Stockholders hereunder shall be the
amount set forth on the Final Quarterly 1998 Earn-Out Statement as determined in
accordance with this Section 1.5(c)(ii) (the "Final 1998 Earn-Out Amount").
(iii) Any 1998 Additional Purchase Consideration shown to be owed
on any Quarterly Earn-Out Estimate shall be paid by PGI into the Additional
Purchase Consideration Account within 45 days following the end of the calendar
quarter. Notwithstanding the withdrawal mechanism set forth in Section
1.5(c)(iv) above, all funds in the Additional Purchase Consideration Account
shall be the sole and exclusive property of the Stockholders. Any failure of the
Stockholder Representative to approve an authorized withdrawal as set forth
herein shall constitute the breach of a material covenant pursuant to this
Agreement subject to the Stockholder indemnification obligations as set forth
herein.
(iv) Withdrawals shall be permitted from the Additional Purchase
Consideration Account as follows:
(A) To PGI, following the preparation of the Quarterly Earn-
Out Estimate for any quarter of 1998 or the Final Quarterly 1998 Earn-Out
Statement: (i) in the event that PTPECNI for year-to-date 1998 as set forth in
the Quarterly Earn-Out Estimate or Final Quarterly 1998 Earn-Out Statement, as
the case may be, is equal to or less than the Year To Date PTPECNI Target listed
in Section 1.5(d)(i)(C) above, or (ii) in the event that the Profit Margin for
year-to-date 1998 is less than * ; in either of which events PGI shall be
entitled to receive the full amount in the Additional Purchase Consideration
Account.
(B) To PGI, any remaining amount after the payment provided
for in Section 1.5(d)(iv)(C) below.
(C) To Stockholders, to pay the Final 1998 Earn-Out Amount.
(D) To Stockholders, in the event an Accelerated Earn-Out
Event occurs.
- -----------
* Confidential information has been omitted and filed separately with the
Commission.
8
<PAGE>
(v) PGI shall be obligated to pay Stockholders any amount of the
Final 1998 Earn-Out Amount in excess of the amount in the Additional Purchase
Consideration Account within 10 days following determination of the Final 1998
Earn-Out Amount in accordance with Section 1.5(d)(ii) hereof, and thereafter
shall have no further responsibility under this Section 1.5.
(e) Calculation Matters. For purposes of the calculation of 1997
-------------------
Additional Purchase Consideration and 1998 Additional Purchase Consideration,
PTPECNI and Profit Margin shall be calculated on a cash basis in a manner
consistent with the Business Plan (as hereinafter defined). Promptly following
the Closing, PGI and the Stockholders shall negotiate in good faith to establish
calculation principles on an accrual basis consistent with PGI's current
accounting methods. For purposes of the comparison of PTPECNI generated during
any present and prior calendar year, if PGI shall have expanded the scope of the
Existing ASM Business by the addition of a new business line or activity or any
New ASM Business to ASM in the present calendar year that shall have resulted in
a change in the amount of PTPECNI during such calendar year, the PTPECNI dollar
target and Profit Margin set forth above for calculation of Additional Purchase
Consideration shall be increased or decreased on a pro rata basis with respect
to such change. Stockholders acknowledge and agree that the Executive Committee
of the Board of Directors of PGI shall have unrestricted authority to exercise
its independent business judgment with regard to the affairs of ASM after the
Closing, including, without limitation, decisions with respect to appropriate
charges to ASM for expenses incurred by ASM, decisions as to expansion, if any,
and decisions as to ASM's business or redeployment of its assets, provided,
however, that material alterations in the allocation of expenses to ASM shall be
reasonable and shall be generally consistent with the business plan agreed to
among the Parties, as supplemented pursuant to Section 1.8 hereof (the "Business
Plan"), which is set forth as Section 1.5(e) of the disclosure schedule attached
--------------
hereto (the "Disclosure Schedule"). In calculating the amount of Additional
Purchase Consideration earned in 1997 or 1998, PGI shall make reference to the
Business Plan and the amount of Additional Purchase Consideration projected
thereunder.
(f) Stockholder Representative. The Stockholders hereby appoint John
--------------------------
Inglis as their representative (the "Stockholder Representative") for all
matters relating to this Agreement and the Purchase and Sale transaction,
including, without limitation, for purposes of the calculation of Additional
Purchase Consideration and for purposes of indemnification matters under Article
VII hereof. PGI may rely on all agreements reached with the Stockholder
Representative on behalf of the Stockholders, and all such agreements entered
into with such Stockholder Representative shall be final and binding on
Stockholders. The Stockholder Representative also shall be responsible for the
appropriate allocation of Purchase Consideration among the Stockholders.
1.6 Treatment of Stock.
------------------
From and after the Closing, all of the capital stock of ASM shall be
held by PGI.
9
<PAGE>
1.7 Certain Tax Matters.
-------------------
(a) The Parties acknowledge that the Purchase and Sale of the Stock of
ASM will constitute a "qualified stock purchase" for purposes of Section
338(d)(3) of the Internal Revenue Code (the "Code") and that PGI intends to make
an "express election" pursuant to Section 338(g) of the Code and the regulations
thereunder with respect to each such Purchase and Sale. Stockholders warrant to
Purchaser that they are qualified to make a valid election under Section
338(h)(10) of the Code and Section 1.338(h)(10)-1(d)(1) of the Income Tax
Regulations with respect to such purchase. Stockholders and PGI agree to join
in making a valid election under Section 338(h)(10) of the Code with respect to
such purchase. Stockholders and PGI also agree to make the state law equivalent
of the Section 338(h)(10) election wherever such election is available. PGI
shall prepare Forms 8023 and submit them to Stockholders for signing. PGI and
Stockholders shall fully cooperate in making the elections under Section
338(h)(10) of the Code and similar available elections pursuant to applicable
state and local laws. The Parties agree to allocate the deemed purchase price
of the assets of ASM pursuant to the procedures in Section 1.7(g) below. In
connection with the foregoing, ASM and the Stockholders shall cause Perkins &
Company to provide appropriate PGI personnel with the information needed to
invoke the necessary and appropriate tax elections.
(b) Stockholders shall pay or cause to be paid all taxes (hereinafter,
"Election Taxes") arising as a result of the elections under Sections 338(g) and
338(h)(10) of the Code, or comparable provisions of state and local law,
provided, however, that if the Stockholders shall be required to pay a greater
amount of tax as a result of such elections than the Stockholders would have
been required to pay in connection with the transaction contemplated hereby had
no such elections been made, then PGI shall reimburse the Stockholders an amount
equal to the excess of (i) the lesser of (A) the federal income tax amount
resulting from such election or (B) the federal income tax amount that would
have resulted from such election if ASM had qualified as an S corporation at all
times from the date of its formation through the opening of business on the
Closing Date over (ii) the federal income tax amount that would have resulted in
the absence of such election.
(c) Stockholders and PGI shall cooperate fully with each other and
make available or cause to be made available to each other in a timely fashion
such tax data, prior tax returns and filings and other information as may be
reasonably required for the preparation by PGI or Stockholders of any tax
returns, elections, consents or certificates required to be prepared and filed
by PGI or Stockholders and any audit or other examination by any taxing
authority, or judicial or administrative proceeding relating to liability for
Election Taxes. Purchaser and Stockholders will each retain and provide to the
other party all records and other information which may be relevant to any Tax
Return (as defined in Section 2.9 hereof), audit or examination, proceeding or
determination, and will each provide the other Party with any final
determination of any such audit or examination, proceeding or determination that
affects any amount required to be shown on any Tax Return of the other Party for
any period. Without limiting the generality of the foregoing, each of PGI and
Stockholders will retain copies of all Tax Returns, supporting work schedules
and other records relating to tax periods or portions thereof ending prior to or
on the Closing Date. PGI will cause appropriate personnel to prepare usual and
customary tax return packages for (i) the tax period ending December 31, 1997
(the "1997 Packages") and (ii) the tax
10
<PAGE>
period beginning as of January 1, 1997, and ending as of the Closing Date (the
"Short Period Packages") (collectively, a "Package" or the "Packages"). Except
as otherwise provided below, the 1997 Packages will be delivered to Stockholders
not later than June 1, 1998 and the Short Period Packages will be delivered to
Stockholders not later than 120 days after the Closing Date. If PGI cannot
deliver the Packages on or before the prescribed times without incurring
additional out-of-pocket expenses, it may notify Stockholders of that fact not
later than 30 days prior to the prescribed date of delivery of such Package. If
Stockholders agree to reimburse PGI for the additional out-of-pocket expenses of
timely delivery of the Packages, then PGI shall deliver the Packages at the
times prescribed herein. If Stockholders does not agree to reimburse PGI for the
additional out-of-pocket expenses of timely delivery of the Packages, PGI shall
deliver the Packages to Stockholders as soon after the initially prescribed
times as is reasonably practicable, PGI having no obligation to incur additional
out-of-pocket expenses to accelerate the delivery. PGI will provide Stockholders
with any necessary payroll records attributable to the period prior to the
Closing Date.
(d) Any sales, transfer, use or other similar taxes imposed as a
result of the sale of the Stock to PGI pursuant to this Agreement shall be borne
by Stockholders. At the Closing, PGI shall remit to Stockholders such properly
completed resale exemption certificates and other similar certificates or
instruments as are necessary to claim available exemptions from the payment of
sales, transfer, use or other similar taxes under applicable law. All
recording, transfer and other similar taxes and fees payable as a result of the
public recordation of the instruments of conveyance or transfer of the Stock
executed and delivered to PGI pursuant to this Agreement shall be allocated
between the PGI and the Stockholders in accordance with the customary practice
prevailing in Oregon.
(e) Stockholders shall be responsible for, and shall indemnify and
hold harmless, PGI and its officers, directors and shareholders in respect of
any damages attributable to all Election Taxes with respect to the ownership or
operation of ASM on or prior to the Closing Date and PGI or its affiliates shall
be responsible for, and shall indemnify and hold harmless Stockholders and their
affiliates in respect of any damages attributable to all Election Taxes with
respect to the ownership or operation of ASM after the Closing Date.
Stockholders' share of all real and personal property taxes, state and local ad
valorem taxes and assessments applicable to ASM for any period commencing on or
prior to the Closing Date and ending after the Closing Date shall be determined
on a pro rata basis based on the length of such period and when the Closing Date
occurs therein.
(f) Stockholders and PGI agree that the Purchase and Sale contemplated
by this Agreement constitutes a sale of a trade or business within the meaning
of Section 41(f)(3) of the Code. Stockholders agree to provide PGI upon request
with all information necessary to permit PGI to timely apply the provisions of
Section 41(f)(3)(A) of the Code with respect to ASM. Stockholders agree to
furnish PGI upon request clearance certificates or similar documents that may be
required by any state, local or other taxing authority to relieve PGI of any
obligations to withhold any portion of the purchase consideration to be
transferred pursuant to this Article I.
11
<PAGE>
(g) The Purchase Consideration, including the Base Purchase
Consideration and the Additional Purchase Consideration, if any, shall be
allocated among the assets of ASM as provided in Section 338 of the Code and the
Treasury Regulations thereunder, which allocation is as set forth on Schedule
--------
1.7(g) attached hereto (which Schedule shall be completed by the Parties prior
- ------
to the Closing). PGI and ASM each agree to file Form 8594 and any other
relevant income tax returns and reports in a manner consistently reflecting the
allocations set forth on Schedule 1.7(g). Stockholders agree to provide PGI and
---------------
its representatives (including without limitation the appraiser) reasonable
access to the assets and records of Stockholders prior to the Closing. PGI and
Stockholders shall not take any position on their respective Tax Returns that is
inconsistent with such allocation of the Purchase Consideration, and PGI and
Stockholders shall duly prepare and timely file such reports and information
returns as may be required to report the allocation of the Purchase
Consideration pursuant to this Section 1.7(g). The Parties acknowledge that the
Purchase Consideration subject to allocation will be different amounts for each
of PGI and Stockholders (e.g., due to inclusion of differing amounts of
transaction costs).
(h) In the event any taxing authority mistakenly delivers to or
otherwise credits PGI with a refund relating to taxes paid or arising in periods
prior to the Closing Date, PGI will promptly negotiate such refund to
Stockholders or pay an amount equal to such credit to Stockholders, as the case
may be.
1.8 Business Plan.
-------------
After Closing, the Stockholders will have an interest in ASM
represented by the right to receive 1997 Additional Purchase Consideration and
the 1998 Additional Purchase Consideration, if any, as provided herein. In
order to (a) provide for an orderly integration of the Business into the
operations of PGI and (b) protect the Stockholders' opportunity to receive
Additional Purchase Consideration, PGI agrees that PGI will subscribe to the
Business Plan for the operation of ASM during the period beginning on the
Closing Date and continuing until the end of calendar year 1998. The Business
Plan for calendar year 1997 is attached hereto as Section 1.5(e) of the
--------------
Disclosure Schedule and expresses the general intent for the business operations
and objectives of ASM in such calendar year 1997. No later than December 1,
1997, the Stockholders shall submit a supplemented Business Plan that shall
address calendar 1998 and that shall provide a reasonable plan for achieving the
PTPECNI target set forth in Section 1.5(d) hereof, which supplemental Business
Plan shall be subject to the review and approval (which approval shall not be
unreasonably withheld) of the Executive Management Team of PGI. During calendar
years 1997 and 1998, the Parties will conduct themselves in substantial
accordance with the Business Plan, provided, however, that PGI shall have the
right to alter the Business Plan if PGI determines, in the reasonable exercise
of its discretion and following reasonable consultation and discussion with the
Stockholder Representative, that continuing to operate ASM in accordance with
the Business Plan as then drafted is not likely to achieve the targets or
objectives set forth in the Business Plan or that changed business conditions
make such alteration advisable. Notwithstanding the foregoing, if PGI changes
the Business Plan in a manner that causes the Stockholders to receive less
Additional Purchase Consideration than they would have received without such
change, then PGI and the Stockholder Representative shall negotiate in good
faith to
12
<PAGE>
reach mutual agreement concerning an equitable adjustment to the calculation
principles with respect to Additional Purchase Consideration in the future.
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF ASM
AND THE STOCKHOLDERS
ASM and each of the Stockholders (other than Dethlefs) jointly and
severally represent and warrant to PGI as follows and Dethlefs represents and
warrants to PGI as set forth in Sections 2.14, 2.17, 2.26, 2.28 and 2.29:
2.1 Organization, Qualification and Corporate Power.
-----------------------------------------------
ASM is a corporation duly organized, validly existing and in corporate
and tax good standing under the laws of the State of Oregon. Except as set
forth in Section 2.1 of the Disclosure Schedule, ASM is duly qualified to
-----------
conduct business and is in corporate and tax good standing under the laws of
each jurisdiction in which the nature of its businesses or the ownership or
leasing of its properties requires such qualification. Except as set forth in
Section 2.1 of the Disclosure Schedule, ASM has had no written or oral notice or
- -----------
other communication with any Governmental Entity (as defined in Section 2.4
hereof) with respect to the failure of ASM to qualify to do business in any
jurisdiction. Except as set forth in Section 2.1 of the Disclosure Schedule,
-----------
ASM has the corporate power and authority to carry on the businesses in which it
is engaged and to own and use the properties owned and used by it. ASM has
furnished or made available to PGI true and complete copies of its Articles of
Incorporation and By-laws, each as amended and as in effect on the date hereof
(hereinafter "Articles of Incorporation" and "By-laws," respectively). Except
as set forth in Section 2.1 of the Disclosure Schedule, ASM is not in default
-----------
under or in violation of any provision of its Articles of Incorporation or By-
laws, each as amended to date. Other than the interests listed in Section 2.5
-----------
of the Disclosure Schedule, ASM does not have any direct or indirect
subsidiaries or any other equity interest in any other firm, corporation,
partnership, joint venture, association or other business organization.
2.2 Capitalization.
--------------
The authorized capital stock of ASM consists of one thousand (1,000)
shares of Common Stock. Section 2.2 of the Disclosure Schedule sets forth the
-----------
number of such shares that are issued and outstanding and the number of such
shares held in the treasury of ASM, as well as a complete and accurate list of
(i) all stockholders of ASM, indicating the type and number of shares of ASM
capital stock held by each stockholder, and (ii) all holders of options and
warrants and conditional stock entitlements, indicating the type and number of
shares of ASM capital stock subject to each option and warrant and conditional
stock entitlement and the exercise price thereof. All of the issued and
outstanding shares of ASM capital stock are, and all shares of ASM capital stock
that may be issued upon exercise of options and warrants and conditional stock
entitlement will be, duly authorized, validly issued, fully paid, non-assessable
and free of all preemptive rights, except as set forth in Section 2.2 of the
-----------
Disclosure Schedule. Except as set
13
<PAGE>
forth in Section 2.2 of the Disclosure Schedule, there are no declared or
-----------
accrued but unpaid dividends with regard to any issued and outstanding shares of
ASM capital stock. Holders of issued and outstanding ASM Stock have no basis for
asserting rights to rescind the purchase of any such ASM Stock. Except as set
forth in Section 2.2 of the Disclosure Schedule, there are no
-----------
outstanding or authorized options, warrants, rights, calls, convertible
instruments, agreements or commitments to which ASM is a party or which are
binding upon ASM providing for the issuance, disposition or acquisition of any
of its capital stock. There are no outstanding or authorized stock appreciation,
phantom stock or similar rights with respect to ASM. There are no agreements,
voting trusts, proxies, or understandings with respect to the voting, or
registration under the Securities Act, of any ASM Stock (i) between or among ASM
and any of its stockholders and (ii) to the best of ASM's knowledge, between or
among any of ASM's stockholders. All of the issued and outstanding ASM Stock was
issued in compliance with applicable federal and state securities laws.
2.3 Authorization of Transaction.
----------------------------
ASM has the corporate power and authority to execute and deliver this
Agreement and to perform its obligations hereunder. The execution and delivery
of this Agreement, the performance by ASM of this Agreement and the consummation
by ASM of the transactions contemplated hereby have been duly and validly
authorized by the necessary corporate action on the part of ASM. This Agreement
has been duly and validly executed and delivered by ASM and, assuming the due
authorization, execution and delivery by PGI, constitutes a valid and binding
obligation of ASM, enforceable against ASM in accordance with its terms, except
as enforcement may be limited by bankruptcy, insolvency or other similar laws
affecting the enforcement of creditors' rights and remedies generally, and
except that the availability of equitable remedies, including specific
performance, is subject to the discretion of the court before which any
proceeding therefor may be brought.
2.4 Non-Contravention.
-----------------
Subject to Section 2.14(b) of the Disclosure Schedule and Section
--------------- -------
5.2(f) hereof, neither the execution and delivery of this Agreement by ASM, nor
- ------
the consummation by ASM of the transactions contemplated hereby, will (a)
conflict with or violate any provision of the Articles of Incorporation or By-
laws of ASM, (b) require on the part of the Stockholders, ASM or any corporation
with respect to which ASM, directly or indirectly, has the power to vote or
direct the voting of sufficient securities to elect a majority of the directors
(a "Subsidiary") any filing with, or any permit, authorization, consent or
approval of, any United States federal or state court, arbitral tribunal,
administrative agency or commission or other United States federal or state
governmental or regulatory authority or agency (a "Governmental Entity"), (c)
conflict with, result in a breach of, constitute (with or without due notice or
lapse of time or both) a default under, result in the acceleration of, create in
any party the right to accelerate, terminate, modify or cancel, or require
notice, consent or waiver under, any contract, lease, sublease, license,
sublicense, franchise, permit, indenture, agreement or mortgage for borrowed
money, instrument of indebtedness, Security Interest (as defined below) or other
arrangement to which the Stockholders, ASM or any Subsidiary is a party or by
which ASM or any Subsidiary is bound or to which any of their assets is subject,
(d) result in the imposition of a Security Interest upon any
14
<PAGE>
assets of ASM or any Subsidiary or (e) violate any order, writ, injunction,
decree, statute, rule or regulation applicable to ASM, any Subsidiary or any of
their properties or assets. For purposes of this Agreement, "Security Interest"
means any mortgage, pledge, security interest, encumbrance, charge, or other
lien (whether arising by contract or by operation of law), other than
(i) mechanic's, materialmen's, and similar liens, (ii) liens arising under
worker's compensation, unemployment insurance, social security, retirement, and
similar legislation, and (iii) liens on goods in transit incurred pursuant to
documentary letters of credit, in each case arising in the ordinary course of
business consistent with past custom and practice (including with respect to
frequency and amount) ("Ordinary Course of Business") and not material.
2.5 Subsidiaries.
------------
ASM currently has no Subsidiaries and never has had any Subsidiaries.
Section 2.5 of the Disclosure Schedule discloses each equity or ownership
- -----------
interest (by way of stock ownership, joint venture or otherwise) in any other
firm, corporation, partnership, joint venture, association or other business
organization held by ASM or by the Stockholders in connection with the Business.
2.6 Financial Statements.
--------------------
(a) ASM has provided or made available to PGI the unaudited
consolidated balance sheet, statement of operations and statement of cash flows
as of November 30, 1996 and for the eleven month period ended as of November 30,
1996 (the "Most Recent Balance Sheet Date"). Such financial statements
(collectively, the "Financial Statements") have been prepared in accordance with
generally accepted accounting principles ("GAAP"), fairly present the financial
condition, results of operations and cash flows of ASM as of the dates thereof
and for the periods referred to therein and are consistent with the books and
records of ASM.
(b) To the best of the Stockholders' knowledge, the quarterly PTPECNI
figures set forth in the top line of Table 1 in Section 1.5(c)(ii)(C) hereof,
-------
labeled "Quarterly PTPECNI," are approximately the true and accurate Pre-Tax,
Pre-Executive Compensation Net Income amounts actually earned by ASM during the
corresponding quarter of calendar year 1996, calculated in the same manner as
PTPECNI is to be calculated pursuant to this Agreement. As used herein in this
Section 2.6(b), "approximately true and accurate" shall mean having a cumulative
margin of error of less than 10%.
2.7 Absence of Certain Changes.
--------------------------
Since [November 30], 1996, (a) there has not been any material adverse
change in the assets, business, financial condition or results of operations of
ASM (taken as a whole), nor has there occurred any event or development which
could reasonably be foreseen to result in such a material adverse change in the
future, and (b) ASM has not taken any unapproved actions set forth in Section
4.3(a).
15
<PAGE>
2.8 Undisclosed Liabilities.
-----------------------
ASM has no liability (whether known or unknown, whether absolute or
contingent, whether liquidated or unliquidated and whether due or to become
due), except for (a) liabilities accrued or reserved against on the November 30,
1996 unaudited balance sheet of ASM attached hereto as Section 2.8 of the
-----------
Disclosure Schedule (the "Most Recent Balance Sheet"), (b) liabilities which
have arisen since November 30, 1996 in the Ordinary Course of Business, (c)
contractual or statutory liabilities incurred in the Ordinary Course of Business
which are not required by GAAP to be reflected on a balance sheet, (d)
liabilities disclosed in Section 2.8 of the Disclosure Schedule or the other
-----------
portions of the Disclosure Schedule, and (e) liabilities adequately reserved
against in the Most Recent Balance Sheet.
2.9 Tax Matters.
-----------
(a) Except as set forth in Section 2.9 of the Disclosure Schedule, (i)
-----------
ASM has filed all Tax Returns heretofore required to be filed by the Code or by
applicable state, local or foreign tax laws, and all such Tax Returns are or
will be correct and complete in all material respect; (ii) all Taxes (as
hereinafter defined) required to be shown to be due on such Tax Returns have
been or will be timely paid in full; (iii) no taxing authority has asserted any
deficiency in the payment of any Tax or informed ASM that it intends to assert
any such deficiency or to make any audit or other investigation of ASM for the
purpose of determining whether such an assertion should be made against ASM;
(iv) ASM has no liability for Taxes imposed with respect to any period (or
portion thereof) ending on or before the Closing Date in excess of the accruals
and reserves for Taxes (other than deferred Taxes) set forth on the Most Recent
Balance Sheet; and (v) ASM has complied in all material respects with all
applicable laws, rules and regulations relating to the payment and withholding
of Taxes and has withheld all amounts required by law to be withheld from the
wages or salaries of employees and independent contractors, and is not liable
for any Taxes for failure to comply with such laws, rules and regulations.
(x) For purposes of this Agreement, "Taxes" means all taxes,
charges, fees, levies or other similar assessments or
liabilities, including without limitation income, gross
receipts, ad valorem, premium, value-added, excise, real
property, personal property, sales, use, transfer,
withholding, employment, payroll and franchise taxes imposed
by the United States of America or any state, local or
foreign government, or any agency thereof, or other
political subdivision of the United States or any such
government, and any interest, fines, penalties, assessments
or additions to tax resulting from, attributable to or
incurred in connection with any tax or any contest or
dispute thereof and any amounts of Taxes of another person
that ASM is liable to pay by law.
(y) For purposes of this Agreement, "Tax Returns" means all
reports, returns, declarations, statements or other
information required to be supplied to a taxing authority in
connection with Taxes.
16
<PAGE>
(z) For purposes of determining the amount of Taxes attributable
to a specified period other than a Tax Period (as
hereinafter defined) (including the portion of any Tax
Period beginning before and ending after the Closing Date
which ends on the Closing Date), each Tax shall be computed
as if the specified period were a Tax Period. For purposes
of this paragraph (z), a "Tax Period" means a period for
which a Tax is required to be computed under applicable
statues and regulations.
(b) Except as set forth in Section 2.9 of the Disclosure Schedule, ASM
-----------
has delivered or made available to PGI correct and complete copies of all
federal income Tax Returns, examination reports and statements of deficiencies
assessed against or agreed to by any of ASM since December 31, 1993. The
federal income Tax Returns of ASM have been audited by the Internal Revenue
Service or are closed by the applicable statute of limitations for the taxable
years prior to fiscal 1993. No examination or audit or any Tax Returns of ASM
by any Governmental Entity is currently in progress or, to the actual knowledge
of ASM, threatened or contemplated. ASM has not waived any statute of
limitations with respect to taxes or agreed to an extension of time with respect
to a tax assessment or deficiency.
(c) ASM is not a party to any Tax allocation or sharing agreement
other than an agreement to which only ASM and its affiliates are a party.
(d) ASM is not, and has never been, a member of an "affiliated group"
of corporations (within the meaning of Section 1504 of the Code).
(e) No consent under Section 341(f) of the Code has ever been
filed with respect to ASM.
(f) Each of the Stockholders is a citizen or resident of the
United States.
2.10 Assets.
------
Except as set forth in Section 2.10 of the Disclosure Schedule, ASM
------------
has good and marketable title to all tangible assets necessary for the conduct
of its businesses as presently conducted. Each such tangible asset is free from
material defects, has been maintained in accordance with normal industry
practice, is in good operating condition and repair (subject to normal wear and
tear) and is suitable for the purposes for which it presently is used. No asset
of ASM (tangible or intangible) is subject to any Security Interest, except the
following: (a) liens shown on the Most Recent Balance Sheet securing specified
liabilities or obligations with respect to which no material default exists (or
event that, whether with or without notice, lapse of time, or the happening or
occurrence of any other event would constitute a default); (b) exceptions
disclosed in Section 2.10 of the Disclosure Schedule; and (c) liens for current
------------
taxes not yet due and payable for which adequate reserves have been provided.
17
<PAGE>
2.11 Owned Real Property.
-------------------
ASM owns no real property.
2.12 Intellectual Property.
---------------------
(a) Except as set forth in Section 2.12 of the Disclosure Schedule,
------------
ASM owns, or is licensed or otherwise possesses legally enforceable rights to
use, all patents, trademarks, trade names, service marks, copyrights, and any
applications for such patents, trademarks, trade names, service marks and
copyrights, and all patent rights, trade secrets, schematics, technology, know-
how, computer software programs or applications and tangible or intangible
proprietary information or material (collectively, "Intellectual Property") that
are used to conduct its business as currently conducted or planned by ASM to be
conducted. ASM has taken reasonable measures to protect the proprietary nature
of each item of Intellectual Property that it considers confidential, and to
maintain in confidence all trade secrets and confidential information that it
presently owns or uses.
(i) Section 2.12 of the Disclosure Schedule lists all patents
------------
and patent applications and all trademarks, registered
copyrights, trade names and service marks owned by ASM and
which are used in the business of ASM, including the
jurisdictions in which each such Intellectual Property right
has been issued or registered or in which any such
application for such issuance or registration has been
filed.
(ii) Section 2.12 of the Disclosure Schedule lists all written
------------
licenses, sublicenses and other agreements to which ASM is a
party and pursuant to which any person is authorized to use
any Intellectual Property rights, except such licenses,
sublicenses or other agreements with end-users that grant
non-exclusive rights to use a product in accordance with
ASM's standard form of end-user license agreement.
(iii) Section 2.12 of the Disclosure Schedule lists all written
------------
licenses, sublicenses and other agreements as to which ASM
is a party and pursuant to which ASM is authorized to use
any third party patents, patent rights, trademarks, service
marks, trade secrets or copyrights, including software
("Third Party Intellectual Property Rights") which are used
in the business of ASM or which are incorporated in any
existing product or service of ASM.
(iv) Section 2.12 of the Disclosure Schedule lists all written
------------
agreements or other arrangements under which ASM has
provided or agreed to provide source code of any product to
any third party, except for software development kits
provided to agent integration providers.
18
<PAGE>
ASM has made available to PGI correct and complete copies of
all such patents, registrations, applications (owned by
ASM), and all licenses, sublicenses and agreements as
amended to date. Except for retail purchases of software,
ASM is not a party to any oral license, sublicense or
agreement which, if reduced to written form, would be
required to be listed in Section 2.12 of the Disclosure
------------
Schedule under the terms of this Section 2.12(a).
(b) Except as set forth in Section 2.12 of the Disclosure Schedule,
------------
with respect to each item of Intellectual Property that ASM owns: (i) subject
to such rights as have been granted by ASM under license agreements entered into
by ASM (copies of which have previously been made available or disclosed in
writing to PGI), ASM possesses all right, title and interest in and to such
item; and (ii) such item is not subject to any outstanding judgment, order,
decree, stipulation or injunction. Except as set forth in Section 2.12 of the
------------
Disclosure Schedule, with respect to each item of Third Party Intellectual
Property Rights: (i) the license, sublicense or other agreement covering such
item is legal, valid, binding, enforceable and in full force and effect with
respect to ASM, and to ASM's knowledge is legal, valid, binding, enforceable and
in full force and effect with respect to each other party thereto; (ii) such
license, sublicense or other agreement will continue to be legal, valid,
binding, enforceable and in full force and effect immediately following the
Closing in accordance with the terms thereof as in effect prior to the Closing;
(iii) ASM is not in breach or default under any such license, sublicense or
other agreement, and to ASM's knowledge no other party to such license,
sublicense or other agreement is in breach or default thereunder, and no event
has occurred which with notice or lapse of time would constitute a breach or
default or permit termination, modification or acceleration thereunder; (iv) the
underlying item of Third Party Intellectual Property is not subject to any
outstanding judgment, order, decree, stipulation or injunction to which ASM is a
party or has been specifically named, nor to ASM's knowledge subject to any
other outstanding judgment, order, decree, stipulation, or injunction; and (v)
no license or other fee is payable upon any transfer or assignment of such
license, sublicense or other agreement.
(c) Except as set forth in Section 2.12 of the Disclosure Schedule,
------------
ASM (i) has not been named in any suit, action or proceeding which involves a
claim of infringement or misappropriation of any Intellectual Property right of
any third party and (ii) has not received any written notice alleging any such
claim of infringement or misappropriation. ASM has made available to PGI
correct and complete copies of all such suits, actions or proceedings or written
notices to the extent ASM is not prohibited from disclosing the same under
applicable court orders. Except as set forth in Section 2.12 of the Disclosure
------------
Schedule, the manufacturing, marketing, licensing or sale of the products or
performance of the service offerings of ASM do not currently infringe, and, to
Stockholders' knowledge, have not within the six years prior to the date of this
Agreement infringed, any Intellectual Property right of any third party; and to
the knowledge of ASM, the Intellectual Property rights of ASM are not being
infringed by activities, products or services of any third party.
19
<PAGE>
2.13 Real Property Leases.
--------------------
Section 2.13 of the Disclosure Schedule lists all real property leased
------------
or subleased to ASM. ASM has delivered or made available to PGI correct and
complete copies of the leases and subleases (as amended to date) listed in
Section 2.13 of the Disclosure Schedule. Except as set forth in Section 2.13 of
- ------------ ------------
the Disclosure Schedule, with respect to each lease and sublease listed in
Section 2.13 of the Disclosure Schedule:
- ------------
(a) the lease or sublease is legal, valid, binding, enforceable and in
full force and effect with respect to ASM, to ASM's best knowledge is legal,
valid, binding, enforceable and in full force and effect with respect to each
other party thereto, and will continue to be so following the Closing in
accordance with the terms thereof as in effect prior to the Closing, except as
enforcement may be limited by bankruptcy, insolvency or other similar laws
affecting the enforcement of creditors' rights generally and the availability of
equitable remedies;
(b) ASM is not in breach or default under any lease or sublease, and
to ASM's best knowledge no other party to the lease or sublease is in breach or
default, and no event has occurred which, with notice or lapse of time, would
constitute a breach or default or permit termination, modification, or
acceleration thereunder;
(c) there are no disputes, oral agreements or forbearance
programs in effect as to the lease or sublease; and
(d) ASM has not assigned, transferred, conveyed, mortgaged, deeded in
trust or encumbered any interest in the leasehold or subleasehold.
2.14 Contracts.
---------
(a) Section 2.14 of the Disclosure Schedule lists the following
------------
written arrangements (including, without limitation, written agreements) to
which Stockholders in connection with the Business or ASM is currently a party
and which has not been terminated in accordance with its terms:
(i) any written arrangement (or group of related written
arrangements) for the lease of personal property from or to
third parties providing for lease payments in excess of
$10,000 per annum;
(ii) any written arrangement (or group of related written
arrangements) for the licensing or distribution of software,
products or other personal property or for the furnishing or
receipt of services (x) which calls for performance over a
period of more than one year, (y) which involves more than the
sum of $5,000, or (z) in which ASM has granted rights to
license, sublicense or copy, "most favored nation" pricing
provisions or exclusive marketing or distribution rights
relating to any products or territory or has agreed
20
<PAGE>
to purchase a minimum quantity of goods or services or has
agreed to purchase goods or services exclusively from a
certain party;
(iii) any written arrangement establishing a partnership or
joint venture;
(iv) any written arrangement (or group of related written
arrangements) under which it has created, incurred, assumed,
or guaranteed (or may create, incur, assume, or guarantee)
indebtedness (including capitalized lease obligations)
involving more than $5,000 or under which it has imposed (or
may impose) a Security Interest on any of its assets, tangible
or intangible;
(v) any written arrangement concerning confidentiality or non-
competition;
(vi) any written arrangement relating to the Business
involving the Stockholders or their affiliates (as defined in
Rule 12b-2 under the Securities Exchange Act of 1934, as
amended (the "Exchange Act");
(vii) any written arrangement under which the consequences of
a default or termination could have a material adverse effect
on the assets, business, financial condition or results of
operations of ASM;
(viii) any other written arrangement (or group of related
written arrangements) either involving more than $5,000 or not
entered into in the Ordinary Course of Business;
(ix) any written arrangement by which ASM agrees to make
available any particular product, service or maintenance or
support;
(x) all leases or contracts for the rental of any convention
center or similar exhibition hall during 1997 (the "1997 Hall
Contracts"); and
(xi) any written agreement material to the operations of ASM
or binding on Stockholders in connection with the Business or
ASM and not listed above.
(b) Except as set forth on Section 2.14 of the Disclosure Schedule,
------------
SM has delivered or made available to PGI a correct and complete copy of each
written arrangement (as amended to date) listed in Section 2.14 of the
------------
Disclosure Schedule. Except as set forth in Section 2.14 of the Disclosure
------------
Schedule, with respect to each written arrangement so listed: (i) the written
arrangement is legal, valid,
21
<PAGE>
binding and enforceable and in full force and effect with respect to ASM and, to
ASM's knowledge the written arrangement is legal, valid, binding and is
enforceable and in full force and effect with respect to each other party
thereto, except as enforcement may be limited by bankruptcy, insolvency or other
similar laws affecting the enforcement of creditors' rights generally, and
except that the availability of equitable remedies, including specific
performance, is subject to the discretion of the Court before which any
proceedings therefor may be brought; (ii) the written arrangement will continue
to be legal, valid, binding and enforceable and in full force and effect
immediately following the Closing in accordance with the terms thereof as in
effect prior to the Closing and does not require the consent of any party to the
transactions contemplated hereby; and (iii) ASM is not in breach or default, to
ASM's knowledge no other party thereto is in breach or default, and no event has
occurred which with notice or lapse of time would constitute a breach or default
or permit termination, modification, or acceleration, under the written
arrangement. Except as set forth in Section 2.14 of the Disclosure
------------
Schedule, ASM is not a party to any oral contract, agreement or other
arrangement which, if reduced to written form, would be required to be listed in
Section 2.14 of the Disclosure Schedule under the terms of this
- ------------
Section 2.14.
2.15 Powers of Attorney.
------------------
There are no outstanding powers of attorney executed on behalf of
Stockholders in connection with the Business or ASM.
2.16 Insurance.
---------
Section 2.16 of the Disclosure Schedule lists each current insurance
------------
policy (including fire, theft, casualty, general liability, workers
compensation, business interruption, environmental, product liability and
automobile insurance policies and bond and surety arrangements) to which ASM is
a party, a named insured, or otherwise the beneficiary of coverage at any time
within the past year. Except as set forth in Section 2.16 of the Disclosure
------------
Schedule, each such policy is in full force and effect and will continue to be
in full force and effect following the Closing. During the past three years,
ASM has not been denied insurance for any reason.
ASM is not in breach or default (including with respect to the payment
of premiums or the giving of notices) under such policy, and no event has
occurred which, with notice or the lapse of time, would constitute such a breach
or default or permit termination, modification or acceleration, under such
policy; and ASM has not received any notice from the insurer disclaiming
coverage or reserving rights with respect to a particular claim or such policy
in general. Except as set forth in Section 2.16 of the Disclosure Schedule,
------------
within the last year, ASM has not incurred any loss, damage, expense or
liability covered by any such insurance policy for which it has not properly
asserted a claim under such policy. ASM is covered by insurance in scope and
amount customary and reasonable for the businesses in which it is engaged.
2.17 Litigation.
----------
(a) Section 2.17 of the Disclosure Schedule identifies, and contains a
------------
brief description of, (i) any unsatisfied judgment, order, decree, stipulation
or injunction and (ii) any claim, complaint, action, suit, proceeding, hearing
or investigation of or in any Governmental
22
<PAGE>
Entity or before any arbitrator affecting ASM to which ASM or any officer,
director, employee, Stockholder or agent of ASM is or was (for the five years
prior to and including the date hereof) a party or, to the knowledge of
Stockholders or ASM, is threatened to be made a party. Other than
as set forth in Section 2.17 of the Disclosure Schedule, none of the complaints,
------------
actions, suits, proceedings, hearings, and investigations set forth in
Section 2.17 of the Disclosure Schedule, if determined adversely to ASM,
- ------------
could have a material adverse effect on the assets, business, financial
condition or results of the operations of ASM taken as a whole.
(b) ASM has provided or has made available any agreement or other
document or instrument settling any claim, complaint, action, suit or other
proceeding, or a threat of any such claim, complaint, action, suit or other
proceedings, against ASM.
2.18 Employees.
---------
Section 2.18 of the Disclosure Schedule contains a list of all
------------
employees of ASM, along with the position of each such person. Section 2.18 of
------------
the Disclosure Schedule lists (i) the annual rate of compensation for each such
person, (ii) the terms of any bonus program applicable to such employee, and
(iii) the name of each such employee who has entered into an agreement with ASM
concerning confidentiality, non-competition, or assignment of inventions. A
copy of each such agreement has previously been delivered or made available to
PGI. To the knowledge of ASM, no key employee or group of employees has any
current plans to terminate employment with ASM following the Closing. ASM is
not a party to or bound by any collective bargaining agreement, nor has any of
them experienced any strikes, formal grievances, claims of unfair labor
practices or other collective bargaining disputes. ASM has no knowledge of any
organizational effort made or threatened, either currently or within the past
two years, by or on behalf of any labor union with respect to employees of ASM.
Except as set forth in Section 2.18 of the Disclosure Schedule, ASM is not in
------------
violation, nor has it been alleged to be in violation, nor has it been charged
with any violation, nor is ASM aware of any violation of any of the various
provisions of Title VII of the Federal Civil Rights Act, the Age Discrimination
in Employment Act, the Americans with Disabilities Act, or any other federal or
state law dealing with employment discrimination, federal or state wage and hour
laws, federal or state income or unemployment and social security tax
withholding laws, or occupational safety and health laws and applicable
standards and regulations thereunder. Except as set forth in Section 2.18 of
------------
the Disclosure Schedule, ASM is not liable for any accrued unpaid wages,
vacation pay, bonuses, or commissions, or for any material tax, penalty,
assessment, or forfeiture for failure to comply with any employer/employee
matter.
2.19 Employee Benefits.
-----------------
(a) Section 2.19 of the Disclosure Schedule contains a complete and
------------
accurate list of all Employee Benefit Plans (as defined below) maintained, or
contributed to, by ASM or any ERISA Affiliate (as defined below). For purposes
of this Agreement, "Employee Benefit Plan" means any "employee pension benefit
plan" (as defined in Section 3(2) of the Employee Retirement Income Security Act
of 1974, as amended ("ERISA")), any "employee welfare benefit plan" (as defined
in Section 3(1) of ERISA), and any other written or oral plan, agreement or
arrangement involving direct or indirect compensation, including without
limitation
23
<PAGE>
insurance coverage, severance benefits, disability benefits, deferred
compensation, bonuses, stock options, stock purchase, phantom stock, stock
appreciation or other forms of incentive compensation or post-retirement
compensation. For purposes of this Agreement, "ERISA Affiliate" means any
entity which is a member of (i) a controlled group of corporations (as defined
in Section 414(b) of the Code), (ii) a group of trades or businesses under
common control (as defined in Section 414(c) of the Code), or (iii) an
affiliated service group (as defined under Section 414(m) of the Code or the
regulations under Section 414(o) of the Code), any of which includes ASM.
Complete and accurate copies of (i) all Employee Benefit Plans which have been
reduced to writing, (ii) written summaries of all unwritten Employee Benefit
Plans, if any, (iii) all related trust agreements, insurance contracts and
summary plan descriptions, and (iv) all annual reports filed on IRS Form 5500,
5500C or 5500R for the last five plan years for each Employee Benefit Plan, have
been delivered or made available to PGI. Each Employee Benefit Plan has been
administered in accordance with its terms and each of ASM and the ERISA
Affiliates has met its obligations with respect to such Employee Benefit Plan
and has made all required contributions thereto. ASM and all Employee Benefit
Plans are in compliance with the currently applicable provisions of ERISA and
the Code and the regulations thereunder.
(b) There are no investigations by any Governmental Entity,
termination proceedings or other claims (except claims for benefits payable in
the normal operation of the Employee Benefit Plans and proceedings with respect
to qualified domestic relations orders), suits or proceedings against or
involving any Employee Benefit Plan or asserting any rights or claims to
benefits under any Employee Benefit Plan that could give rise to any liability.
(c) All the Employee Benefit Plans that are intended to be qualified
under Section 401(a) of the Code have received determination, opinion or
notification letters from the Internal Revenue Service to the effect that such
Employee Benefit Plans are qualified and the plans and the trusts related
thereto are exempt from federal income taxes under Sections 401(a) and 501(a),
respectively, of the Code, no such determination, opinion or notification letter
has been revoked and revocation has not been threatened, and no such Employee
Benefit Plan has been amended since the date of its most recent determination,
opinion or notification letter or application therefor in any respect, and no
act or omission has occurred, that would adversely affect its qualification or
increase its cost.
(d) Neither ASM nor any ERISA Affiliate has ever maintained an
Employee Benefit Plan subject to Section 412 of the Code or Title IV of ERISA.
(e) At no time has ASM or any ERISA Affiliate been obligated to
contribute to any "multi-employer plan" (as defined in Section 4001(a)(3) of
ERISA).
(f) There are no unfunded obligations under any Employee Benefit Plan
providing benefits after termination of employment to any employee of ASM (or to
any beneficiary of any such employee), including but not limited to retiree
health coverage and deferred compensation, but excluding continuation of health
coverage required to be continued under Section 4980B of the Code and insurance
conversion privileges under state law.
24
<PAGE>
(g) No act or omission has occurred and no condition exists with
respect to any Employee Benefit Plan maintained by ASM or any ERISA Affiliate
that would subject ASM or any ERISA Affiliate to any fine, penalty, tax or
liability of any kind imposed under ERISA or the Code.
(h) No Employee Benefit Plan is funded by, associated with, or related
to a "voluntary employee's beneficiary association" within the meaning of
Section 501(c)(9) of the Code.
(i) No Employee Benefit Plan, plan documentation or agreement, summary
plan description or other written communication distributed generally to
employees by its terms prohibits ASM from amending or terminating any such
Employee Benefit Plan.
(j) Section 2.19 of the Disclosure Schedule discloses each: (i)
------------
written agreement with any director, executive officer or other key employee of
ASM which has not been terminated in accordance with its terms (A) the benefits
of which are contingent, or the terms of which are altered, upon the occurrence
of a transaction involving ASM of the nature of any of the transactions
contemplated by this Agreement, (B) providing any term of employment or
compensation guarantee or (C) providing severance benefits or other benefits
after the termination of employment of such director, executive officer or key
employee; (ii) agreement, plan or arrangement under which any person may receive
payments from ASM that may be subject to the tax imposed by Section 4999 of the
Code or included in the determination of such person's "parachute payment" under
Section 280G of the Code; and (iii) agreement or plan binding ASM, including
without limitation any stock option plan, stock appreciation right plan,
restricted stock plan, stock purchase plan, severance benefit plan, or any
Employee Benefit Plan, any of the benefits of which will be increased, or the
vesting of the benefits of which will be accelerated, by the occurrence of any
of the transactions contemplated by this Agreement or the value of any of the
benefits of which will be calculated on the basis of any of the transactions
contemplated by this Agreement.
2.20 Environmental Matters.
---------------------
(a) ASM has complied with all applicable Environmental Laws (as
defined below). There is no pending or, to the knowledge of ASM, threatened
civil or criminal litigation, written notice of violation, formal administrative
proceeding, or investigation, inquiry or information request by any Governmental
Entity, relating to any Environmental Law involving ASM. For purposes of this
Agreement, "Environmental Law" means any federal, state or local law, statute,
rule or regulation or the common law relating to the environment or occupational
health and safety, including without limitation any statute, regulation or order
pertaining to (i) treatment, storage, disposal, generation and transportation of
toxic or hazardous substances or solid or hazardous waste; (ii) air, water and
noise pollution; (iii) groundwater and soil contamination; (iv) the release or
threatened release into the environment of toxic or hazardous substances, or
solid or hazardous waste, including without limitation emissions, discharges,
injections, spills, escapes or dumping of pollutants, contaminants or chemicals;
(v) the protection of wild life, marine sanctuaries and wetlands, including
without limitation all endangered and threatened species; (vi) storage tanks,
vessels and containers; (vii) underground and other storage
25
<PAGE>
tanks or vessels, abandoned, disposed or discarded barrels, containers and other
closed receptacles; (viii) health and safety of employees and other persons; and
(ix) manufacture, processing, use, distribution, treatment, storage, disposal,
transportation or handling of pollutants, contaminants, chemicals or industrial,
toxic or hazardous substances or oil or petroleum products or solid or hazardous
waste. As used above, the terms "release" and "environment" shall have the
meaning set forth in the federal Comprehensive Environmental Compensation,
Liability and Response Act of 1980 ("CERCLA").
(b) There have been no releases of any Materials of Environmental
Concern (as defined below) into the environment at any parcel of real property
or any facility when owned, operated, controlled or leased by ASM. ASM is not
aware of any other releases of Materials of Environmental Concern that could
reasonably be expected to have an impact on the real property or facilities
owned, operated, controlled or leased by ASM. "Materials of Environmental
Concern" means any chemicals, pollutants or contaminants, hazardous substances
(as such term is defined under CERCLA), solid wastes and hazardous wastes (as
such terms are defined under the federal Resources Conservation and Recovery
Act), toxic materials, oil or petroleum and petroleum products, or any other
material subject to regulation under any Environmental Law.
(c) Set forth in Section 2.20(c) of the Disclosure Schedule is a list
of all environmental reports, investigations and audits relating to premises
currently or previously owned, operated or leased by ASM (whether conducted by
or on behalf of ASM or a third party, and whether done at the initiative of ASM
or directed by a Governmental Entity or other third party) which to the
knowledge of ASM were issued or conducted during the past five years and which
ASM has possession of or access to. Complete and accurate copies of each such
report, or the results of each such investigation or audit, have been provided
to PGI.
2.21 Legal Compliance.
----------------
Except as set forth in Section 2.21 of the Disclosure Schedule, ASM,
------------
and the conduct and operations of its respective businesses, are in compliance
with each law (including rules and regulations thereunder) of any federal,
state, local or foreign government, or any Governmental Entity, which (a)
affects or relates to this Agreement or the transactions contemplated hereby or
(b) is applicable to ASM or the business, except for any violation or default
which will not have a material adverse effect on the assets, business, financial
condition or results of operations of ASM.
2.22 Permits.
-------
Section 2.22 of the Disclosure Schedule sets forth a list of all
------------
permits, licenses, registrations, certificates, orders or approvals from any
Governmental Entity required for ASM to conduct its business as currently
conducted (including without limitation those issued or required under
applicable export laws or regulations) ("Permits") issued to or held by ASM and
currently in effect. Such listed Permits are the only Permits that are required
for ASM to conduct their respective businesses as presently conducted, except
for those the absence of which would not have a material adverse effect on the
assets, business, financial condition or results of operations
26
<PAGE>
of ASM. Each such Permit is in full force and effect and, to the knowledge of
ASM, no suspension or cancellation of such Permit is threatened and to ASM's
knowledge there is no basis for believing that such Permit will not be renewable
upon expiration.
2.23 Certain Business Relationships With Affiliates.
----------------------------------------------
No Affiliate of ASM (a) owns any property or right, tangible or
intangible, which is used in the business of ASM, (b) has any claim or cause of
action against ASM, or (c) owes any money to ASM. Section 2.23 of the
------------
Disclosure Schedule describes any transactions or relationships between ASM and
any Affiliate thereof (other than employment relationships in the ordinary
course of business) which are reflected in the statements of operations of ASM
included in the Financial Statements. Except to the extent specifically set
forth on Section 2.23 of the Disclosure Schedule and the financial statements
delivered to PGI pursuant to Section 2.6 above, neither ASM nor the Stockholders
(nor the Stockholders' family members) nor any Affiliate owns, directly or
indirectly, on an individual or joint basis, an interest in, or serves as an
officer, director, employee, consultant, contractor, or agent of or to any
competitor or supplier of ASM or any person or entity having a contract or
arrangement with ASM, and to the best of the Stockholders' knowledge, no
employee (or family member thereof) of ASM owns, directly or indirectly, on an
individual or joint basis, an interest in, or serves as an officer, director,
employee, consultant, contractor, or agent of or to any competitor or supplier
of ASM or any person or entity having a contract or arrangement with ASM. As
used herein "Affiliate" shall mean the Stockholders and any officer, employee or
director of ASM.
2.24 Fees and Brokers.
----------------
Except as disclosed in Section 2.24 of the Disclosure Schedule, all
------------
negotiations relating to this Agreement, and the transactions contemplated
hereby, have been carried out by ASM and the Stockholders. Except as disclosed
in Section 2.24 of the Disclosure Schedule or otherwise in this Agreement, ASM
------------
has no liability or obligation to pay any fees or commissions to any broker,
investment banking firm, finder or agent with respect to the transactions
contemplated by this Agreement.
2.25 Books and Records.
-----------------
Except as set forth in Section 2.25 of the Disclosure Schedule, the
------------
minute books and other similar records of ASM contain true and complete records
of all actions taken at any meetings of ASM's stockholders, Board of Directors
or any committee thereof and of all written consents executed in lieu of the
holding of any such meeting. The books and records of ASM accurately reflect in
all material respects the assets, liabilities, business, financial condition and
results of operations of ASM and have been maintained in accordance with good
business and bookkeeping practices.
2.26 Certain Payments.
----------------
Except as set forth in Section 2.26 of the Disclosure Schedule, since
------------
January 1, 1994, neither Stockholders, ASM nor any director, officer, agent, or
employee of ASM, has
27
<PAGE>
directly or indirectly made any contribution, gift, bribe, rebate, payoff,
influence payment, kickback, or other payment to any person or entity, private
or public, regardless of form, whether in money, property, or services (i) to
obtain favorable treatment in securing business, (ii) to pay for favorable
treatment for business secured, or (iii) to obtain special concessions or for
special concessions already obtained, for or in respect of ASM or the Business.
Since January 1, 1994, ASM has not established or maintained any fund or asset
that has not been recorded in the books and records of ASM.
2.27 Accounts Receivable.
-------------------
Section 2.27 of the Disclosure Schedule contains an Aged Trial Balance
------------
Summary as of November 30, 1996, which, with respect to items marked with an
"X", represents an accurate and complete list of (a) the ITEC Accounts
Receivable of ASM as of such date and (b) the total amounts of accounts
receivable from Advanta events for November 1996, arising from the operation of
the Business (less a reserve for doubtful accounts in the amount of $20,000,
which reserve is reasonable and has been established in accordance with ASM's
past practices). All of the Accounts Receivable arose in the ordinary course of
the Business for goods delivered or services rendered to non-affiliated third
parties, constitute only valid claims, and are collectible in the ordinary
course of business. ASM has not received any written notice from or on behalf
of any account debtor asserting any defense to payment or right of setoff with
respect to any of the Accounts Receivable. The amounts on the Aged Trial
Balance -- Summary not marked with an "X" do not represent accounts receivable
from the operation of the Business prior to December 1, 1996.
2.28 Customers and Suppliers.
-----------------------
(a) Section 2.28 of the Disclosure Schedule contains an accurate and
------------
complete, with respect to the Business, list of the twenty largest customers and
suppliers of ASM, the Business, and ASM's "Advanta" business unit (measured by
dollar volume of purchases and sales, as applicable) and the dollar amount of
the Business which each customer and supplier represented during the fiscal year
ended December 31, 1996. Except as set forth in Section 2.28 of the Disclosure
------------
Schedule, ASM received no notice that, and has no knowledge or reason to believe
that, any such supplier or any customer of ASM does not plan to continue to do
business with ASM, or plans to reduce its supplies to, or volume of orders from,
ASM or will not do business on substantially the same terms and conditions with
ASM subsequent to the Closing Date as such supplier or customer did with ASM
before such date.
(b) Section 2.28 of the Disclosure Schedule sets forth a list of the
------------
number of booths at each of the trade shows held by ASM during 1994, 1995 and
1996, which list is true and accurate in all material respects. ASM and the
Stockholders are not aware of any reason that the schedule of 1997 ASM events as
provided to PGI will not occur as set forth on such schedule. To ASM's and the
Stockholders' knowledge, no persons or entities not currently competing with the
Business have announced or made known an intention to compete with the Business
in the markets currently served by the Business.
28
<PAGE>
2.29 Access to Information; Sophistication; Investment Intent.
--------------------------------------------------------
(a) Each of the Stockholders has participated directly in the
negotiation of this Agreement and has received, or has had the opportunity to
receive, the advice of independent counsel and of accounting experts in
connection with such negotiation.
(b) Each of the Stockholders has personal knowledge of the daily
operations of ASM by virtue of such Stockholder's present and prior affiliation
with ASM and has had full access to all relevant information concerning PGI.
Such access to information of PGI by Stockholders does not alter the rights and
obligations of Stockholders and PGI under this Agreement.
(c) Each of the Stockholders is an experienced investor who possesses
sufficient investment knowledge and sophistication to permit such Stockholder to
evaluate the wisdom and prudence of engaging in the transaction contemplated
hereby, and each Stockholder has had a full and fair opportunity to evaluate
this transaction, to request and receive additional information and advice, to
apply to the fullest extent such Stockholder's business acumen, and to receive
the advice of Stockholder's counsel or other experts, in the evaluation of such
information. Each of the Stockholders is participating in the transaction
contemplated hereby solely for purposes of investment and without a view to the
distribution, subdivision, securitization, or other transfer of any right to
receive Base Purchase Consideration or Additional Purchase Consideration in any
manner whatsoever.
2.30 Hart-Scott-Rodino Compliance
----------------------------
ASM's most recent annual statement of income and expense does not show
$100 million or more in annual sales, and ASM's most recent regularly prepared
balance sheet does not show $100 million or more in total assets. In addition,
there are no persons or other entities (including, for purposes hereof, (a) any
shareholder of ASM that, together with all other entities included within the
same person as that shareholder, either holds 50% or more of ASM's voting
securities or is currently entitled by contract to appoint 50% or more of ASM's
directors, (b) any entity of which ASM holds 50% or more of the voting
securities, or has the current ability to appoint 50% of the board of directors
(or individuals exercising similar functions for those entities without
directors), or (c) any entity of which ASM is entitled to either 50% of the
profits or 50% of the assets on dissolution) that, if analyzed in combination
with ASM, would cause ASM's most recent annual statement of income and expense
to show $100 million or more in annual sales or ASM's most recent regularly
prepared balance sheet to show $100 million or more in total assets.
2.31 Disclosure.
----------
No representation or warranty by Stockholders or ASM contained in this
Agreement, and no statement contained in the Disclosure Schedule or any other
document, certificate or other instrument delivered, or to be delivered, by or
on behalf of Stockholders or ASM pursuant to this Agreement or in connection
with the preparation of audited financial statements of ASM on an accrual basis
by PGI's accountants (the "Audited Financials"), contains or will contain any
untrue statement of a material fact or omits or will omit to state any material
29
<PAGE>
fact necessary, in light of the circumstances under which it was or will be
made, in order to make the statements herein or therein not misleading.
Notwithstanding anything to the contrary contained in this Section 2.31, to the
extent that Stockholders' and ASM's representation and warranty hereunder
relates to the preparation of Audited Financials by PGI's accountants, such
representation and warranty shall be deemed to be limited to only the factual
information regarding ASM and the ASM Business underlying such financial
statements and provided to such accountants, not to any aspect of the Audited
Financials that require the application of subjective accounting principles or
standards.
ARTICLE III
REPRESENTATIONS AND WARRANTIES
OF PGI
PGI hereby represents and warrants to ASM as follows:
3.1 Organization.
------------
PGI is a corporation duly organized, validly existing and in corporate
and tax good standing under the laws of the state of its incorporation. PGI is
duly qualified to conduct business and is in corporate and tax good standing
under the laws of each jurisdiction in which the nature of its businesses or the
ownership or leasing of its properties requires such qualification, except in
those jurisdictions where the failure to be so qualified will not have a
material adverse effect on the business of PGI or result in a material delay of
the transactions contemplated by this Agreement. PGI has the corporate power
and authority to carry on the businesses in which each is engaged and to own and
use the properties owned and used by it, except to the extent a failure will not
have a material adverse effect on the business of PGI or result in a material
delay of the transactions contemplated by this Agreement. PGI is not in
material default under or in violation of any material provision of its
certificate of incorporation or by-laws, each as amended to date.
3.2 Authorization of Transaction.
----------------------------
PGI has the corporate power and authority to execute and deliver this
Agreement and to perform its obligations hereunder. The execution and delivery
of this Agreement, the performance by PGI of this Agreement and the consummation
by PGI of the transactions contemplated hereby have been duly and validly
authorized by the necessary corporate action on the part of PGI. This Agreement
has been duly and validly executed and delivered by PGI and, assuming the due
authorization, execution and delivery by ASM and the Stockholders, constitutes a
valid and binding obligation of PGI, enforceable against it in accordance with
its terms, except as enforcement may be limited by bankruptcy, insolvency or
other similar laws affecting the enforcement of creditors' rights and remedies
generally, and except that the availability of equitable remedies, including
specific performance, is subject to the discretion of the court before which any
proceeding therefor may be brought.
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3.3 Non-Contravention.
-----------------
Neither the execution and delivery of this Agreement by PGI, nor the
consummation by PGI of the transactions contemplated hereby, will (a) conflict
with or violate any provision of the articles of incorporation or by-laws of
PGI, (b) require on the part of PGI any filing with, or any permit,
authorization, consent or approval of, any Governmental Entity, (c) conflict
with, result in a breach of, constitute (with or without due notice or lapse of
time or both) a default under, result in the acceleration of, create in any
party the right to accelerate, terminate, modify or cancel, or require notice,
consent or waiver under, any contract, lease, sublease, license, sublicense,
franchise, permit, indenture, agreement or mortgage for borrowed money,
instrument of indebtedness, Security Interest or other arrangement to which PGI
is a party or by which PGI is bound or to which any of their assets is subject,
(d) result in the imposition of a Security Interest upon any assets of PGI or
(e) violate any order, writ, injunction, decree, statute, rule or regulation
applicable to PGI, or any of its properties or assets.
3.4 Brokers' Fees.
-------------
PGI has no liability or obligation to pay any fees or commissions to
any broker, finder or agent with respect to the transactions contemplated by
this Agreement.
3.5 Disclosure.
----------
No representation or warranty by PGI contained in this Agreement, and
no statement contained in any document, certificate or other instrument
delivered to or to be delivered by or on behalf of PGI pursuant to this
Agreement, or in connection with the registration statement filed or to be filed
in connection with PGI's Public Offering (the "Registration Statement"),
contains or will contain any untrue statement of a material fact or omits or
will omit to state any material fact necessary, in light of the circumstances
under which it was or will be made, in order to make the statements herein or
therein not misleading.
3.6 Legal Compliance.
----------------
PGI, and the conduct and operations of its businesses, are in
compliance with each law (including rules and regulations thereunder) of any
federal, state, local or foreign government, or any Governmental Entity, which
(a) affects or relates to this Agreement or the transactions contemplated hereby
or (b) is applicable to PGI or its business, except for any violation or default
which will not have a material adverse effect on the assets, business, financial
condition or results of operations of PGI.
3.7 Due Diligence.
-------------
PGI has performed a due diligence investigation of ASM to its
satisfaction. In its decision to proceed with the Purchase and Sale
contemplated by this Agreement, PGI expressly agrees that it is not relying upon
any past or present forward-looking projection or pro forma concerning ASM or
the Business; provided, however, that PGI is expressly relying on the truth,
completeness and accuracy of each of the disclosures, representations and
warranties made by
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ASM and the Stockholders in this Agreement and the Disclosure Schedule, except
as such disclosures, representations and warranties are qualified by the
Disclosure Schedule.
3.8 Purchase for Investment.
-----------------------
PGI acknowledges that the Stock of ASM has not been registered under
the Securities Act, or under any state securities laws. PGI is an "accredited
investor" as defined under the Securities Act, and has performed a due diligence
investigation satisfactory to PGI. PGI is purchasing the Stock solely for
investment with no present intention to distribute any of the shares to any
person.
3.9 Initial Public Offering.
-----------------------
PGI shall diligently proceed with and use reasonable efforts to take
such actions as are necessary to effect a successful Public Offering under the
Securities Act in an amount that PGI shall deem sufficient to permit the
consummation of the Purchase and Sale, and to cause PGI to be listed on the
NASDAQ stock exchange in connection with such Public Offering. PGI shall not
grant a security interest in the proceeds of the Public Offering such that PGI
shall be unable to pay the Base Purchase Consideration to the Stockholders when
due under this Agreement.
3.10 Lending Covenants.
-----------------
PGI represents and warrants that, to the best of PGI's knowledge, PGI
is not in breach of any covenant applicable to PGI under any senior secured all-
asset financing or lending commitment extended to PGI, and that all such
financing arrangements in favor of PGI are legal, valid and enforceable and in
full force and effect with respect to PGI, and to PGI's knowledge such financial
arrangements are legal, valid, binding and enforceable and in full force and
effect with respect to each other party thereto (except as enforcement may be
limited by bankruptcy, insolvency or other similar laws affecting the
enforcement of creditors' rights and remedies generally). PGI has no knowledge
of any event that has occurred that is, or that with notice or the passage of
time would be, any default under any financing or lending commitment to which
PGI is a party.
3.11 Hart-Scott-Rodino Compliance
----------------------------
Provided that the representation set forth in Section 2.30 is true and
correct, no filing is required under the Hart-Scott-Rodino Antitrust
Improvements Act of 1976, 15 U.S.C. (S) 18a in connection with the transaction
contemplated by this Agreement.
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<PAGE>
ARTICLE IV
COVENANTS
4.1 Best Efforts.
------------
Each Party shall each use its or their best efforts to effect the
Purchase and Sale and the other transactions contemplated hereby and to ensure
that there are and will be no impediments to the fulfillment of each of its
conditions to Closing or to the consummation of the transactions contemplated by
this Agreement.
4.2 Notices and Consents.
--------------------
Each of PGI and ASM shall use its respective best efforts to obtain,
at its expense, all such waivers, permits, consents, approvals or other
authorizations from third parties and Governmental Entities, and to effect all
such registrations, filings and notices with or to third parties and
Governmental Entities, as may be required by or with respect to PGI or ASM,
respectively, in connection with the transactions contemplated by this
Agreement.
4.3 Operation of Business.
---------------------
(a) Except as contemplated by this Agreement (or otherwise consented
to by PGI in writing), during the period from the date of this Agreement to the
Closing Date, ASM shall conduct its operations in the Ordinary Course of
Business, in a manner consistent with past practice and in compliance with all
applicable laws and regulations except to the extent that any non-compliance
will not have any material adverse effect on the Business, and, to the extent
consistent therewith, use all reasonable efforts to preserve intact its current
business organization, keep its physical assets in good working condition, keep
available the services of its current officers and employees and preserve its
relationships with customers, suppliers and others having business dealings with
it to the end that its goodwill and ongoing business shall not be impaired in
any material respect. Without limiting the generality of the foregoing, prior
to the Closing, ASM shall not make any decision or take any action that is
material to the business or operations or ASM without the written consent of PGI
(which consent shall not be unreasonably withheld, delayed or conditioned)
including, without limitation:
(i) issue, sell, deliver or agree or commit to issue, sell or
deliver (whether through the issuance or granting of options, warrants,
commitments, subscriptions, rights to purchase or otherwise) or authorize the
issuance, sale or delivery of, or redeem or repurchase, any stock of any class
or any other securities or any rights, warrants or options to acquire any such
stock or other securities (except pursuant to the conversion or exercise of
convertible securities, options, warrants or conditional stock entitlements
outstanding on the date hereof), or amend any of the terms of any such
convertible securities, options, warrants or conditional stock entitlements
except as set forth on Section 2.2 of the Disclosure Schedule;
-----------
(ii) split, combine or reclassify any shares of its capital stock;
declare, set aside or pay any dividend or other distribution (whether in cash,
stock or property or any combination thereof) in respect of its capital stock;
33
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(iii) create, incur or assume any debt not currently outstanding
(including obligations in respect of capital leases); assume, guarantee, endorse
or otherwise become liable or responsible (whether directly, contingently or
otherwise) for the obligations of any other person or entity; or make any loans,
advances or capital contributions to, or investments in, any other person or
entity, except in the Ordinary Course of Business;
(iv) enter into, adopt or amend any Employee Benefit Plan or any
employment or severance agreement or arrangement of the type described in
Section 2.19(j) or increase in any manner the compensation or fringe benefits
of, or modify the employment terms of, its directors, officers or employees,
generally or individually, or pay any benefit not required by the terms in
effect on the date hereof of any existing Employee Benefit Plan;
(v) acquire, sell, lease, encumber or dispose of any assets or
property (including without limitation any shares or other equity interests in
or securities of any corporation, partnership, association or other business
organization or division thereof), other than purchases and sales of assets in
the Ordinary Course of Business;
(vi) amend its charter or by-laws, except as required by this
Agreement;
(vii) change in any material respect its accounting methods,
principles or practices, except changes necessary to comply with or come into
compliance with GAAP or as may be required by a generally applicable change in
GAAP;
(viii) discharge or satisfy any Security Interest or pay any
obligation or liability other than in the Ordinary Course of Business;
(ix) mortgage or pledge any of its property or assets or subject
any such assets to any Security Interest;
(x) sell, assign, transfer or license any Intellectual Property,
other than in the Ordinary Course of Business;
(xi) enter into, amend, terminate, take or omit to take any action
that would constitute a violation of or default under, or waive, release or
assign any rights under, any material contract or agreement;
(xii) make or commit to make any expenditure in excess of
$10,000 per item;
(xiii) take any action or fail to take any action permitted by
this Agreement with the knowledge that such action or failure to take action
would result in (i) any of the representations and warranties of ASM set forth
in this Agreement becoming untrue or (ii) any of the conditions to the Purchase
and Sale set forth in Article V not being satisfied;
(xiv) hire, terminate or discharge any employee or engage or
terminate any consultant, provided however that any employee or consultant may
himself or herself terminate his or her relationship with ASM in accordance with
the terms of any applicable
34
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employment, consulting or similar agreement, and provided, further, that ASM may
terminate an employee, or take other such action, on an emergency basis without
prior PGI consent if ASM makes reasonable efforts to consult with PGI in such
regard; or
(xv) agree in writing or otherwise to take any of the foregoing
actions.
(b) Notwithstanding the limitations set forth in Section 4.3(a), the
Stockholders shall, without the consent of PGI, have the right to cause ASM to
distribute funds to the Stockholders of ASM prior to the Closing, provided that
any such distributions do not, based upon reasonable estimates at the time of
such distribution, cause a Base Purchase Price Reduction under Section
1.5(b)(iii) to be required.
4.4 Full Access.
-----------
Between the date hereof and the Closing, ASM shall permit PGI and its
counsel, accountants, auditors and other representatives and advisors full
access, upon reasonable notice, to all of the premises, staff, offices,
properties, books and records, contracts and commitments of ASM and to third
parties doing business with ASM, subject to compliance with applicable
confidentiality obligations. Without limiting the foregoing, ASM shall give
PGI's accountants access to the books and records of ASM for the purpose of
preparing restated financial statements of ASM, on the basis of United States
GAAP using the accrual basis of accounting, for the period January 1, 1994
through December 31, 1996. Between the date hereof and the Closing, the
representations and warranties contained in Article II shall not be affected or
deemed waived by reason of the fact that any of PGI, its counsel, its
accountants, its auditors or its other representatives and advisors know or
discover or should have known or discovered that any such representation or
warranty is or might be inaccurate in any respect, whether as a result of such
access or otherwise.
4.5 Notice of Breaches.
------------------
ASM shall promptly deliver to PGI written notice of any event or
development that would (a) render any statement, representation or warranty of
ASM in this Agreement (including the Disclosure Schedule) inaccurate or
incomplete in any material respect, or (b) constitute or result in a breach by
ASM or any of its Affiliates of, or a failure by ASM or any of its Affiliates to
comply with, any agreement or covenant in this Agreement applicable to such
party. PGI shall promptly deliver to ASM written notice of any event or
development that would (i) render any statement, representation or warranty of
PGI in this Agreement inaccurate or incomplete in any material respect, or (ii)
constitute or result in a breach by PGI of, or a failure by PGI to comply with,
any agreement or covenant in this Agreement applicable to such party. No such
disclosure shall be deemed to avoid or cure any such misrepresentation or
breach.
4.6 Exclusivity.
-----------
ASM and the Stockholders covenant and agree that neither ASM, the
Stockholders, nor any of ASM's officers, directors, employees, agents or
representatives (including, without limitation, any investment banker, attorney
or accountant retained by it) will,
35
<PAGE>
directly or indirectly, initiate, solicit, entertain or negotiate, or approve,
or enter into any agreement or understanding with respect to, any acquisition,
merger, consolidation, recapitalization, restructuring or similar transaction
involving the Business or ASM during the period commencing the date hereof and
ending on February 28, 1997 (if the Purchase and Sale is never consummated), or
if the Purchase and Sale is consummated, ending on the Closing Date.
4.7 Confidentiality.
---------------
Each of the parties hereto agrees that it shall, and shall cause its
subsidiaries and the officers, employees and authorized representatives of each
of them to, hold in strict confidence all data and information obtained by them
from the other parties hereto (unless such information is or becomes readily
ascertainable from public or published information) and shall not, and shall use
its best efforts to ensure that such subsidiaries, directors, officers,
employees and authorized representatives do not, disclose such information to
others without the prior written consent of the party from which such data or
information was obtained, except as required by law after consultation with
counsel (provided that any such party shall consult with the other party prior
to making such disclosure). In the event that this Agreement terminates without
the Purchase and Sale having taken place, the Parties and their respective
affiliates and agents: (a) shall hold in confidence and refrain from using all
non-public information received in connection with the transactions contemplated
in this Agreement; and (ii) either shall return promptly all such non-public
information to the Party to which such information relates or shall destroy such
documents, work papers and other materials (including all copies made thereof)
obtained pursuant hereto, at such Party's request.
4.8 Covenant Not to Disclose.
------------------------
(a) ASM and the Stockholders acknowledge and agree that ASM and the
Stockholders possess certain data and knowledge of operations of the business
conducted by ASM prior to the Closing Date (the "Business") which are
proprietary in nature and confidential, including, without limitation, certain
trade secrets (the "Trade Secrets"). ASM and the Stockholders jointly and
severally covenant and agree that, except as agreed between PGI and
Stockholders, neither ASM nor the Stockholders will, at any time after the
Closing, reveal, divulge or make known to any Person (other than PGI or ASM) or
use for its or his or her own account or for the account of any Person, any
confidential or proprietary methods, record, data, Trade Secret, pricing policy,
bid amount, bid strategy, rate structure, personnel policy, method or practice
of soliciting or obtaining or doing business by the Business, or any other
confidential or proprietary information whatsoever relating to the Business or
ASM or PGI or their affiliates, whether or not obtained with the knowledge and
permission of ASM or PGI or their affiliates.
(b) ASM and the Stockholders will, following the Closing, maintain the
Trade Secrets as confidential and proprietary information of ASM in the manner
maintained prior to the Closing. ASM and the Stockholders have no knowledge of
any other persons or entities who have written copies of information relating to
the Trade Secrets. ASM has previously delivered to PGI copies of agreements of
confidentiality executed by employees of the ASM.
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<PAGE>
4.9 Non-Compete.
-----------
(a) When used in this Section 4.9, the following terms shall have the
following meanings:
"Competition" means (i) the marketing, development, sale or offering
or promoting for sale of (A) any activities or services of the type that ASM or
PGI currently provides, and (B) shows within the same industries as shows
conducted by ASM or PGI as of the Closing Date; and (ii) any business which is
competitive with the Business or the business or operations of PGI as they are
now or hereafter operated during the period in which the respective individual
Stockholder is in the employ of PGI or ASM or which is the subject of any plan
or initiative of PGI or ASM in development or under consideration by ASM or PGI
during the time that the respective individual Stockholder is in the employ of
PGI or ASM and that the individual Stockholder was aware of or involved in. For
purposes of this Agreement, John Inglis' current separate business operations,
if any, set specifically forth in Schedule 4.9 of the Disclosure Schedule shall
------------
not constitute activities that are deemed to be in Competition with ASM.
"Directly or Indirectly" means as an individual, partner, shareholder,
director, officer, member, principal, agent or employee.
"Person" means an individual, corporation, partnership, joint venture,
limited liability company, trust or other entity.
"Restricted Territory" means anywhere in the entire world.
(b) Stockholders shall not, for a period of * years after the
Closing Date, Directly or Indirectly, engage in any Competition in the
Restricted Territory; provided, however, that the Stockholders may, without
violating this covenant: (i) own as a passive investment not in excess of 5% of
the outstanding capital stock of a corporation which engages in Competition if
such capital stock is a security which is actively traded on an established
national securities exchange; (ii) have an ownership interest otherwise
proscribed by this Section 4.9 if such interest arises as a result of the
acquisition of a business entity not principally engaged in Competition; and
(iii) John Inglis, Kearney and Dethlefs may perform their obligations to ASM
under the Inglis Employment Agreement, the Kearney Employment Agreement, and the
Dethlefs Employment Agreement (each as hereinafter defined), respectively.
(c) Stockholders acknowledge that in view of the nature of the
business and the business objectives of PGI in purchasing the Stock of ASM, and
the Purchase Consideration paid to the Stockholders therefor, the foregoing
territorial and time limitations are reasonable and properly required for the
adequate protection of PGI and ASM and that in the event that any such
territorial or time limitation is deemed to be unreasonable and is then reduced
by a court of competent jurisdiction, then, as reduced, the territorial and/or
time limitation shall be enforced.
- -----------
* Confidential information has been omitted and filed separately with the
Commission.
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(d) Stockholders further acknowledge that the remedy at law for any
breach by it of the agreements contained in this Section 4.9 will be inadequate
and that PGI and ASM will be entitled to seek injunctive relief without being
required to prove actual damages or post bond. This Section 4.9 constitutes an
independent and severable covenant and if any or all of the provisions of this
Section 4.9 are held to be unenforceable for any reason whatsoever, it will not
in any way invalidate or affect the remainder of this Agreement which shall
remain in full force and effect.
4.10 Non-Interference.
----------------
(a) Stockholders jointly (for a long as a Stockholder is in ASM's
employ) and severally (regardless of whether in the employ of ASM) covenant and
agree that other than in connection with the performance of the Inglis
Employment Agreement, the Kearney Employment Agreement and the Dethlefs
Employment Agreement (each, as hereinafter defined), neither the Stockholders,
nor any Person directly or indirectly controlling, controlled by or under common
control with the Stockholders will, for a period of * years after the
Closing, directly or indirectly, for whatever reason, whether for their own
account or for the account of any other Person, during the period that the
covenant set forth in Section 4.9 hereof remains in effect: (i) solicit, deal
with or otherwise interfere with PGI or ASM in connection with any aspect of the
Business or with PGI's or ASM's existing or potential contracts or relationships
with any vendor, customer, supplier, affiliate, employee, officer, director or
any independent contractor, whether the Person is employed by or associated with
the Business or with PGI or ASM on the Closing Date or at any time thereafter;
(ii) solicit, accept, deal with or otherwise interfere with the continuance of
supplies to PGI or ASM (or the terms relating to such supplies), from any
vendors, suppliers or customers who have been supplying goods, materials or
services to ASM at any time during the five years immediately preceding the date
of this Agreement; (iii) solicit, accept, deal with or otherwise interfere with
any of the existing or potential contracts or relationships with any independent
contractor, customer, vendor, supplier, client or consultant of the Business or
PGI or ASM, or any Person who is a bona fide or prospective independent
contractor, customer, client or consultant thereof; or (iv) solicit or otherwise
interfere with any existing or proposed contract between the Business of PGI or
ASM and any other party whatsoever.
4.11 Cooperation.
-----------
Stockholders jointly (for as long as a Stockholder is in ASM's employ)
and severally (regardless of whether employed by ASM) covenant and agree both
before and after the Closing hereunder: (a) to give full cooperation to PGI and
ASM (including, without limitation, giving written notice as requested by PGI or
ASM and referring all telephone inquiries regarding, relating to or in
connection with the Business to PGI or ASM) to assure that each supplier and
customer of ASM will continue to do business with PGI and ASM on substantially
the same terms and conditions subsequent to the Closing Date as such supplier or
customer did with ASM before such date; (b) to cooperate fully with PGI and ASM
in order to effect the transfer of, and assure PGI and ASM of the continued
benefit and full enjoyment of, the Business; and (c) to cooperate fully with PGI
in providing to PGI all information that PGI identifies pertaining to ASM that
PGI identifies as necessary to the Registration Statement for PGI's Public
Offering. During the period
* Confidential information has been omitted and filed separately with the
Commission.
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prior to the Closing Date, ASM agrees to consult with PGI regarding any material
changes, contracts, or personnel actions or other material events involving ASM
or the business.
4.12 Initial Public Offering.
-----------------------
PGI will inform ASM and the Stockholders in writing of any applicable
rules, regulations or requirements applicable to ASM or the Stockholders that
are required to complete PGI's Public Offering, and ASM and the Stockholders
agree to assist PGI in complying with such rules, regulations and requirements.
ASM will participate in the development of information concerning ASM for
disclosure in connection with the offering process. PGI will not publish any
subjective non-historical or forward-looking information concerning ASM without
ASM's prior review and written approval, and will publish only such information
as shall be necessary and required in connection with the Public Offering,
provided that such information shall be reviewed by ASM.
4.13 Postponement of Contemplated Public Financing.
---------------------------------------------
PGI shall notify ASM within five business days of any material adverse
change in PGI's business or other circumstance that would have the effect of
canceling the anticipated Public Offering or postponing it beyond February 28,
1997. Upon ASM's receipt of such notice, the Parties shall agree upon an
extension of the Closing Date or ASM and the Stockholders shall provide PGI
written notice that PGI shall have 30 additional days from the date of such
written notice in which to obtain alternative financing. If PGI is able,
through the exercise of reasonable commercial efforts, to obtain alternative
financing on terms reasonably acceptable to it, then the obligations of the
Parties under this Agreement shall continue and the Closing shall occur as soon
as reasonably practicable, but in no event later than five business days
following the closing of such financing.
4.14 Employees.
---------
PGI agrees that any individuals who are full-time employees of ASM on
the Closing Date will remain employees of ASM immediately after the Closing.
Such individuals will be referred to herein as "ASM Employees." The employment
by ASM of ASM Employees will be "at will" and nothing herein expressed or
implied is intended to confer upon any such ASM Employee any rights or remedies
of any nature or kind whatsoever under or by reason of this Agreement,
including, without limitation, any rights to employment for a specific period.
4.15 Other Actions.
-------------
PGI shall not take any action or fail to take any action permitted by
this Agreement with the knowledge that such action or failure to take action
would result in (i) any of the representations and warranties of PGI set forth
in this Agreement becoming untrue or (ii) any of the conditions to the Purchase
and Sale set forth in Article V not being satisfied.
39
<PAGE>
4.16 Acceleration of Earn-Out.
------------------------
(a) PGI shall pay the Stockholders the Accelerated Earn-Out Amount (as
hereinafter defined) in accordance with the terms hereof upon the occurrence of
the following (each, an "Accelerated Earn-Out Event"):
(i) The breach, prior to the full payment to the Stockholders of
Additional Purchase Consideration due Stockholders hereunder in accordance with
the terms hereof, of any one or more obligations of PGI to the Stockholders
under this Agreement involving the payment of money, after the expiration of any
applicable opportunity to cure and/or the arbitrator's final award in favor of
Stockholders for any matter submitted to arbitration in accordance with Section
8.15 hereof (a "Final Monetary Breach"), and provided that said breach involves
a monetary sum that alone, or on combination with other Final Monetary Breaches,
exceeds $100,000 (a "Material Financial Default").
(ii) In the event that, prior to the full payment to the
Stockholders of Additional Purchase Consideration due Stockholders hereunder in
accordance with the terms hereof, the primary lender for PGI takes any action
with respect to the Additional Purchase Consideration Account or the assets of
ASM that the Stockholders reasonably believe renders it impossible for PGI to
pay the 1997 Additional Purchase Consideration or the 1998 Additional Purchase
Consideration when due (an "Earn-Out Impossibility Event"). In the event of the
occurrence of circumstances that the Stockholders reasonably believe constitute
an Earn-Out Impossibility Event, the Stockholders shall send a written notice to
such effect to PGI stating the basis for such belief (an "Anticipated Default
Notice"). Upon receipt of an Anticipated Default Notice, PGI and the
Stockholders shall consult for a period of 30 days with respect to Stockholders'
concerns as set forth in the Anticipated Default Notice. If, following such
consultation, PGI and the Stockholders are unable to resolve the Stockholders'
concerns, then PGI shall have 60 days within which to provide reasonable
alternative security for the payment of the Additional Purchase Consideration
("Alternate Security"). In the event that PGI is unable to provide such
Alternate Security, an Accelerated Earn-Out Event shall be deemed to have
occurred.
(iii) An Insolvency Event (as hereinafter defined) occurring prior
to the full payment to the Stockholders of Additional Purchase Consideration due
Stockholders hereunder in accordance with the terms hereof. As used herein, an
"Insolvency Event" shall mean (A) if PGI voluntarily submits itself to
bankruptcy or is involuntarily submitted to bankruptcy and the action is not
dismissed within 60 days of filing and (B) PGI's obligation to pay the
Additional Purchase Consideration as set forth herein is rejected or otherwise
terminated in connection with the bankruptcy proceeding. No Insolvency Event
shall be deemed to have occurred unless and until the rejection or other
termination of any material portion of PGI's obligation to pay Additional
Purchase Consideration shall have become final and non-appealable.
(iv) A Change in Control (as hereinafter defined) occurring prior
to the full payment to the Stockholders of Additional Purchase Consideration due
Stockholders hereunder in accordance with the terms hereof. As used herein, a
"Change in Control" shall mean: (A) following a sale or other transfer or
disposition of all or substantially all of the assets of
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ASM, or a merger or consolidation of ASM, or a sale or other transfer or
disposition of the stock of ASM, PGI no longer has, directly or indirectly, a
controlling interest in ASM; or (B) there shall occur the sale or other transfer
or disposition of all or substantially all of the assets of PGI, or a merger or
consolidation of PGI following which the Chief Executive Officer and Executive
Management Team of PGI is changed as a result of or after such acquisition of
control.
(b) Payment Matters.
---------------
(i) As used herein, the "Accelerated Earn-Out Amount" shall mean
(A) with respect to an Accelerated Earn-Out Event occurring in calendar year
1997, the Accelerated Earn-Out Amount shall be * ; and (B) with respect
to an Accelerated Earn-Out Event occurring in calendar year 1998, the
Accelerated Earn-Out Amount shall be the sum of (X) the actual amount of unpaid
1997 Additional Purchase Consideration, if any, and (Y) an amount for calendar
year 1998 equal to * of the difference between (I) * of PTPECNI as
reflected in the 1998 Business Plan for ASM and (II) the actual PTPECNI for
calendar year 1997.
(ii) Either party shall have the obligation to submit any dispute
with respect to the operation of this Section 4.16, including whether an
Accelerated Earn-Out Event has occurred and the calculation of the Accelerated
Earn-Out Amount, to arbitration in accordance with Section 8.15 hereof. No
Accelerated Earn-Out Amount shall be due and payable until 30 days following a
final determination by the arbitrator in accordance with Section 8.15 hereof
that any Accelerated Earn-Out Amount is due.
4.17 Termination of Certain Covenants.
--------------------------------
(a) John Inglis's obligations pursuant to Section 4.9 and 4.10 hereof
shall terminate upon (i) the occurrence of an Accelerated Earn-Out Event, (ii)
termination of the Inglis Employment Agreement by PGI "without Cause" (as
defined in Section V(A)(3)(b) thereof) during the "Initial Term" thereof and
(iii) termination of the Inglis Employment Agreement by Inglis during the
"Initial Term" pursuant to Section V(A)(5) thereof, provided that in the event
of the occurrence of Accelerated Earn-Out Event, the covenants set forth in
Section 4.9 and 4.10 shall not terminate if PGI satisfies its obligation to pay
the Accelerated Earn-Out Amount in accordance with the terms hereof. The events
triggering termination of the covenants set forth in Sections 4.9 and 4.10
hereof with respect to Inglis are referred to herein as "Final Inglis Covenant
Termination Events." John Inglis or PGI shall have the right to submit any
dispute with respect to the operation of this Section 4.17, including whether a
Final Inglis Covenant Termination Event has occurred, to arbitration in
accordance with Section 8.15 hereof. If the dispute is submitted for
arbitration, the covenants set forth in Section 4.9 and 4.10 shall not terminate
until a final determination by the arbitrator in accordance with Section 8.15
hereof that a Final Inglis Covenant Termination Event has occurred and, in the
case of the Accelerated Earn-Out Events arising pursuant Section 4.16, that any
Accelerated Earn-Out Amount has not been paid when due.
(b) Kearney's obligations pursuant to Section 4.9 and 4.10 hereof
shall terminate upon (i) the occurrence of an Accelerated Earn-Out Event, (ii)
termination of the Kearney Employment Agreement by PGI "without Cause" (as
defined in Section V(A)(3)(b)
- ----------
* Confidential information has been omitted and filed separately with the
Commission.
41
<PAGE>
thereof) during the "Initial Term" thereof, provided that in the event of the
occurrence of Accelerated Earn-Out Event, the covenants set forth in Section 4.9
and 4.10 shall not terminate if PGI satisfies its obligation to pay the
Accelerated Earn-Out Amount in accordance with the terms hereof. The events
triggering termination of the covenants set forth in Sections 4.9 and 4.10
hereof with respect to Kearney are referred to herein as "Final Kearney Covenant
Termination Events." Kearney or PGI party shall have the right to submit any
dispute with respect to the operation of this Section 4.17, including whether a
Final Kearney Covenant Termination Event has occurred, to arbitration in
accordance with Section 8.15 hereof. If the dispute is submitted for
arbitration, the covenants set forth in Section 4.9 and 4.10 shall not terminate
until a final determination by the arbitrator in accordance with Section 8.15
hereof that a Final Kearney Covenant Termination Event has occurred and, in the
case of the Accelerated Earn-Out Events arising pursuant Section 4.16, that any
Accelerated Earn-Out Amount has not been paid when due.
(c) In the event of any termination of Inglis's or Kearney's
obligations pursuant to Section 4.9 and 4.10 in accordance with the provisions
of Section 4.17 hereof, the covenants set forth in Sections 4.7 and 4.8 hereof
shall terminate with respect to the terminated Stockholder, except that the
terminated Stockholder shall not have the right to (i) utilize any hard data of
a confidential or proprietary nature of ASM, including any confidential or
proprietary methods, record, data, Trade Secret, pricing policy, bid amount, bid
strategy, rate structure, personnel policy, method or practice of soliciting or
obtaining or doing business, (ii) any confidential or proprietary information
whatsoever relating to PGI, (iii) any plan of growth or expansion or information
that came from or is derived from PGI or ASM or was developed by ASM or PGI
during the term of their employment with ASM with PGI as a shareholder.
ARTICLE V
CONDITIONS TO CONSUMMATION OF PURCHASE AND SALE
5.1 Conditions to Each Party's Obligations.
--------------------------------------
The respective obligations of each Party to consummate the Purchase
and Sale is subject to the following condition: no temporary restraining order,
preliminary or permanent injunction or other order issued by any court of
competent jurisdiction or other legal or regulatory restraint or prohibition
preventing the consummation of the Purchase and Sale or limiting or restricting
PGI's conduct or operation of the business of PGI or ASM after the Purchase and
Sale shall have been issued, nor shall any proceeding brought by any
Governmental Entity, seeking any of the foregoing be pending; nor shall there be
any action taken, or any statute, rule, regulation or order enacted, entered,
enforced or deemed applicable to the Purchase and Sale which makes the
consummation of the Purchase and Sale illegal.
5.2 Conditions to Obligations of PGI.
--------------------------------
The obligation of PGI to consummate the Purchase and Sale and the
other transactions set forth herein is subject to the satisfaction of the
following additional conditions:
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(a) Each of the representations and warranties of Stockholders and ASM
contained in Article II above shall be true and accurate in all material
respects as of the date of this Agreement and shall be true and accurate in all
material respects as of the Closing Date as if made on the Closing Date (except
for any representation or warranty expressly stated to have been made or given
as of a specified date, which, at the Closing Date, shall be true and accurate
in all material respects as of the date expressly stated) without regard to any
disclosures made by ASM or Stockholders after the execution and delivery of this
Agreement by the parties hereto and no liabilities have been asserted with
respect to the possible liabilities or problems referenced in the Disclosure
Schedules; provided, however, that this condition shall be deemed satisfied if
(i) taken together, all such matters (x) as to which representations are not
true and accurate or (y) which represent an event or events occurring after
execution hereof, but before Closing or (z) involving liabilities asserted with
respect to the possible liabilities or problems referenced in the Disclosure
Schedules, involve in the aggregate less than $500,000 (for this purpose any
third party claim or litigation shall be deemed to involve the amount the
claimant or litigant has a reasonable likelihood of being owed if the matter is
determined adversely to ASM) and (ii) no such representations when made were
known by a party making them to not be true and accurate. Stockholders and ASM
shall have delivered to PGI a certificate of Stockholders and ASM's president or
any vice president certifying the fulfillment of the conditions set forth in
this Section 5.2(a).
(b) All of the covenants and obligations that Stockholders or ASM are
required to perform or to comply with pursuant to the terms of this Agreement
and each of the documents to be executed in connection herewith shall have been
duly performed or complied with by Stockholders and ASM in all respects prior to
the Closing Date.
(c) Since the date of the execution and delivery of this Agreement by
the parties, there shall not have occurred an event or condition which resulted
in a material adverse change in the financial condition, business, assets, net
worth, personnel, prospects or affairs of the Business (when taken as a whole),
and ASM shall not have suffered any loss (whether or not insured) by reason of
physical damage caused by fire, earthquake, flood, wind, accident or other
calamity which materially affects the value of the Business when taken as a
whole.
(d) PGI's Registration Statement shall have become effective in
accordance with the provisions of the Securities Act, and no stop order
suspending the effectiveness of the Registration Statement shall have been
issued by the United States Securities and Exchange Commission (the "SEC") and
remain in effect and the closing pursuant to such Registration Statement shall
occurred.
(e) The Stockholders shall have executed and delivered a Subordination
Agreement in substantially the form attached hereto as Exhibit A in favor of
---------
PGI's primary financial institution concerning future payments owed to the
Stockholders under this Agreement.
(f) ASM either (i) shall have obtained all of the waivers, permits,
consents, approvals or other authorizations, and effected all of the
registrations, filings and
43
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notices, as are reasonably necessary to the transfer of any contracts, leases,
rights, or other assets material to the Business, which if not obtained or
effected would have a material adverse effect on the assets, business, financial
condition, results of operations or future prospects of ASM or on the ability of
the Parties to consummate the transactions contemplated by this Agreement, or
(ii) as of the Closing, shall have effected a cure of any alleged failure to
obtain any such item, or (iii) as of the Closing, shall have identified a means
of curing such failure to obtain any such item within a reasonable period of
time after Closing and shall have undertaken such steps as shall be reasonably
necessary to effect such cure within a reasonable period of time after Closing.
(g) PGI shall have received from Thomas Moe, Esquire, counsel to ASM,
an opinion in the form set forth as Exhibit B attached hereto, addressed to PGI
---------
and dated as of the Closing Date;
(h) PGI shall have received from ASM a long-form good standing
certificate of ASM dated no earlier than 30 days prior to the closing date.
(i) PGI shall have received from an officer of ASM a closing
certificate in customary form.
(j) An Employment Agreement substantially in the form of Exhibit C
---------
hereto shall have been executed by John Inglis and ASM (the "Inglis Employment
Agreement").
(k) An Employment Agreement substantially in the form of Exhibit D
---------
hereto shall have been executed by Patrick J. Kearney and ASM (the "Kearney
Employment Agreement").
(l) An Employment Agreement substantially in the form of Exhibit E
---------
hereto shall have been executed by Robert Dethlefs and ASM (the "Dethlefs
Employment Agreement").
(m) Any and all taxes, interest, penalties or expenses incurred by ASM
for current or prior tax years or arising from business conducted by ASM prior
to the Closing Date shall have been paid by ASM when due, and any sales tax or
other taxes arising from the Purchase and Sale and otherwise attributable to the
Stockholders shall have been paid by the Stockholders when due.
(n) ASM shall have received from Kearney and Dethlefs Settlement and
Release Agreements in form reasonably satisfactory to PGI.
(o) The 1997 Hall Arrangements referred to the Section 7.2(f) shall
have become 1997 Hall Contracts and any consents required for 1997 Hall
Contracts by reason of the change of control of ASM shall have been received,
provided that if the aggregate revenue set forth in the Business Plan for the
shows as to which (i) either or both of these requirements have not been met and
(ii) alternative satisfactory arrangements have not been made is less than
$500,000, this condition shall be deemed to have been satisfied.
44
<PAGE>
5.3 Conditions to Obligations of ASM and the Stockholders.
-----------------------------------------------------
The obligation of ASM and the Stockholders to consummate the Purchase
and Sale is subject to the satisfaction of the following additional conditions:
(a) Each of the representations and warranties of PGI contained in
Article III above shall be true and accurate in all material respects as of the
date of this Agreement and shall be true and accurate in all material respects
as of the Closing Date as if made on the Closing Date (except for any
representation or warranty expressly stated to have been made or given as of a
specified date, which, at the Closing Date, shall be true and correct in all
material respects as of the date expressly stated) without regard to any
disclosures made by PGI after the execution and delivery of this Agreement by
the parties hereto provided, however, that this condition shall be deemed
satisfied if (i) taken together, all such matters as to which representations
are not time and accurate involve in the aggregate less than $500,000 (for this
purpose any third party claim or litigation shall be deemed to involve the
amount the claimant or litigant has a reasonable likelihood of being owed if the
matter is determined adversely to PGI) and (ii) no such representations when
made were known by a party making them to not be true and accurate. PGI shall
have delivered to ASM a certificate of any of PGI's president or any vice
president certifying the fulfillment of the conditions set forth in this Section
5.3(a).
(b) All of the covenants and obligations that PGI is required to
perform or to comply with pursuant to the terms of this Agreement and each of
the documents to be executed in connection herewith shall have been duly
performed or complied with by PGI in all respects prior to the Closing Date.
(c) Since the date of execution and delivery of this Agreement by the
Parties, there shall not have occurred an event or condition that resulted in a
material or adverse change in the financial condition, business, assets, net
worth, personnel, prospects or affairs of PGI, when taken as a whole.
(d) Either (i) PGI's Registration Statement shall have become
effective in accordance with the provisions of the Securities Act and no stop
order suspending the effectiveness of the Registration Statement shall have been
issued by the SEC and remain in effect, and the closing pursuant to such
Registration Statement shall have occurred; or (ii) PGI shall have concluded
such other financing plan as may be required to consummate this Agreement and to
make all of the payments of Base Purchase Consideration contemplated hereunder,
as contemplated by Section 4.13 hereof.
(e) the Inglis Employment Agreement, the Kearney Employment Agreement,
and the Dethlefs Employment Agreement shall have been executed and delivered by
the parties thereto.
(f) Stockholders shall have received from Piper & Marbury L.L.P.,
counsel to PGI, an opinion in the form set forth as Exhibit F attached hereto,
---------
addressed to ASM and Stockholders and dated as of the Closing Date.
45
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(g) Stockholders shall have received from PGI a long-form good
standing certificate dated no earlier than 30 days prior to the closing date.
(h) Stockholders shall have received from PGI a closing
certificate of any officer of PGI in customary form.
(i) The Parties shall have agreed upon (1) the Business Plan, and (2)
the accounting practices and standards applicable to the Closing Date financial
statements.
(j) Stockholders shall have been added as insureds under the PGI
Directors and Officers liability insurance coverage, which coverage (i) will be
substantially similar to coverage provided under the policy and endorsement
forms provided to counsel for the Stockholders; (ii) will have an aggregate
limit liability of no less than $10 million and (iii) will provide coverage for
alleged wrongful acts as insured directors and officers of ASM from February 1,
1997 or earlier.
ARTICLE VI
TERMINATION
6.1 Termination of Agreement.
------------------------
The Parties may terminate this Agreement as provided below:
(a) the Parties may terminate this Agreement prior to the Closing
by mutual written consent; or
(b) either John Inglis or PGI may terminate this Agreement prior to
the Closing by giving written notice to the other Parties if the Closing shall
not have occurred on or before February 28, 1997; provided, however, that if the
Closing shall have failed to occur by such date as a result of the postponement
or cancellation of PGI's anticipated Public Offering (provided that PGI has not
breached its covenants with respect to the Public Offering as set forth in
Section 3.9 of this Agreement), then PGI shall have until March 15, 1997 in
which to close upon such Public Offering or an alternative financing as provided
in Section 4.13 hereof and, if PGI closes upon such Public Offering or
alternative financing within such period, this Agreement shall not terminate and
shall continue as provided in Section 4.13 hereof, provided that either John
Inglis or PGI may terminate this Agreement if the Closing shall not have
occurred on or before March 15, 1997.
6.2 Effect of Termination.
---------------------
If any Party terminates this Agreement pursuant to Section 6.1, all
obligations of the Parties hereunder shall terminate without any liability of
any Party to any other Party (except for any liability of any Party for breaches
of this Agreement).
46
<PAGE>
ARTICLE VII
SURVIVAL OF REPRESENTATIONS AND WARRANTIES; INDEMNITY
7.1 Survival of Representations and Warranties.
------------------------------------------
(a) Each of the representations and warranties of ASM and the
Stockholders in Article II and of PGI in Article III and all other obligations
of the parties hereunder shall survive the Closing as follows:
(i) the representation and warranty set forth in Section 2.9
shall survive the Closing until the expiration of the
applicable statutory period of limitation, giving effect to
any waiver, mitigation or extension thereof; and
(ii) all other representations, warranties, covenants and
undertakings shall survive the Closing until the end of
eighteen months after the Closing (the "Indemnity Period")
except with respect to any representation, warranty or
covenant that, by its terms, is for a longer period.
(b) Except as provided in subsection (c) of this Section 7.1, no claim
may be brought arising under or in connection with this Agreement or any of the
transactions contemplated hereby for a breach of any representation, warranty,
covenant or undertaking after the expiration of the survival period applicable
thereto as provided in subsection (a) of this Section 7.1.
(c) If written notice of a claim for breach of a representation,
warranty, covenant or undertaking under this Agreement has been given by a party
prior to the expiration of the survival period applicable thereto as provided in
subsection (a) of this Section 7.1, then the relevant representation, warranty,
covenant or undertaking shall survive as to such claim until the claim has been
finally resolved, provided that an appropriate action has been filed or
undertaken by the non-breaching party in order to address the alleged breach
within 12 months after receipt of the notice.
7.2 Indemnification by the Stockholders.
-----------------------------------
Except as otherwise limited by this Article VII, the Stockholders
shall jointly and severally indemnify, defend and hold harmless PGI and its
officers, directors, employees, agents, successors and assigns from and against
any and all liabilities, losses, damages, claims, costs and expenses, interest,
awards, judgments and penalties (including, without limitation, reasonable legal
costs and expenses) actually suffered or incurred by them (hereinafter a "PGI
Loss") arising out of or resulting from any of the following:
(a) the breach of any representation or warranty by ASM or the
Stockholders contained herein or in any document delivered hereunder at the
Closing, except as covered by Section 7.2(e) hereof;
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(b) the breach of any covenant or agreement by ASM or the Stockholders
contained herein or in any document delivered hereunder at the Closing, except
as covered by Section 7.2(e) hereof;
(c) any liabilities of ASM of any nature, whether accrued, absolute,
contingent or otherwise, which existed as of the Closing Date, or arose out of
the conduct of the Business, the ownership or use of the property, or the
existence or occurrence of any events, condition or set of facts, at or prior to
the Closing Date, and which (i) were not reflected on the Most Recent Balance
Sheet, (ii) were not otherwise disclosed on the Disclosure Schedule (other than
through the disclosure of general possibilities of liabilities on certain
Disclosure Schedules or the disclosure of claims or potential claims on Schedule
2.17) or (iii) did not arise from events occurring following the date hereof
which were either permitted pursuant to Section 4.3(b) hereof or occurred in the
ordinary course of business;
(d) any investigation, suit, action or other proceeding by or before
any court or governmental or regulatory agency which seeks to restrain, modify,
prohibit or revoke, or seeks damages or other relief in connection with, the
consummation of this transaction;
(e) a breach of the representation set forth in Section 2.14(b)(i) and
(ii) with respect to the 1997 Hall Contracts, provided that recourse for any
such breach is limited as set forth in Section 7.5(a) hereof (a "Hall Contract
Loss");
(f) without limitation, a breach of the representation set forth in
Section 2.14(b)(i) and (ii) with respect to letters of intent or other
understandings relating to hall contracts for 1997 shows in the cities and
venues listed on Section 7.2(f) of the Disclosure Schedule hereto (the "1997
--------------
Hall Arrangements") as though such 1997 Hall Arrangements had been included as
1997 Hall Contracts on Schedule 2.14.
Notwithstanding anything in this Agreement to the contrary, ASM and
the Stockholders shall be required to update the Disclosure Schedule during the
period between the execution of this Agreement and the date 5 days prior to the
Closing Date (the "Disclosure Termination Period") if such update is necessary
to render the Disclosure Schedule complete and accurate. No such amendment
shall alter the parties' rights and obligations under this Agreement, provided
that the maximum amount of any PGI Loss with respect to events occurring
following the date of this Agreement and disclosed to PGI prior to the
Disclosure Termination Period shall be $200,000, exclusive of any such loss
covered by insurance carried by ASM or the Stockholders. This limitation on
Stockholders' indemnity obligation shall not affect the operation of Sections
5.2(a) or (c).
7.3 Indemnification by PGI.
----------------------
Except as otherwise limited by this Article VII, PGI shall indemnify,
defend and hold harmless Stockholders from and against any and all liabilities,
losses, damages, claims, costs and expenses, interest, awards, judgments and
penalties (including, without limitation, reasonable legal costs and expenses)
actually suffered or incurred by it (hereinafter a "Stockholder Loss") arising
out of or resulting from any of the following:
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(a) the breach of any representation or warranty by PGI contained
herein or in any document delivered hereunder at the Closing; or
(b) the breach of any covenant or agreement by PGI contained herein or
in any document delivered hereunder at the Closing; or
(c) any liabilities of ASM of any nature, whether accrued, absolute,
contingent or otherwise arising following the Closing Date and based upon the
conduct of the Business or the ownership or use of ASM property after the
Closing Date; or
(d) As PGI is responsible for the preparation of the Registration
Statement and for the compilation of the ASM financial statements and combined
pro forma financial statements included therein, any investigation, suit,
action, claim, liability or damages suffered by ASM prior to the Closing Date,
or by the Stockholders, asserted or initiated by any person, entity, or
governmental or regulatory agency resulting from or arising in connection with
the contemplated public offering of PGI, unless such investigation, suit,
action, claim, liability or damages shall be the result of, arise out of, or be
based upon any untrue statement or alleged untrue statement of a material fact
made by ASM which PGI includes in the Registration Statement, or the omission or
alleged omission to state a material fact required to be stated in the
Registration Statement or necessary to make the statements therein not
misleading, and furnished or to be furnished to PGI by or on behalf of the
Stockholders specifically for inclusion therein.
7.4 General Indemnification Provisions.
----------------------------------
(a) For the purposes of this Section 7.4, the term "Indemnitee" shall
refer to the Person indemnified, or entitled, or claiming to be entitled to be
indemnified, pursuant to the provisions of Section 7.2 or 7.3, as the case may
be; the term "Indemnitor" shall refer to the Person having the obligation to
indemnify pursuant to such provisions; and "Losses" shall refer to the
"Stockholder Losses" or the "PGI Losses", as the case may be.
(b) An Indemnitee shall give written notice (a "Notice of Claim") to
the Indemnitor within ten (10) business days after the Indemnitee has knowledge
of any claim (including a Third Party Claim, as hereinafter defined) which an
Indemnitee has determined has given or could give rise to a right of
indemnification under this Agreement. No failure to give such Notice of Claim
shall affect the indemnification obligations of the Indemnitor hereunder, except
to the extent Indemnitor can demonstrate such failure materially prejudiced such
Indemnitor's ability to successfully defend the matter giving rise to the claim.
The Notice of Claim shall state the nature of the claim, the amount of the Loss,
if known, and the method of computation thereof, all with reasonable
particularity and containing a reference to the provisions of this Agreement in
respect of which such right of indemnification is claimed or arises.
(c) The obligations and liabilities of an Indemnitor under this
Article VII with respect to Losses arising from claims of any third party that
are subject to the indemnification provisions provided for in this Article VII
("Third Party Claims") shall be governed by and contingent upon the following
additional terms and conditions: the Indemnitee at the time it gives a Notice
of Claim to the Indemnitor of the Third Party Claim shall advise the
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Indemnitor that it shall be permitted, at its option, to assume and control the
defense of such Third Party Claim at its expense and through counsel of its
choice if it gives prompt notice of its intention to do so to the Indemnitee and
confirms that the Third Party Claim is one with respect to which the Indemnitor
is obligated to indemnify. In the event the Indemnitor exercises its right to
undertake the defense against any such Third Party Claim as provided above, the
Indemnitee shall cooperate with the Indemnitor in such defense and make
available to the Indemnitor all witnesses, pertinent records, materials and
information in its possession or under its control relating thereto as is
reasonably required by the Indemnitee. Except for the settlement of a Third
Party Claim which involves the payment of money only and for which the
Indemnitee is totally indemnified by the Indemnitor, no Third Party Claim may be
settled by the Indemnitor without the written consent of the Indemnitee, which
consent shall not be unreasonably withheld. Similarly, no Third Party Claim may
be settled by the Indemnitee without the written consent of the Indemnitor,
which consent shall not be unreasonably withheld.
(d) Any indemnification obligations of Stockholders with respect to a
PGI Loss shall be subject to offset against amounts owed by PGI to Stockholders
hereunder, if the obligation of Stockholders shall have been reduced to the
judgment of a court of competent jurisdiction or the award of an arbitrator
under any arbitration pursuant to Section 8.15 hereof.
7.5 Limits on Indemnification.
-------------------------
No claim may be made against ASM or Stockholders for indemnification
hereunder unless and only to the extent the aggregate of all PGI Losses (other
than Hall Contact Losses) incurred exceed $50,000 (the "Basket"). Thereafter,
indemnification shall be available for all PGI Losses commencing with the first
dollar of loss. No claim may be made against PGI for indemnification hereunder
unless and only to the extent the aggregate of all Stockholder Losses incurred
exceeds the Basket. Notwithstanding anything to the contrary set forth herein,
no claim may be made against the Stockholders with respect to a Hall Contract
Loss (other than with respect to 1997 Hall Arrangements) except to the extent of
the $250,000. PGI and the Stockholders shall be entitled to immediate
reimbursement of any PGI Losses or Stockholder losses hereunder with respect to
which there is no dispute concerning the other party's obligation to indemnify
such loss. With respect to any PGI Losses or Stockholder losses with respect to
which there is a dispute concerning the other party's obligation to indemnify,
such dispute shall be submitted to expedited arbitration pursuant to Section
8.15 hereof. As set forth in Section 1.5(c)(v)(D) above, PGI shall be entitled
to withdraw the full amount, up to an aggregate of $250,000, of any Hall
Contract Loss from the Additional Purchase Consideration Account if the
Stockholders do not pay the full amount of any Hall Contract Loss to PGI within
30 days following notice of such Hall Contract Loss from PGI or, if contested by
the Stockholders, after the final decision of the arbitrator under (S) 8.15.
7.6 Adjustment of Liability.
-----------------------
Any indemnifiable Stockholder Loss or PGI Loss, as the case may be,
shall be reduced by any tax benefit accruing to the indemnified party on account
of the indemnification payment and by the amounts actually recovered by the
indemnified party from its insurance carriers and any amounts recovered by such
party subsequent to the payment by the indemnifying
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party hereunder with respect to the same claim shall be remitted to such
indemnifying party, except that such remittance shall not exceed the amount of
the indemnification payment made by such indemnifying party.
7.7 Indemnification as Exclusive Remedy From and After Closing.
----------------------------------------------------------
From and after the Closing, neither party hereto shall be liable or
responsible in any manner whatsoever to the other party, whether for
indemnification or otherwise, except for indemnity as expressly provided in this
Article VII which provides the exclusive remedy and cause of action of the
parties hereto with respect to any matter arising out of or in connection with
this Agreement, except for (i) any breaches of Sections 4.6, 4.7, 4.8, 4.9,
4.10, and 4.11 of this Agreement, or (ii) PGI's obligation to pay Additional
Purchase Consideration pursuant to Section 1.5(c) and 1.5(d) hereof.
7.8 Waiver of Contribution.
----------------------
Stockholders hereby waive any right of contribution or similar remedy
against ASM following the Closing.
ARTICLE VIII
MISCELLANEOUS
8.1 Press Releases and Announcements.
--------------------------------
No Party shall issue any press release or public disclosure relating
to the subject matter of this Agreement without the prior written approval of
the other Parties; provided, however, that any Party may make any public
disclosure it believes in good faith is required by law or regulation (in which
case the disclosing Party shall advise the other Parties and provide them with a
copy of the proposed disclosure prior to making the disclosure).
Notwithstanding the foregoing, PGI shall have the right to make disclosure with
respect to ASM and the transaction set forth herein in its registration
statement as required by applicable law.
8.2 No Third Party Beneficiaries.
----------------------------
This Agreement shall not confer any rights or remedies upon any person
other than the Parties and their respective successors and permitted assigns.
8.3 Entire Agreement.
----------------
This Agreement (including the documents referred to herein)
constitutes the entire agreement among the Parties and supersedes any prior
understandings, agreements, or representations by or among the Parties, written
or oral, with respect to the subject matter hereof, including without limitation
any and all prior employment or similar agreements between ASM and any
Stockholder and any amendment or supplement thereto.
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8.4 Succession and Assignment.
-------------------------
This Agreement shall be binding upon and inure to the benefit of the
Parties named herein and their respective successors and permitted assigns. No
Party may assign either this Agreement or any of its rights, interests, or
obligations hereunder without the prior written approval of the other Parties;
provided that PGI may assign its rights, interests and obligations hereunder to
an Affiliate of PGI if PGI ensures that such PGI Affiliate shall agree to be
bound by each of the obligations of this Agreement relating to the payment of
Additional Purchase Consideration, if any, or if PGI shall pay to the
Stockholders a reasonable estimation of the Additional Purchase Consideration
then owing to the Stockholders based upon the business of ASM at the point of
PGI's sale of control or disposal of assets, if any, calculated in a manner
consistent with Section 1.5 hereof. In the event that PGI sells substantially
all of the Existing ASM Business to a third party, it agrees cause such third
party to be bound by the provisions of this Agreement with respect to the
payment of Additional Purchase Consideration. PGI shall remain secondarily
liable for and shall fully guarantee the payment of any Additional Purchase
Consideration that may become due hereunder.
8.5 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.
8.6 Headings.
--------
The section headings contained in this Agreement are inserted for
convenience only and shall not affect in any way the meaning or interpretation
of this Agreement.
8.7 Notices.
-------
All notices, requests, demands, claims, and other communications
hereunder shall be in writing. Any notice, request, demand, claim, or other
communication hereunder shall be deemed duly delivered two business days after
it is sent by registered or certified mail, return receipt requested, postage
prepaid, or one business day after it is sent via a reputable nationwide
overnight courier service, in each case to the intended recipient as set forth
below:
If to ASM:
John Inglis
American Show Management, Inc.
16160 S.W. Upper Boones Ferry Road
Portland, Oregon 97224
Copy to:
Christopher James, Esq.
James, Denecke & Harris
1150 Pioneer Tower
888 S.W. Fifth Avenue
Portland, Oregon 97204-2096
52
<PAGE>
If to John Inglis:
11033 S.W. Esquiline Circus
Portland, Oregon 97219
Copy to:
Christopher James, Esq.
James, Denecke & Harris
1150 Pioneer Tower
888 S.W. Fifth Avenue
Portland, Oregon 97204-2096
If to Judi Inglis:
11033 S.W. Esquiline Circus
Portland, Oregon 97219
Copy to:
Christopher James, Esq.
James, Denecke & Harris
1150 Pioneer Tower
888 S.W. Fifth Avenue
Portland, Oregon 97204-2096
If to Kearney:
16865 Greenbriar Road
Lake Oswego, Oregon 97034
Copy to:
John Crawford, Esq.
Schwabe, Williamson & Wyatt
1211 S.W. Fifth Avenue, Suites 1600-1800
Portland, Oregon 97204-3795
If to Dethlefs:
13055 S.E. Spring Mountain Drive
Portland, Oregon 97236
Copy to:
John Crawford, Esq.
Schwabe, Williamson & Wyatt
1211 S.W. Fifth Avenue, Suites 1600-1800
Portland, Oregon 97204-3795
53
<PAGE>
If to PGI:
Mark Sirangelo
PGI, Inc.
2200 Wilson Boulevard
Suite 200
Arlington, VA 22201
Copy to:
Edwin M. Martin, Jr., Esq.
Piper & Marbury L.L.P
1200 Nineteenth Street, N.W
Washington, D.C. 20036
Any Party may give any notice, request, demand, claim, or other
communication hereunder using any other means (including personal delivery,
expedited courier, messenger service, telecopy, telex, ordinary mail, or
electronic mail), but no such notice, request, demand, claim, or other
communication shall be deemed to have been duly given unless and until it
actually is received by the party for whom it is intended. Any Party may change
the address to which notices, requests, demands, claims, and other
communications hereunder are to be delivered by giving the other Parties notice
in the manner herein set forth.
8.8 Governing Law.
-------------
This Agreement shall be governed by and construed in accordance with
the internal laws (and not the law of conflicts) of the State of Delaware.
8.9 Amendments and Waivers.
----------------------
No waiver by any Party of any default, misrepresentation, or breach of
warranty or covenant hereunder, whether intentional or not, shall be deemed to
extend to any prior or subsequent default, misrepresentation, or breach of
warranty or covenant hereunder or affect in any way any rights arising by virtue
of any prior or subsequent such occurrence.
8.10 Severability.
------------
Any term or provision of this Agreement that is invalid or
unenforceable in any situation in any jurisdiction shall not affect the validity
or enforceability of the remaining terms and provisions hereof or the validity
or enforceability of the offending term or provision in any other situation or
in any other jurisdiction. If the final judgment of a court of competent
jurisdiction declares that any term or provision hereof is invalid or
unenforceable, the Parties agree that the court making the determination of
invalidity or unenforceability shall have the power to reduce the scope,
duration, or area of the term or provision, to delete specific words or phrases,
or to replace any invalid or unenforceable term or provision with a term or
provision that is valid and enforceable and that comes closest to expressing the
intention of the invalid or
54
<PAGE>
unenforceable term or provision, and this Agreement
shall be enforceable as so modified after the expiration of the time within
which the judgment may be appealed.
8.11 Expenses.
--------
The Stockholders shall be responsible for the costs and expenses
(including any legal, accounting and investment banking fees and expenses)
incurred by them or ASM in connection with this Agreement and the transactions
contemplated hereby. PGI shall be responsible for the costs and expenses
(including any legal, accounting and investment banking fees and expenses)
incurred by PGI in connection with this agreement and the transactions
contemplated hereby.
8.12 Specific Performance.
--------------------
Each of the Parties acknowledges and agrees that one or more of the
other Parties would be damaged irreparably in the event any of the provisions of
this Agreement are not performed in accordance with their specific terms or
otherwise are breached. Accordingly, each of the Parties agrees that the other
Parties shall be entitled to an injunction or injunctions to prevent breaches of
the provisions of this Agreement and to enforce specifically this Agreement and
the terms and provisions hereof in any action instituted in any court of the
United States or any state thereof having jurisdiction over the Parties and the
matter, in addition to any other remedy to which it may be entitled, at law or
in equity. The prevailing party in any such action shall be entitled to recover
from the other party its attorneys' fees, costs and expenses incurred in
connection with regard to such action.
8.13 Construction.
------------
The language used in this Agreement shall be deemed to be the language
chosen by the Parties hereto to express their mutual intent, and no rule of
strict construction shall be applied against any Party. Any reference to any
federal, state, local, or foreign statute or law shall be deemed also to refer
to all rules and regulations promulgated thereunder, unless the context requires
otherwise.
8.14 Incorporation of Exhibits and Schedules.
---------------------------------------
The Exhibits and Disclosure Schedule identified in this Agreement are
incorporated herein by reference and made a part hereof.
8.15 Arbitration.
-----------
In the event that any dispute under Sections 1.5(c)(iii), 1.5(d)(ii),
4.16, 4.17(a), 4.17(b), 7.4(d) or 7.5 of this Agreement (a "Dispute"), either
party in such dispute shall have the right or the obligation (subject to the
terms of the section under which the Dispute has arisen) to submit such Dispute
to expedited binding arbitration as set forth herein. The party seeking
arbitration (the "Moving Party") shall provide a written request for arbitration
(the "Arbitration Request") to the other party (the "Respondent Party"). The
Arbitration Request shall set forth in detail the Moving Party's position and
arguments concerning the Dispute and shall state clearly
55
<PAGE>
the desired relief under this Agreement. Following the receipt of such request,
the Moving Party and the Respondent Party shall negotiate in good faith for a
period of 15 days in an attempt to resolve such dispute. If the Moving Party and
the Respondent Party are unable to resolve such Dispute, the Moving Party shall
have the right to provide a written request for arbitration to the American
Arbitration Association and shall simultaneously provide a copy of such
Arbitration Request to the Respondent Party. Within five days of its receipt of
the Arbitration Request, the American Arbitration Association shall appoint a
single arbitrator (the "Arbitrator") to adjudicate the Dispute. Immediately upon
the Respondent Party's receipt of the Arbitration Request, and continuing for 30
days thereafter, the Moving Party and the Respondent Party shall cooperate and
share information with each other in order to discover all facts relevant to the
Dispute ("Discovery"). The Arbitrator shall have authority to adjudicate and
issue orders with respect to any disagreements or disputes arising in connection
with such Discovery. Within 30 days after the conclusion of Discovery, the
Respondent Party shall file with the Arbitrator and the Moving Party its
response (the "Arbitration Response") to the Arbitration Request, which
Arbitration Response shall set forth in detail the Respondent Party's position
and arguments concerning the Dispute. Within the same 30-day period, the Moving
Party shall be entitled to amend and supplement its Arbitration Request based
upon information arising from the Discovery. Within five days after the
Respondent Party's filing of the Arbitration Response, the Arbitrator shall set
a date for a hearing (the "Hearing"), which date shall be within 30 days. At the
Hearing, the Moving Party and the Respondent Party shall each present their
positions and arguments with respect to the Dispute subject to such reasonable
hearing rules as shall be set by the Arbitrator, provided that the Hearing shall
last no longer than two days. Within 30 days after the Hearing, the Arbitrator
shall issue a written decision (the "Decision") with respect to the Dispute,
which Decision shall take into account all information and arguments set forth
in the Arbitration Request, the Arbitration Response, and presented at the
Hearing, and which Decision shall be final and binding among the Parties with
respect to the subject matter of the Dispute.
56
<PAGE>
IN WITNESS WHEREOF, the Parties hereto have executed this Agreement as of
the date first above written.
PGI, INC.
By: /s/ Mark N. Sirangelo
---------------------
Name: Mark N. Sirangelo
Title: President and Chief Executive Officer
AMERICAN SHOW MANAGEMENT, INC
.
By: /s/ John Inglis
---------------
Name: John Inglis
Title: Chief Executive Officer
/s/ John Inglis
---------------
John Inglis
/s/ Judi Inglis
---------------
Judi Inglis
/s/ Patrick J. Kearney
----------------------
Patrick J. Kearney
/s/ Robert Dethlefs
-------------------
Robert Dethlefs
57
<PAGE>
GLOSSARY
--------
"1997 ADDITIONAL PURCHASE CONSIDERATION" shall have the meaning as defined in
Section 1.5(c) of this Agreement.
"1997 EARN-OUT STATEMENT" shall have the meaning as defined in Section
1.5(c)(ii) of this Agreement.
"1997 HALL CONTRACTS" shall have the meaning as defined in Section 2.14(a)(x) of
this Agreement.
"1997 PACKAGES" shall have the meaning as defined in Section 1.7(c) of this
Agreement.
"1998 ADDITIONAL PURCHASE CONSIDERATION" shall have the meaning as defined in
Section 1.5(d) of this Agreement.
"1998 EARN-OUT STATEMENT" shall have the meaning as defined in Section 1.5(d)(i)
of this Agreement.
"ACCELERATED EARN OUT AMOUNT" shall have the meaning as defined in Section
4.16(b)(i) of this Agreement.
"ACCELERATED EARN-OUT EVENT" shall have the meaning as defined in Section
4.16(a) of this Agreement.
"ACCREDITED INVESTOR" shall have the meaning as defined in Section 3.8 of this
Agreement.
"ADDITIONAL ESCROW DEPOSIT" shall have the meaning as defined in Section
1.5(c)(v) of this Agreement.
"ADDITIONAL PURCHASE CONSIDERATION" shall have the meaning as defined in Section
1.5(d) of this Agreement.
"ADDITIONAL PURCHASE CONSIDERATION ACCOUNT" shall have the meaning as defined in
Section 1.5(c)(v) of this Agreement.
"ADVANTA" shall have the meaning as defined in Section 2.28(a) of this
Agreement.
"AFFILIATE" shall have the meaning as defined in Section 2.23 of this Agreement.
"AFFILIATED GROUP" shall have the meaning as defined in Section 2.9(d) of this
Agreement.
"AGREEMENT" shall mean this Stock Purchase and Sale Agreement entered into as of
January _____, 1997.
<PAGE>
"ALTERNATE SECURITY" shall have the meaning as defined in Section 4.16(a)(v) of
this Agreement.
"ANTICIPATED DEFAULT NOTICE" shall have the meaning as defined in Section
4.16(a)(v) of this Agreement.
"ARBITRATION REQUEST" shall have the meaning as defined in Section 8.15 of this
Agreement.
"ARBITRATION RESPONSE" shall have the meaning as defined in Section 8.15 of this
Agreement.
"ARBITRATOR" shall have the meaning as defined in Section 8.15 of this
Agreement.
"ARTICLES OF INCORPORATION" shall have the meaning as defined in Section 2.1 of
this Agreement.
"ASM" for the purposed of this Agreement shall mean American Show Management,
Inc., an Oregon corporation.
"ASM EMPLOYEES." shall have the meaning as defined in Section 4.14 of this
Agreement.
"ASM LOSSES" shall have the meaning as defined in Section 7.4(a) of this
Agreement.
"AT WILL" shall have the meaning as defined in Section 4.14 of this Agreement.
"AUDITED FINANCIALS" shall have the meaning as defined in Section 2.31 of this
Agreement.
"BASE PURCHASE CONSIDERATION" shall have the meaning as defined in Section
1.5(a) of this Agreement.
"BASE PURCHASE PRICE INCREASE" shall have the meaning as defined in Section
1.5(b)(iv) of this Agreement.
"BASE PURCHASE PRICE REDUCTION" shall have the meaning as defined in Section
1.5(b)(iii) of this Agreement.
"BASKET" shall have the meaning as defined in Section 7.5(a) of this Agreement.
"BUSINESS" shall have the meaning as defined in paragraph two of this Agreement.
"BUSINESS" shall have the meaning as defined in Section 4.8(a) of this
Agreement.
"BUSINESS PLAN" shall have the meaning as defined in Section 1.5(e) of this
Agreement.
"BY-LAWS" shall have the meaning as defined in Section 2.1 of this Agreement.
"CAUSE" shall have the meaning as defined in Section 4.16(a)(i) of this
Agreement.
<PAGE>
"CERCLA" shall have the meaning as defined in Section 2.20(a)(ix) of this
Agreement.
"CLOSING" shall have the meaning as defined in Section 1.2 of this Agreement.
"CLOSING DATE" shall have the meaning as defined in Section 1.2 of this
Agreement.
"CLOSING FINANCIAL STATEMENTS" shall have the meaning as defined in Section
1.5(b)(i) of this Agreement.
"CODE" shall have the meaning as defined in Section 1.7(a) of this Agreement.
"COMPETITION" shall have the meaning as defined in Section 4.9(a) of this
Agreement.
"DECISION" shall have the meaning as defined in Section 8.15 of this Agreement.
"DESIGNATED ACCOUNTANT" shall have the meaning as defined in Section 1.5(b)(ii)
of this Agreement.
"DETHLEFS" for the purposes of this Agreement shall refer to Robert Dethlefs an
individual residing at _____________.
"DETHLEFS EMPLOYMENT AGREEMENT" shall have the meaning as defined in Section
5.2(l) of this Agreement.
"DIRECTLY" shall have the meaning as defined in Section 4.9(a) of this
Agreement.
"DISCLOSURE SCHEDULE" shall have the meaning as defined in Section 2.1 of this
Agreement.
"DISCLOSURE SCHEDULE" shall have the meaning as defined in Section 1.5(b)(i) of
this Agreement.
"DISCLOSURE TERMINATION PERIOD" shall have the meaning as defined in Section 7.2
of this Agreement.
"DISCOVERY" shall have the meaning as defined in Section 8.15 of this Agreement.
"DISPUTE" shall have the meaning as defined in Section 8.15 of this Agreement.
"EARN-OUT IMPOSSIBILITY EVENT" shall have the meaning as defined in Section
4.16(a)(v) of this Agreement.
"EMPLOYEE BENEFIT PLAN" or "EMPLOYEE PENSION BENEFIT PLAN" shall have the
meaning as defined in Section 2.19(a) of this Agreement.
"ENVIRONMENT" shall have the meaning as defined in Section 2.20(a)(ix) of this
Agreement.
<PAGE>
"ENVIRONMENTAL LAW" shall have the meaning as defined in Section 2.20(a) of this
Agreement.
"ERISA" shall have the meaning as defined in Section 2.19(a) of this Agreement.
"ERISA AFFILIATE" shall have the meaning as defined in Section 2.19(a) of this
Agreement.
"EXCHANGE ACT" shall have the meaning as defined in Section 2.14(a)(vi) of this
Agreement.
"EXISTING ASM BUSINESS" shall have the meaning as defined in Section
1.5(c)(i)(D) of this Agreement.
"EXPENSES" shall have the meaning as defined in Section 1.5(c)(1) of this
Agreement.
"EXPRESS ELECTION" shall have the meaning as defined in Section 1.7(a) of this
Agreement.
"FINAL COVENANT TERMINATION EVENTS" shall have the meaning as defined in Section
4.17 of this Agreement.
"FINANCIAL STATEMENTS" shall have the meaning as defined in Section 2.6 of this
Agreement.
"GOOD REASON" shall have the meaning as defined in Section 4.16(a)(ii) of this
Agreement.
"GOOD REASON" shall have the meaning as defined in Section 4.17 of this
Agreement.
"GOVERNMENTAL ENTITY" shall have the meaning as defined in Section 2.4(b) of
this Agreement.
"HEARING" shall have the meaning as defined in Section 8.15 of this Agreement.
"INDEMNITEE" shall have the meaning as defined in Section 7.4(a) of this
Agreement.
"INDEMNITOR" shall have the meaning as defined in Section 7.4(a) of this
Agreement.
"INDEMNITY PERIOD" shall have the meaning as defined in Section 7.1(a)(ii) of
this Agreement.
"INDIRECTLY" shall have the meaning as defined in Section 4.9(a) of this
Agreement.
"INGLIS EMPLOYMENT AGREEMENT" shall have the meaning as defined in Section
5.2(j) of this
"INTELLECTUAL PROPERTY" shall have the meaning as defined in Section 2.12(a) of
this Agreement.
"JOHN INGLIS" is an individual residing at ___________.
"JUDI INGLIS" is an individual residing at ___________.
<PAGE>
"KEARNEY" for the purposes of this Agreement shall refer to Patrick J. Kearney
an individual residing at _____________.
"KEARNEY EMPLOYMENT AGREEMENT" shall have the meaning as defined in Section
5.2(k) of this Agreement.
"LOSSES" shall have the meaning as defined in Section 7.4(a) of this Agreement.
"MATERIAL FINANCIAL DEFAULT" shall have the meaning as defined in Section
4.16(a)(iv) of this Agreement.
"MATERIALS OF ENVIRONMENTAL CONCERN" shall have the meaning as defined in
Section 2.20(b) of this Agreement.
"MOST FAVORED NATION" shall have the meaning as defined in Section 2.14(a)(ii)
of this Agreement.
"MOST RECENT BALANCE SHEET" shall have the meaning as defined in Section 2.8(a)
of this Agreement.
"MOST RECENT FISCAL QUARTER END" shall have the meaning as defined in Section
2.6 of this Agreement.
"MULTI-EMPLOYER PLAN" shall have the meaning as defined in Section 2.19(e) of
this Agreement.
"NEW ASM BUSINESS" shall have the meaning as defined in Section 1.5(c)(i)(D) of
this Agreement.
"NOTICE OF CLAIM" shall have the meaning as defined in Section 7.4(b) of this
Agreement.
"ORDINARY COURSE OF BUSINESS" shall have the meaning as defined in Section
2.4(e)(iii) of this Agreement.
"PARACHUTE PAYMENT" shall have the meaning as defined in Section 2.19(j) of this
Agreement.
"PARTIES" for the purposes of this Agreement shall collectively refer to
Production Group International, Inc., American Show Management, Inc., John
Inglis, Judi Inglis, Patrick L. Kearney and Robert Dethlefs.
"PERMITS" shall have the meaning as defined in Section 2.22 of this Agreement.
"PERSON" shall have the meaning as defined in Section 4.9(a) of this Agreement.
"PGI" for the purposes of this Agreement shall mean Production Group
International, Inc., a Delaware corporation.
<PAGE>
"PGI LOSS" shall have the meaning as defined in Section 7.2 of this Agreement.
"PGI LOSSES" shall have the meaning as defined in Section 7.4(a) of this
Agreement.
"PRE-TAX, PRE-EXECUTIVE COMPENSATION NET INCOME" or "PTPECNI" shall have the
meaning as defined in Section 1.5(c)(1) of this Agreement.
"PROFIT MARGIN" shall have the meaning as defined in Section 1.5(c)(1) of this
Agreement.
"PUBLIC OFFERING" shall have the meaning as defined in Section 1.2 of this
Agreement.
"PURCHASE AND SALE" shall refer to American Show Management's desire to sell the
Stock and Production Group International, Inc.'s desire to purchase the Stock
from the Stockholders according to the terms and provision of this Agreement.
"PURCHASE CONSIDERATION" shall have the meaning as defined in Section 1.5 of
this Agreement.
"QUALIFIED STOCK PURCHASE" shall have the meaning as defined in Section 1.7(a)
of this Agreement.
"QUARTERLY EARN-OUT ESTIMATE" shall have the meaning as defined in Section
1.5(c)(v) of this Agreement.
"REGISTRATION STATEMENT" shall have the meaning as defined in Section 3.5 of
this Agreement.
"RELEASE" shall have the meaning as defined in Section 2.20(a)(ix) of this
Agreement.
"RESERVE" shall have the meaning as defined in Section 1.3 of this Agreement.
"RESERVE ACCOUNT" shall have the meaning as defined in Section 1.3 of this
Agreement.
"RESPONDENT PARTY" shall have the meaning as defined in Section 8.15 of this
Agreement.
"RESTRICTED TERRITORY" shall have the meaning as defined in Section 4.9(a) of
this Agreement.
"SECURITIES ACT" shall have the meaning as defined in Section 1.2 of this
Agreement.
"SHORT PERIOD PACKAGES" shall have the meaning as defined in Section 1.7(c) of
this Agreement.
"STOCK" shall refer to the issued and outstanding stock of American Show
Management, Inc.
"STOCKHOLDER LOSS" shall have the meaning as defined in Section 7.3 of this
Agreement.
<PAGE>
"STOCKHOLDER REPRESENTATIVE" shall have the meaning as defined in Section 1.5(f)
of this Agreement.
"STOCKHOLDERS" for the purposes of this Agreement shall collectively refer to
John Inglis, Judi Inglis, Patrick J. Kearney and Robert Dethlefs.
"SUBSIDIARY" shall have the meaning as defined in Section 2.4(b) of this
Agreement.
"TAX RETURN" shall have the meaning as defined in Section 1.7(c) of this
Agreement.
"TAX RETURNS" shall have the meaning as defined in Section 2.9(a)(y) of this
Agreement.
"TAXES" shall have the meaning as defined in Section 1.7(b) of this Agreement.
"TAXES" shall have the meaning as defined in Section 2.9(a)(x) of this
Agreement.
"THIRD PARTY CLAIMS" shall have the meaning as defined in Section 7.4(c) of this
Agreement.
"THIRD PARTY INTELLECTUAL PROPERTY RIGHTS" shall have the meaning as defined in
Section 2.12(a)(iii) of this Agreement.
"TOTAL REVENUES" shall have the meaning as defined in Section 1.5(c)(1) of this
Agreement.
"TRADE SECRETS" shall have the meaning as defined in Section 4.8(a) of this
Agreement.
"VOLUNTARY EMPLOYEE'S BENEFICIARY ASSOCIATION" shall have the meaning as defined
in Section 2.19(h) of this Agreement.
<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, except Note 12, as to which the date is
January 31, 1997, in Amendment No. 4 to the Registration Statement (Form S-1 No.
333-14879) and related Prospectus of PGI, Inc., formerly Production Group
International, Inc., for the registration of XXX,XXX shares of its common stock.
/s/ Ernst & Young LLP
Vienna, Virginia
February 13, 1997
- --------------------------------------------------------------------------------
The foregoing consent is in the form that will be signed upon the completion of
the net loss per share calculation once the initial public offering price is
known.
/s/ Ernst & Young LLP
Vienna, Virginia
February 13, 1997
<PAGE>
CONSENT
We consent to the reference to our firm under the caption "Experts" and to the
use of our report of Ray Bloch Productions, Inc. dated October 4, 1996, in
Amendment No. 4 to the Registration Statement (Form S-1 No. 333-14879) and
related Prospectus of PGI, Inc., formerly Production Group International, Inc.,
for the registration of XXX,XXX shares of its common stock.
/s/ Ernst & Young LLP
Vienna, Virginia
February 13, 1997
<PAGE>
CONSENT
We consent to the reference to our firm under the caption "Experts" and to the
use of our report of Epic Enterprises, Inc. dated October 4, 1996, in Amendment
No. 4 to the Registration Statement (Form S-1 No. 333-14879) and related
Prospectus of PGI, Inc., formerly Production Group International, Inc., for the
registration of XXX,XXX shares of its common stock.
/s/ Ernst & Young LLP
Vienna, Virginia
February 13, 1997
<PAGE>
CONSENT
We consent to the reference to our firm under the caption "Experts" and to the
use of our report of Epic Enterprises of Nevada, Inc. dated October 4, 1996, in
Amendment No. 4 to the Registration Statement (Form S-1 No. 333-14879) and
related Prospectus of PGI, Inc., formerly Production Group International, Inc.,
for the registration of XXX,XXX shares of its common stock.
/s/ Ernst & Young LLP
Vienna, Virginia
February 13, 1997
<PAGE>
CONSENT
We consent to the reference to our firm under the caption "Experts" and to the
use of our report of Timberline Productions, Inc. dated October 7, 1996, in
Amendment No. 4 to the Registration Statement (Form S-1 No. 333-14879) and
related Prospectus of PGI, Inc., formerly Production Group International, Inc.,
for the registration of XXX,XXX shares of its common stock.
/s/ Ernst & Young LLP
Vienna, Virginia
February 13, 1997
<PAGE>
CONSENT
We consent to the reference to our firm under the caption "Experts" and to the
use of our report of American Show Management, Inc. dated January 18, 1997,
except Note 9, as to which the date is January 31, 1997, in Amendment No. 4 to
the Registration Statement (Form S-1 No. 333-14879) and related Prospectus of
PGI, Inc., formerly Production Group International, Inc., for the registration
of XXX,XXX shares of its common stock.
/s/ Ernst & Young LLP
Vienna, Virginia
February 13, 1997
<PAGE>
EXHIBIT 23.2
CONSENT
We have been requested by PGI, Inc., formerly 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 Amendment No. 4
to the Registration Statement (Form S-1 No: 333-14879) and related Prospectus of
PGI, Inc., formerly 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 PGI, Inc., formerly 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
Amendment No. 4 to Registraton Statement (Form S-1 No 333-14879) and related
Prospectus of PGI, Inc., formerly 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
February 13, 1997
<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
Amendment No. 4 to the Registration Statement (Form S-1 No. 333-14879) and
related Prospectus of PGI, Inc., formerly Production Group International, Inc.,
for the registration of XXX,XXX shares of its common stock.
/s/ Ernst & Young
Chartered Accountants
London, England
13 February 1997
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1
<S> <C> <C>
<PERIOD-TYPE> 12-MOS 3-MOS
<FISCAL-YEAR-END> AUG-31-1996 AUG-31-1996
<PERIOD-END> AUG-31-1996 NOV-30-1996
<CASH> 3,599,446 2,000,996
<SECURITIES> 0 0
<RECEIVABLES> 8,836,187 15,709,740
<ALLOWANCES> 825,000 829,210
<INVENTORY> 0 0
<CURRENT-ASSETS> 13,738,833 20,314,198
<PP&E> 4,091,003 4,732,050
<DEPRECIATION> 1,349,289 1,581,415
<TOTAL-ASSETS> 43,722,513 50,593,959
<CURRENT-LIABILITIES> 32,326,842 38,194,306
<BONDS> 0 0
0 0
50,772 52,316
<COMMON> 5,510 5,513
<OTHER-SE> 8,352,157 9,730,858
<TOTAL-LIABILITY-AND-EQUITY> 43,722,513 50,593,959
<SALES> 78,290,083 25,601,278
<TOTAL-REVENUES> 78,290,083 25,601,278
<CGS> 53,152,958 16,719,424
<TOTAL-COSTS> 53,152,958 16,719,424
<OTHER-EXPENSES> 0 0
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 1,116,807 334,606
<INCOME-PRETAX> (11,369,917) 215,609
<INCOME-TAX> (12,085,917) 183,609
<INCOME-CONTINUING> (12,085,917) 183,609
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (12,085,917) 183,609
<EPS-PRIMARY> 0 0
<EPS-DILUTED> 0 0
</TABLE>
