SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
Annual Report Pursuant to Section 13 or 15(d) of
The Securities Exchange Act of 1934
For the fiscal year ended Commission File Number
September 30, 1997 0-3415
STV GROUP, INCORPORATED
(Exact name of registrant as specified in its charter)
Pennsylvania 23-1698231
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
205 West Welsh Drive, Douglassville, Pennsylvania 19518
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (610) 385-8200
Securities registered pursuant to Section 12(b) of the Act: None
Title of each class Name of each exchange on which registered
Common Shares ($1.00 par) NASDAQ
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months, (2) has been subject to such filing requirements for
the past 90 days.
Yes X No
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K (section 229.405 of this chapter) is not contained herein, and
will not be contained, to the best of registrant's knowledge, in definitive
proxy or information statements incorporated by reference in Part III of this
Form 10-K or any amendment to this Form 10-K.[ ].
The aggregate market value of the voting stock held by non-affiliates of the
registrant as of November 18, 1997 is $1,330,626. (1)
The number of shares outstanding of the registrant's classes of common stock as
of November 18, 1997 is as follows:
Common Shares 1,821,246
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DOCUMENTS INCORPORATED BY REFERENCE
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Part I Part II Part III Part IV
(None) Annual Report Proxy Statement 1984, 1987, 1989, 1990
to Shareholders and Annual Re- 1991, 1992, 1993, 1994, 1995, and
for fiscal 1997 port to Share- 1996 Form 10-K; Registration
holders for Statement No. 2-88904
fiscal 1997
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(1) The rules of the Securities and Exchange Commission require that the
aggregate dollar amount of the voting stock set forth above equal the amount of
common shares outstanding, reduced by the amount of common shares held by
executive officers, directors and shareholders owning in excess of 10% of the
Company's common shares, multiplied by the last traded price on November 18,
1997. The information provided shall in no way be construed as an evaluation by
the Company of the market price of such common stock, nor shall it be construed
as an admission that any officer, director or 10% shareholder in the Company may
be deemed an affiliate of the Company and any such inference is hereby
disclaimed. The information provided is included solely for record keeping
purposes of the Securities Exchange Commission.
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PART I
ITEM 1. BUSINESS
STV Group, Inc. provides engineering and architectural consulting and
design services on a variety of projects for the federal government, local,
state and foreign governments and private industry. The Company is also pursuing
and performing selected design/build projects. STV Group, Inc. consists of the
following wholly-owned subsidiaries: STV Incorporated, STV Architects, Inc., STV
Environmental, Inc., STV International, Inc., STV Surveying, Inc. and STV
Construction Services. STV and its subsidiaries are hereinafter collectively
referred to as the "Company".
The Company's projects frequently require the service of a firm with
diverse capabilities. For example, a particular project may require electrical
engineers, civil engineers, draftsmen and other professional personnel. Each of
STV Group, Inc.'s subsidiaries customarily staffs a particular project with
personnel from the respective firm's offices. Where appropriate, however,
multifirm project teams are formed with qualified professionals drawn from the
entire Company. Management believes that close cooperation among the STV Group,
Inc. subsidiaries, under its management, assures proper control and support for
all Company activities. As of September 30, 1997, the Company employed 924
people.
Services
The principal areas in which the Company provides services and the
approximate percentage of the Company's revenue attributable to each service
area are set forth below:*
Year Ended September 30,
1997 1996 1995
Architectural Engineering 24% 25% 27%
Civil, Highway, Bridge, Airport
and Port Engineering 24 33 35
Defense Systems Engineering 4 4 5
Industrial Process Engineering 2 1 2
Transportation Engineering 39 35 29
Other Engineering Services and Design Build 7 2 2
* The Company does not record revenue data according to each service area.
However, to provide an approximation of the revenue attributable to each
service area, the Company has analyzed contract revenue in the fiscal year
according to its principal service area. The aggregate revenue each year of
these contracts is at least 75% of the consolidated revenue for these fiscal
years.
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Architectural Engineering
Architectural engineering generally involves consulting and design
services, as well as construction inspection services, for the construction of
commercial, industrial and governmental buildings, medical and educational
facilities, laboratories, recreational, religious and cultural centers, military
installations, penal institutions, and public utility facilities. As part of its
services, the Company has designed and developed systems for heating,
ventilation, cooling, refrigeration, fire protection, lighting, power generation
and distribution and communications. In addition, the Company has performed
energy conservation audits and has recommended and designed programs, including
computerized control programs for multi-building complexes, for the conservation
of fuel and electrical energy.
Civil, Highway, Bridge, Airport and Port Engineering
This area of engineering generally involves consulting and design
services for the construction of highways (including interchange ramps and
secondary roads), bridges, airports and marine ports. Services performed by the
Company have included site selection and development (including economic
evaluations and feasibility reports), design and development of specifications,
and construction inspection. As part of these services, the Company has designed
lighting, toll and service facilities, drainage and erosion control systems, and
has performed mapping and landscaping, hydraulic and hydrologic studies, soils
engineering, traffic studies and surveys. In addition, the Company has designed
and inspected the construction of airport terminals, runways, aircraft
maintenance hangars, fuel systems, control towers and marine ports.
Defense Systems Engineering
Defense systems engineering involves consulting and design services for
the development of equipment and special hardware for the Department of Defense.
Services performed by the Company have included the design, development and
testing for systems relating to naval aircraft, weapons systems, aircraft
carriers, support ships, land-based operations and support missions. The Company
has prepared analytical support studies for aircraft carriers, support ships,
land-based operations and support missions, analytical support studies for
aircraft catapults and arresting systems, jet blast deflectors, shipboard
weapons, loading and transfer systems, ship-weapon compatibility, mobile weapon
loaders, munition trailers, launch and recovery television systems, lighting and
marking systems, parachutes, life rafts and personnel life-support systems. In
addition, the Company has prepared operation and maintenance manuals, technical
reports, specifications and other documents describing equipment and hardware.
The Company has the capacity to provide all of the services necessary to prepare
these publications, including layout, artwork composition, photography and
reproduction.
Industrial Process Engineering
This area involves consulting and design services for the development
of various manufacturing equipment and process systems. Services performed by
the Company have included technical analyses, feasibility studies, plant layouts
and machinery and construction inspection services. The Company has provided
these services in connection with systems for the manufacture of paper,
plastics, bulk chemicals,
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flooring, steel, rubber, telephone equipment, television sets, ammunition, foods
and automotive production equipment. In addition, the Company has provided
services for various waste-to-energy engineering projects such as municipal and
industrial incinerators designed to convert various forms of waste into
marketable energy and for various environments, sanitary and water pollution
control projects, including water supply systems, storm and sanitary sewage
collection systems.
Transportation Engineering
Transportation engineering involves consulting and design services, as
well as construction supervision services, for various transportation
facilities, including the planning and design of track, terminals, stations,
yards and shops for the railway industry. This area also involves evaluation and
inspection of rolling stock for intercity rail lines, light rail, commuter line
and urban mass transit systems and design and construction inspection of
maintenance and storage facilities.
Design Build
This area involves the joint and simultaneous design and construction
of a project under a single contract with an owner. Projects could be for
complex transportation facilities, building design or rehab, and/or industrial
projects. In order to perform these projects, the Company will join with a
construction firm in order to provide the services to a client. The arrangement
with a contractor could be as a subcontractor, a joint-venture partner, or as
the prime contractor. Depending upon the type of arrangement with the owner and
the contractor, the Company may be responsible for ensuring the actual
construction of a project for a guaranteed price.
In November, 1996 the Company entered into an agreement with Bombardier
Corporation to provide the design and installation of three maintenance
facilities for new trainsets to be purchased by Amtrak for its Northeast
Corridor fleet. The Company has entered into a joint venture with a major
construction company in order to perform the services required by contract. The
Company believes this arrangement greatly mitigates the risk on this contract;
however, these contracts involve a higher degree of risk than other areas.
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Customers
The following table sets forth the percentage of contract revenues derived
from each of the following customers for the periods indicated:
Year Ended September 30,
1997 1996 1995
U.S. Government Contracts.................... 16% 14% 19%
State and Local Government Contracts......... 56 56 50
Foreign Government Contracts................. 1 2 2
Private Contracts............................ 27 28 29
In fiscal year 1997 the Company sold the International Region which
accounted for 1.4% of total revenues in countries other than the United States
and 4% in 1996 and 1995. See legal proceedings.
Contracts
In recent years, many of the Company's contracts have been awarded on a
cost-plus, as opposed to a fixed-price, basis. Under cost-plus contracts, the
Company is reimbursed for its allowable costs (direct labor plus overhead rate)
and is paid a negotiated fixed fee. Under fixed-price contracts, the Company is
paid an agreed-upon price for services rendered. Under fixed-price contacts, the
Company bears any risk of increased or unexpected costs that may reduce its
profit or cause it to sustain a loss. The majority (approximately 75%) of the
Company's contracts are cost-plus contracts.
Government Contracts
Many of the government programs in which the Company participates as a
contractor may extend for several years but may be funded on an annual basis.
The Company's government contracts are subject to termination, reduction or
modification as a result of changes in the government's requirements or
budgetary restrictions. In addition, government contracts are subject to
termination at the convenience of the government. If a contract were to be
terminated for convenience, the Company would be reimbursed for its allowable
costs to the date of termination and would be paid a proportionate amount of the
stipulated profits or fees attributable to the work actually performed. To date,
no government agency has terminated for convenience any significant contracts
with the Company.
Under certain circumstances, the government can suspend or debar
individuals or firms from obtaining future contracts with the government. While
the Company has not experienced such a suspension or debarment and considers the
possibility of any suspension or debarment to be remote, any such suspension or
debarment would have a materially adverse effect upon the Company.
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The books and records of the Company are subject to audits by a number of
federal, state and local government agencies, including the Defense Contract
Audit Agency. Such audits could result in adjustments to contract costs and
fees. To date, no material audit adjustments have been made in the Company's
contracts, although no assurances can be given that future adjustments will not
be required. All contract revenues are recorded in amounts which are expected to
be realized upon final settlement and the Company does not anticipate material
audit adjustments.
Accounts Receivable and Costs and Estimated Profits of Uncompleted Contracts in
Excess of Related Billings
Accounts receivable and costs and estimated profits of uncompleted
contracts in excess of related billings represented 84% and 87% of total assets
as of September 30, 1997 and 1996, respectively. Accounts receivable are
comprised of billed receivables while costs and estimated profits of uncompleted
contracts in excess of related billings are essentially unbilled receivables.
Unbilled receivables represent payment obligations for which invoices have not
or cannot be presented until a later period. The reasons for which invoices are
not presented may include normal invoice preparation lag, lack of billable
documents to be supplied by the client, and excess of actual direct and indirect
costs over amounts currently billable under cost reimbursement contracts to the
extent they are expected to be billed and collected. The financing of
receivables requires bank borrowings and the payment of associated interest
expense. Interest expense is a business expense not permitted as a reimbursable
item of cost under any government contracts.
Backlog
Backlog represents the value of existing contracts less the portion of such
contracts included in revenues on the basis of percentage-of-completion. The
Company's backlog for services as of September 30, 1997 and 1996 was
approximately $110,000,000 and $130,000,000, respectively. The Company's backlog
includes anticipated pass through cost such as reimbursement for travel,
purchase of supplies and sub-contracts. Over the last three years, pass through
costs, as a percent of total revenues, have been 23.1% in 1997, 24.2% in 1996,
and 22.2% in 1995.
A majority of the Company's customer orders or contract awards and
additions to contracts previously awarded are received or occur at random during
the year and may have varying periods of performance. The comparison of backlog
amounts on the same date in successive years is not necessarily indicative of
trends in the Company's business or future revenues.
The major component of the Company's operating costs are payroll and
payroll-related costs. Since the Company's business is dependent upon the
reputation and experience of its personnel and adequate staffing, a reasonable
backlog is important for the scheduling of operations and for the maintenance of
a fully staffed level of operation.
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Competition
The Company has numerous competitors in all areas in which it does
business. Some of its competitors are large, diversified firms having
substantially greater financial resources and larger technical staffs than the
Company. It is not possible to predict the extent of competition which the
Company will encounter in the future because of changing customer requirements
in terms of types of projects and technological developments. It has been the
Company's experience that the principal competitive factors for the type of
service business in which the Company engages are a firm's demonstrated ability
to perform certain types of projects, the client's own previous experience with
the competing firms, a firm's size and financial condition, and the cost of the
particular proposal.
It is Management's belief that the diversified scope of the services
offered by the Company is a positive competitive factor. Among other things, the
wide range of expertise which the Company possesses permits it to remain
competitive in obtaining federal government contracts despite shifts in federal
spending emphasis. Management believes that the national and international scope
of the Company is a positive factor in attracting and retaining clients which
have the need for engineering services in different regions of the country and
the world.
Marketing
Marketing activities are conducted by key operating and executive
personnel, including specifically assigned sales personnel, as well as through
professional personnel who maintain existing and develop new client
relationships. The Company's ability to compete successfully in the industry is
largely dependent on aggressive marketing, the development of information
regarding client requirements, the submission of responsive cost-effective
proposals and the successful completion of contracts. Information concerning
private and governmental requirements is obtained during the course of contract
performance, from formal and informal briefings, from participation in
activities of professional organizations, and from literature published by the
government and other organizations.
Personnel
As of September 30, 1997, the Company had 924 employees, of whom 805
were engaged in engineering and architectural services, 86 were engaged in
administration and 33 in marketing.
Because of the nature of services provided, many employees are
professional or technical personnel having specialized training and skills,
including engineers, architects, analysts, management specialists, technical
writers and skilled technicians. Although many of the Company's personnel are
highly specialized in certain areas the Company is not currently experiencing
any material difficulty in obtaining the personnel it requires to perform under
its contracts. Management believes that the future growth and success of the
Company will depend, in part, upon its continued ability to retain and attract
highly qualified personnel. The Company believes its employee relations to be
good.
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Environmental Compliance
The Company's facilities are subject to federal, state and local
authorities environmental control regulations. The Company believes it is in
compliance with these numerous regulations and that it is not exposed to any
material liability as it relates to contamination of the environment. To date,
compliance with these environmental regulations has not had a material effect on
the Company's earnings nor has it required the Company to expend significant
capital expenditures.
Executive Officers of the Registrant
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Position with STV Group, Inc. Business
Name Age Experience During the Past 5 Years
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Michael Haratunian (1) 64 Chairman of the Board and Chief Executive Officer of
STV Group, Inc.
Dominick M. Servedio (2) 57 Director, President and Chief Operating Officer of STV Group,
Inc. and President and Chief Operating Officer of
STV Incorporated
W. A. Sanders II (3) 50 Senior Vice President of STV Incorporated
Peter W. Knipe (4) 48 Secretary/Treasurer of STV Group, Inc.
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(1) Mr. Haratunian has been associated with the Company continuously since 1972
in various capacities and was appointed President of Seelye, Stevenson,
Value & Knecht, Inc. in 1977 and Director and Executive Vice-President of
Engineering of STV Group, Inc. in 1981 and assumed the Presidency of STV
Group, Inc. in 1988. He was appointed Chief Executive Officer in 1991 and
Chairman of the Board in 1993. Mr. Haratunian is a registered professional
engineer.
(2) Mr. Servedio joined the Company is 1977 as Vice President of Seelye,
Stevenson, Value & Knecht, Inc. and was appointed Executive Vice President
in 1982. He was appointed President of Seelye, Stevenson, Value & Knecht,
Inc. and Executive Vice President of STV Group, Inc. in 1988. Mr. Servedio
was elected President of STV Group, Inc. in 1993. Mr. Servedio is a
registered professional engineer.
(3) Mr. Sanders has been associated with the Company continuously since 1968 in
various capacities and was appointed Executive Vice President of Sanders &
Thomas in 1991. Mr. Sanders is a registered professional engineer.
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(4) Mr. Knipe joined the Company in 1979, was appointed Controller in 1983 and
was elected Treasurer in 1987 and Secretary in 1993. In addition to his
position with the Company, he serves as a director and officer of certain
subsidiaries of the Company.
ITEM 2. PROPERTIES
The Company's executive offices and a principal engineering office are
located in a modern 58,000 square foot building leased by the Company in
Douglassville, Pennsylvania, pursuant to a lease which expires in October 2011.
The Company leases office facilities in a number of other locations
both in the United States and overseas, at which it performs engineering and
architectural consulting and design services, including a facility of
approximately 55,000 square feet in New York, New York, pursuant to a 15 year
lease which expires in December, 2006.
The Company believes that its facilities are adequate to meet the
current and foreseeable needs of the Company. The Company does not expect to
experience any difficulty in securing additional space should that become
necessary.
ITEM 3. LEGAL PROCEEDINGS
The Company is the subject of various claims, legal actions and
complaints arising in the ordinary course of business. In most cases, the
Company is one of several named defendants or third-party defendants. In the
opinion of management, most of these matters are without merit or are of such a
nature or involve such amounts that an unfavorable disposition would not have a
material adverse effect on the financial condition of the Company.
For the policy year beginning March 4, 1997, the Company's professional
liability arrangement provides for an annual aggregate $5,000,000 of coverage
with a $350,000 deductible per occurrence on a claims-made basis. For policy
years beginning March 4, 1993 and ending on March 3, 1997, the Company's
professional liability insurance arrangement provided for an annual aggregate
$5,000,000 of coverage with a $250,000 deductible per occurrence on a
claims-made basis. For the policy year beginning March 4, 1992, the Company's
professional liability insurance arrangement provided for an aggregate
$5,000,000 of coverage. There was a $500,000 deductible and a requirement to
indemnify the insurer for an additional aggregate $1,000,000. The Company had a
similar arrangement for professional liability coverage for the period October
1, 1986, to March 3, 1992, providing an aggregate $5,000,000 of professional
liability coverage. The Company has recognized the indemnity obligation by
charges of $4,500,000 to operations in prior years and the posting of a
$1,000,000 letter of credit. In addition to the professional liability coverage,
the Company has general liability insurance in excess of $10,000,000 per
occurrence and in the aggregate.
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During 1992, the Company and its insurers settled a personal injury
lawsuit for $5,400,000, of which $2,700,000 was paid by the Company's
professional liability insurer from the funded indemnity and $2,700,000 by the
general liability insurer. There remains a declaratory judgement action pending
as to whether insurance coverage was to be provided under the previous general
liability policy or professional liability policy then in effect. In this
proceeding, the court has required that the limits of the Company's insured
coverage be reserved to pay this claim if the insurer is found liable. The
Company and its professional liability insurer believe that this matter should
be covered under its general liability policy in which case the $2,700,000 would
be repaid to the professional liability insurer to replenish the indemnity.
In addition, in 1992 the Company's former professional liability
insurer was found liable for approximately $4,000,000 due to a previous
arbitration proceeding allegedly relating to an asset acquisition. The judgement
was reversed on appeal in 1994. If the Company's professional liability insurer
is found ultimately liable under both of these actions, the Company may be
required to indemnify the professional liability insurer to the extent of the
policy limit of $5,000,000 as described above. Such payments would constitute a
charge to operations in the year the determination is made. The Company and the
Company's professional liability insurer continue to deny liability and intend
to vigorously pursue defenses available to them.
The Company is also involved in various other litigation arising out of
the ordinary course of business, which may require the payment of additional
amounts. The Company's management believes that the final resolution of the
above legal matters will not have a material adverse effect on the Company's
financial statements.
The Company sold its International Region as of March 13, 1997. No
material gain or loss is anticipated as a result of the sale, pending final
settlement. However, the Company does have contingent contractual liability to
complete those projects assigned to the purchaser, should the purchaser be
unable to complete them.
If the outcome of all of the aforementioned litigation is adverse to
the Company and the Company is required to pay additional amounts, it could have
a material adverse effect on the earnings and financial condition of the Company
in the year such determination is made; however, management believes that the
final resolution of these legal matters will not have a material adverse effect
on the Company's financial condition.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
Not applicable.
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PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS.
The information contained under the caption "Common Stock Market
Prices" from the Company's Annual Report to Shareholders for the fiscal year
ended September 30, 1997, is incorporated herein by reference.
ITEM 6. SELECTED FINANCIAL DATA
The information contained under the caption "Financial Highlights for
Fiscal Years Ended September 30," 1993 through 1997 in the Company's Annual
Report to Shareholders for the fiscal year ended September 30, 1997 is
incorporated herein by reference.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATION.
Results of Operation
The Company's contracts have been awarded on a cost-plus or fixed-price
basis. See Part I, Item 1, "BUSINESS - Contracts". As a service business, the
Company's profitability is directly affected by the degree to which its
professional staff is fully utilized on existing contracts.
Fiscal Year 1997 Compared to Fiscal Year 1996
Total revenues for the fiscal year ended September 30, 1997, increased
.7 percent to $94,712,000. This is down from a 5.4 percent increase in fiscal
1996 and up from a .3 percent decrease in fiscal 1995. The increase in total
revenues in fiscal 1997 was mostly due to a 2.2 percent increase in operating
revenues mainly in the transportation area. Revenues from U.S. government
contracts increased 15.1 percent in fiscal 1997 as compared to fiscal 1996 and
decreased 21.5 percent as compared to fiscal 1995. This increase is attributable
to the government's spending increases, particularly in transportation projects.
Operating revenues (total revenues excluding pass-through costs) increased 2.2
percent to $72,832,000 compared to a 2.7 percent increase to $71,271,000 in
fiscal 1996 and a 5.6 percent increase in fiscal 1995. We continue to see an
increased demand for facilities and transportation engineering. United States
defense work has decreased slightly, but there is continued demand for services
in other areas of the U.S. government.
Pass-through costs, expressed as a percentage of total revenue,
decreased to 23.1 percent in fiscal 1997 compared to 24.2 percent in fiscal 1996
and increased from 22.2 percent in fiscal 1995. Costs will vary from year to
year depending on the need for specialty subconsultants and governmental
subcontract requirements.
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Cost of services, expressed as a percentage of operating revenues, was
88.4 percent in fiscal 1997, which is a decrease from the 89.2 percent in fiscal
1996, and 89.3 percent in fiscal 1995. This percentage decrease is due to
operating revenues increasing at a higher rate than did cost of services as
labor utilization increased. Costs increased from $63,557,000 in fiscal 1996 to
$64,362,000 in fiscal 1997. This increase is due primarily to increases in
office-related expenses for new and upgraded facilities.
General and administrative expense, expressed as a percentage of
operating revenues, increased to 7.3 percent in fiscal 1997 from 6.9 percent in
1996 and 7.1 percent in 1995. Total general and administrative costs increased
8.3 percent in fiscal 1997 from $4,912,000 in fiscal 1996 to $5,322,000. This
increase is due to higher facility costs and labor related expenses.
Interest expense, expressed as a percentage of operating revenues, was
1.9 percent in fiscal 1997 and 2.1 percent in fiscal 1996, and 2.2 percent in
fiscal 1995. This decrease is due to a lower average loan balance during the
year and higher operating revenue.
The Company had a pre-tax profit of $1,768,000. Income tax expense was
51 percent of pre-tax income compared to 54 percent in fiscal 1996 and 58
percent in fiscal 1995. The variance in the rate is due to reduction in
non-deductible expenses as a percent of pre-tax income.
In the fourth quarter, the Company had a pre-tax profit of $578,000 as
compared to $483,000 in fiscal 1996 and $286,000 in fiscal 1995. The increase in
pre-tax profit from fiscal 1996 is due primarily to a more efficient use of
labor which resulted in higher operating revenue.
Fiscal Year 1996 Compared to Fiscal Year 1995
Total revenues for the fiscal year ended September 30, 1996, increased
5.4 percent to $94,073,000. This is up from a .3 percent decrease in fiscal 1995
and up from a 2.4 percent increase in fiscal 1994. The increase in total
revenues in fiscal 1996 was mostly due to a 15.0 percent increase in subcontract
and procurement mainly in the transportation area. Revenues from U.S. government
contracts decreased 21.5 percent in fiscal 1996 as compared to fiscal 1995 and
13 percent as compared to fiscal 1994. This decrease is attributable to the
government's spending reduction, particularly in overseas infrastructure
projects. Operating revenues (total revenues excluding pass-through costs)
increased 2.7 percent to $71,271,000 compared to a 5.6 percent increase to
$69,397,000 in fiscal 1995 and a 4.9 percent increase in fiscal 1994. We
continue to see an increased demand for facilities and transportation
engineering. United States defense work has decreased slightly, but there is
continued demand for services in other areas of the U.S. government.
Pass-through costs, expressed as a percentage of total revenue,
increased to 24.2 percent in fiscal 1996 compared to 22.2 percent in fiscal 1995
compared to 26.5 percent in fiscal 1994. Costs will vary from year to year
depending on the need for specialty subconsultants and governmental subcontract
requirements.
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Cost of services, expressed as a percentage of operating revenues, was
89.2 percent in fiscal 1996, which is a decrease from the 89.3 percent in fiscal
1995, but is comparable to 89.2 percent in fiscal 1994. In fiscal 1996, costs
increased from $61,942,000 in fiscal 1995 to $63,557,000. This increase is due
primarily to increased labor expenses as a result of increased workload
commensurate with operating revenue increase.
General and administrative expense, expressed as a percentage of
operating revenues, decreased to 6.9 percent in fiscal 1996 from 7.1 in 1995 and
1994. Total general and administrative costs also decreased .8 percent in fiscal
1996 from $4,952,000 to $4,912,000.
Interest, expressed as a percentage of operating revenues, was 2.1
percent in fiscal 1996 and 2.2 percent in fiscal 1995 and 1994. Interest rates
decreased in fiscal 1996, and bank loans were lower due to a more efficient use
of cash.
The Company had a pre-tax profit of $1,301,000. Income tax expense was
54 percent of pre-tax income compared to 58 percent in fiscal 1995 and 45
percent in fiscal 1994. The variance in the rate is due to reduction in
non-deductible expenses as a percent of pre-tax income.
In the fourth quarter, the Company had a pre-tax profit of $483,000 as
compared to $286,000 in fiscal 1995 and $144,000 in fiscal 1994. The increase in
pre-tax profit from fiscal 1995 is due to a decrease in employee-related costs
and interest expense.
Fiscal Year 1995 Compared to Fiscal Year 1994
Total revenues for the fiscal year ended September 30, 1995 decreased
0.3% to $89,232,000. This is down from a 2.4% increase in fiscal 1994 and a
15.3% increase in fiscal 1993. The reduction in total revenues in fiscal 1995
was the result of a 16.4% reduction in subcontract and procurement mainly in the
transportation area. Revenues from U. S. Government contracts decreased 13% in
fiscal 1995 as compared to fiscal 1994 and 15.8% as compared to fiscal 1993.
This decrease is attributable to the Government's spending reduction,
particularly in overseas infrastructure projects. Operating revenues (total
revenues excluding pass-through costs) increased 5.6% to $69,397,000 compared to
a 4.9% increase in fiscal 1994 and a 13.5% increase in fiscal 1993. While there
was a reduction in the international region, we continue to see an increased
demand for facilities and transportation engineering. United States defense work
has decreased slightly but there is continued demand for services in other areas
of the U. S. Government.
Pass-through costs, expressed as a percentage of total revenue,
decreased to 22.2% in fiscal 1995 compared to 26.5% in fiscal 1994 and 28.2% in
fiscal 1993. Costs will vary from year to year depending on the need for
specialty subconsultants and governmental subcontract requirements.
Cost of services, expressed as a percentage of operating revenues, was
89.3% in fiscal 1995, which is comparable to the 89.2% in fiscal 1994, but is an
increase from the 88.0% in fiscal 1993. In fiscal 1995, costs increased from
$58,614,000 in fiscal 1994 to $61,942,000. This increase is due to increased
-12-
<PAGE>
international marketing efforts and increased labor and labor-related expenses
due to increased workload. The increase in fiscal 1994 was due in part to a
transfer of certain costs from general and administrative expense to cost of
services. Without this transfer, cost of services expressed as a percentage of
revenue was comparable to fiscal 1993 at 87.7%. Total costs in fiscal 1994
(excluding the transfer of $1.0 million) increased to $57,614,000 from
$55,173,000. This increase was due to increased post retirement benefit costs,
increased international marketing efforts and increased labor and labor-related
expenses due to an increased workload.
General and administrative expense, expressed as a percentage of
operating revenues, was 7.1% in fiscal 1995 and 1994 and decreased from 8.3% in
fiscal 1993. Total general and administrative costs increased 6.3% in fiscal
1995 from $4,657,000 to $4,952,000. This increase is due mainly to an increase
in legal fees. The decrease in fiscal 1994 was due to the above mentioned
reclassification of costs from general and administrative expense to cost of
services.
Interest, expressed as a percentage of operating revenues, was 2.2% in
fiscal 1995 and 1994 and decreased from 2.3% in fiscal 1993. While interest
rates increased in fiscal 1995, the average amount of the bank loan outstanding
decreased by 7% as compared to fiscal 1994.
The company had a pre-tax profit of $949,000. Income tax expense was
58% of pre-tax income compared to 45% in fiscal 1994 and 46% in fiscal 1993. The
variance in the rate is due to an increase in non-deductible expenses and the
recognition of income in the various states in which we do business and their
tax rates.
In the fourth quarter the Company had a pre-tax profit of $286,000 as
compared to $144,000 in fiscal 1994 and $152,000 in fiscal 1993.
Liquidity, Capital Resources and Financing Agreements.
Cash provided in operating activities was $1,734,000 in fiscal 1997
compared to cash provided in operating activities of $4,268,000 in fiscal 1996.
This decrease was due mainly to decreases in accounts payable and other current
liabilities, reduction in billings in excess of related costs, and an increase
in prepaid income taxes. Working capital increased $585,000 to $9,306,000 in
fiscal 1997 compared to a $501,000 increase in 1996 and a $1,036,000 increase in
1995. Investing activities increased to $831,000 for the continued purchase of
computer hardware and software compared to $357,000 in 1996. Financing
activities included a $780,000 net increase in short-term borrowing due to the
previously mentioned decrease in billings in excess, accounts payable and
increase in prepaid taxes.
Capital resources available to the Company include an existing line of
credit for working capital. The current line is a maximum of $16.5 million based
on accounts receivable and work-in-progress, of which approximately $5,039,000
is currently available. An agreement is being negotiated whereby the line of
credit may be reduced. The line of credit is also a demand note and requires the
Company to maintain certain financial covenants. To date, the Company has
maintained these covenants and believes that its working capital and existing or
reduced line of credit are adequate to meet current fiscal year
-13-
<PAGE>
requirements. If the Company should fail to meet these covenants or should the
bank demand payment on the note, there would be a material adverse financial
impact. The Company is not aware of any reason for the bank to demand payment
and does not expect that it would do so in the future although the bank has
recently announced that they are being acquired. The Company is planning to
continue its program of purchasing computer-assisted design and drafting
equipment.
In the long term the Company relies on the ability to generate
sufficient cash flows from operating activities to fund investing and financing
requirements. If demand for services should increase sharply, additional sources
of financing may be required.
The Company is currently involved in two lawsuits, Skinner and American
Continental Properties. If the outcome of these lawsuits is adverse, the Company
may be required to pay substantial deductibles or indemnification. The Company
believes that it will be able to finance any adverse finding through the use of
an income tax carryback of the resulting loss in combination with the line of
credit and existing resources. The Company is vigorously pursuing its defenses,
and management believes the final resolution of these legal matters will not
have a material adverse effect on the Company's financial statements.
Impact of Inflation
Because the Company's business is essentially the supplying to
customers of the expertise of its employees, there are certain factors which
significantly reduce the impact of inflation. One such factor is that the
Company has a comparatively small investment in property and equipment as a
percentage of total assets. In addition, a substantial percentage of the
Company's contracts are under cost reimbursement contract provisions or
fixed-price contracts which include inflation assumptions when bid upon.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The report of the independent auditors and consolidated financial
statements included in the Company's Annual Report to Shareholders for the year
ended September 30, 1997, are included in Part IV, Item 14 of this Report.
ITEM 9. CHANGE IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE.
None.
-14-
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information contained under the caption "Election of Directors" in
the company's 1997 Proxy Statement is incorporated herein by reference.
ITEM 11. EXECUTIVE COMPENSATION.
The information contained under the caption "Executive Compensation" in
the Company's 1997 Proxy Statement is incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT.
The information contained under the caption "Security Ownership" in the
Company's 1997 Proxy Statement is incorporated herein by reference.
ITEM 13. CERTAIN TRANSACTIONS AND RELATED TRANSACTIONS.
The information contained under the caption "Certain Transactions" in
the Company's 1997 Proxy Statement is incorporated herein by reference.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENTS, AND REPORTS ON FORM 8-K.
(A) The following documents are filed as part of this report;
(1) Financial Statements:
Report of Independent Auditors
Consolidated Balance Sheets - September 30, 1997 and 1996
Consolidated Statements of Income - Years ended September 30,
1997, 1996 and 1995
Consolidated Statements of Stockholders' Equity - Years ended
September 30, 1997, 1996 and 1995
Consolidated Statements of Cash Flows - Years ended September 30,
1997, 1996 and 1995
-15-
<PAGE>
Notes to Consolidated Financial Statements - September 30, 1997
(2) Financial Statements schedules required by Item 8.
All schedules for which provision is made in the applicable
accounting regulations of the Securities and Exchange Commission
are not required under the related instructions or are
inapplicable, and therefore have been omitted.
(B) Reports on Form 8-K.
There were no reports on Form 8-K for the fiscal year ended September
30, 1997.
(C) Exhibits filed pursuant to Item 601 of Regulation S-K:
****** 3.1 Amended and restated Articles of Incorporation of the
Company.
****** 3.2 By-Laws of the Company, as amended.
*** 3.3 Amendment to Section 1.04 of the By-Laws of the Company.
* 4.0 Specimen Common Stock Certificate of the Company.
* 10.2 Loan Agreement, undated, between the Company and Richard
L. Holland, relating to the purchase of 48,779 shares of
Common Stock.
*** 10.3 Asset Acquisition Agreement, dated September 22, 1987,
between STV/WAI, Inc. and Michael Lynn Assoc., P.C.
relating to the acquisition by STV/Michael Lynn
Associates, Inc. of certain assets of Michael Lynn
Assoc., P.C.
* 10.4 Lease, dated October 3, 1980, between the Company and
Montco Investors Realty Company, relating to the
Company's executive and engineering offices in
Pottstown, Pennsylvania
* 10.5 Lease, dated August 30, 1983, between the Company and
Montco Investors Realty Company, relating to the
addition to the Company's offices in Pottstown,
Pennsylvania and granting the Company an option to
extend its lease for such facility for two additional
five-year periods.
-16-
<PAGE>
* 10.6 Lease, dated November 22, 1983, accompanying Workletter,
dated October 12, 1983, and letters (2) dated November
22, 1983 between the Company and 225 Fourth Company,
providing for the renovation and use of office space at
225 Park Avenue South, New York, New York.
* 10.7 STV Engineers, Inc. Employee Stock Ownership Plan, dated
January 7, 1982, and STV Engineers Employee Stock
Ownership Plant Trust Agreement, dated January 7, 1982,
and Amendment No. 1 thereto, dated May 14, 1982.
* 10.8 STV Revised Pension Plan.
* 10.9 STV, Inc. Money Purchase Pension Plan.
10.10 Officers' and Directors' Liability Policy.
*** 10.11 Employment Agreement of Richard L. Holland
**** 10.12 Stipulation of Amendment to Employee Stock Ownership
Plan effective October 1, 1984.
*** 10.13 Loan Agreement, dated February 28, 1986, between the
Company and First Pennsylvania Bank, N.A., relating to
the Company's $13,000,000 line of credit.
*** 10.14 Amendment, dated November 26, 1986, to the Loan
Agreement between the company and First Pennsylvania
Bank, N.A., increasing the limit of standby letters of
credit in the Agreement to $3,500,000.
*** 10.15 STV Engineers, Inc. 1985 Stock Option Plan.
*** 10.16 Lease, dated January 27, 1986, and Amendments thereto,
between Company and 225 Fourth Company providing for the
use of office space at 233 Park Avenue, New York, New
York.
*** 10.17 Amendment, dated May 28, 1987, between the Company and
First Pennsylvania Bank, N.A., decreasing the interest
rate for short term borrowings and the creation of a
$1,500,000 term loan.
*** 10.18 Amendment, dated November 12, 1987, increasing the line
of credit to $17,000,000.
***** 10.22 Amendment, dated June 1, 1990 between the Company and
First Pennsylvania Bank, NA increasing the interest rate
for short term borrowings.
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<PAGE>
****** 10.26 Amendment dated September 30, 1991, between the company
and CoreStates Bank, N.A., decreasing the maximum amount
of the line of credit and increasing the charge for
issuing letters of credit.
******* 10.27 Lease extension dated March 13, 1992 between the Company
and 225 Fourth Company relating to an extension of seven
years, four months for use of office space at 225 Park
Avenue South, New York, New York.
******* 10.28 Agreement effective January 1, 1992 relating to ACEC
medical and life insurance.
******* 10.29 Agreement dated August 29, 1991 relating to U. S.
Healthcare medical insurance.
********* 10.31 Employment Agreement of Dominick M. Servedio.
********* 10.32 Employment Agreement of Michael Haratunian.
********** 10.33 Amendment to the STV Group Incorporated Employee Stock
Ownership Plan
*********** 10.34 Lease, dated August 21, 1995, and Addendums thereto,
between the Company and Dame Enterprises, relating to
the Company's executive and engineering offices in
Douglassville, Pennsylvania.
*********** 10.35 Agreement effective July 1, 1996 with Corporate Health
Insurance Company providing Group Health Insurance -
Custom Plan.
*********** 10.36 Agreement effective December 1, 1996 with U. S.
Healthcare providing medical insurance.
11 Statement Re: Computation of Per Share Earnings.
13.1 "Common Stock Market Prices" from Company's Annual
Report to Shareholders.
13.2 "Financial Highlights for Fiscal Years Ended September
30," 1993 through 1997 from Company's Annual Report to
Shareholders.
21.1 Subsidiaries of the Company from Company's Annual Report
to Shareholders.
-18-
<PAGE>
* Incorporated by reference from the Annual Report and Form 10-K
for the year ended September 30, 1984.
** Incorporated by reference from Registration Statement No.
2-88904.
*** Incorporated by reference from Form 10-K and the Annual Report
for the year ended September 30, 1987.
**** Incorporated by reference from Form 10-K and the Annual Report
for the year ended September 30, 1989.
***** Incorporated by reference from Form 10-K and the Annual Report
for the year ended September 30, 1990.
****** Incorporated by reference from Form 10-K and the Annual Report
for the year ended September 30, 1991.
******* Incorporated by reference from Form 10-K and the Annual Report
for the year ended September 30, 1992.
******** Incorporated by reference from Form 10-K and the Annual Report
for the year ended September 30, 1993.
********* Incorporated by reference from Form 10-K and the Annual Report
for the year ended September 30, 1994.
********** Incorporated by reference from Form 10-K and the Annual Report
for the year ended September 30, 1995.
*********** Incorporated by reference from Form 10-K and the Annual Report
for the year ended September 30, 1996.
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<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 of 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
Date: December 29, 1997 STV GROUP, INCORPORATED
(Registrant)
By: /s/ Michael Haratunian
MICHAEL HARATUNIAN,
Chairman of the Board, Chief
Executive Officer and Director
(Principal Executive Officer)
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE CAPACITY DATE
<S> <C> <C>
/s/ Michael Haratunian Chairman of the Board, December 29, 1997
MICHAEL HARATUNIAN Chief Executive Officer
and Director (Principal
Executive Officer)
/s/ Dominick M. Servedio President, Chief December 29, 1997
DOMINICK M. SERVEDIO Operating Officer and
Director
/s/ Peter W. Knipe Secretary/Treasurer December 29, 1997
PETER W. KNIPE (Principal Accounting
and Financial Officer)
/s/ Richard L. Holland Director December 29, 1997
RICHARD L. HOLLAND
/s/ Harry Prystowsky Director December 29, 1997
HARRY PRYSTOWSKY
/s/ Ray M. Monti Director December 29, 1997
RAY M. MONTI
/s/ Maurice L. Meier Director December 29, 1997
MAURICE L. MEIER
/s/ William J. Doyle Director December 29, 1997
WILLIAM J. DOYLE
</TABLE>
<PAGE>
FINANCIAL STATEMENTS
Index
Report of Independent Auditors 22
Consolidated Balance Sheets 23
Consolidated Statements of Stockholders' Equity 24
Consolidated Statements of Cash Flows 25
Notes to Consolidated Financial Statements 26
-21-
<PAGE>
Report of Independent Auditors
Stockholders and Board of Directors
STV Group, Incorporated
We have audited the accompanying consolidated balance sheets of STV Group,
Incorporated and Subsidiaries as of September 30, 1997 and 1996, and the related
consolidated statements of income, stockholders' equity, and cash flows for each
of the three years in the period ended September 30, 1997. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of STV Group,
Incorporated and Subsidiaries as of September 30, 1997 and 1996, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended September 30, 1997, in conformity with generally
accepted accounting principles.
/s/ ERNST & YOUNG LLP
Harrisburg, Pennsylvania
November 13, 1997
-22-
<PAGE>
Consolidated Balance Sheets
STV Group and Subsidiaries.
<TABLE>
<CAPTION>
September 30
1997 1996
<S> <C> <C>
Assets
Current Assets:
Cash $1,153,000 $28,000
Accounts receivable 20,154,000 20,504,000
Costs and estimated profits of uncompleted
contracts in excess of related billings 15,077,000 14,290,000
Deferred income taxes 0 180,000
Prepaid income taxes 503,000 0
Prepaid expenses and other current assets 1,223,000 1,577,000
----------- -----------
Total Current Assets 38,110,000 36,579,000
Property and equipment, net 1,339,000 1,314,000
Deferred income taxes 1,660,000 1,369,000
Other assets 716,000 733,000
----------- -----------
Total Assets $41,825,000 $39,995,000
Liabilities and Stockholders' Equity
Current Liabilities:
Note payable $10,228,000 $9,448,000
Current maturity of long-term debt 632,000 1,000,000
Accounts payable 5,707,000 5,603,000
Billings on uncompleted contracts in
excess of related costs and estimated profits 4,386,000 4,318,000
Accrued payroll and related expenses 5,547,000 5,775,000
Accrued expenses 1,608,000 1,522,000
Deferred income taxes 696,000 0
Income tax payable 0 192,000
----------- -----------
Total Current Liabilities 28,804,000 27,858,000
Long-Term Debt 1,819,000 1,795,000
----------- -----------
Total Liabilities 30,623,000 29,653,000
Commitments and contingencies
Stockholders' Equity:
Preferred stock, authorized 2,000,000 shares,
no par, no shares issued or outstanding 0 0
Convertible preferred stock, cumulative,
par $1, authorized 2,000,000 shares,
issuable in series, $1.50 series,
no shares issued or outstanding 0 0
Common stock, par $1, authorized 6,000,000 shares 1,921,000 1,921,000
Capital in excess of par 3,003,000 3,003,000
Retained earnings 6,674,000 5,814,000
----------- -----------
11,598,000 10,738,000
Less: Treasury stock 271,000 271,000
Loans receivable from officers 125,000 125,000
----------- -----------
Total Stockholders' Equity 11,202,000 10,342,000
Total Liabilities and Stockholders' Equity $41,825,000 $39,995,000
</TABLE>
See notes to consolidated financial statements.
-23-
<PAGE>
Consolidated Statements of Income
STV Group and Subsidiaries.
<TABLE>
<CAPTION>
For the Fiscal Year Ended September 30
1997 1996 1995
<S> <C> <C> <C>
Total revenues $94,712,000 $94,073,000 $89,232,000
Subcontract and procurement costs 21,880,000 22,802,000 19,835,000
----------- ----------- -----------
Operating revenue $72,832,000 $71,271,000 $69,397,000
Costs and expenses:
Costs of services $64,362,000 $63,557,000 $61,942,000
General and administrative 5,322,000 4,912,000 4,952,000
Interest 1,380,000 1,501,000 1,554,000
----------- ----------- -----------
$71,064,000 $69,970,000 $68,448,000
Income before income taxes $1,768,000 $1,301,000 $949,000
Income tax expense 908,000 706,000 555,000
----------- ----------- -----------
Net income $860,000 $595,000 $394,000
Earnings per common share $.45 $.32 $.22
</TABLE>
See notes to consolidated financial statements.
Consolidated Statements of Stockholders' Equity
STV Group and Subsidiaries.
<TABLE>
<CAPTION>
Common Stock Treasury Stock
Capital in
Number excess of Retained Number
of shares Amount par earnings of shares Amount
<S> <C> <C> <C> <C> <C> <C>
Balance
September 30, 1994 1,842,972 $1,843,000 $2,681,000 $4,825,000 99,726 $271,000
Net income for the year 394,000
Issuance of stock 78,000 78,000 322,000
Balance
September 30, 1995 1,920,972 $1,921,000 $3,003,000 $5,219,000 99,726 $271,000
Net income for the year 595,000
Balance
September 30, 1996 1,920,972 $1,921,000 $3,003,000 $5,814,000 99,726 $271,000
Net income for the year 860,000
Balance
September 30, 1997 1,920,972 $1,921,000 $3,003,000 $6,674,000 99,726 $271,000
</TABLE>
See notes to consolidated financial statements.
-24-
<PAGE>
Consolidated Statements of Cash Flows
STV Group and Subsidiaries.
<TABLE>
<CAPTION>
For the Fiscal Year Ended September 30
1997 1996 1995
Operating Activities
<S> <C> <C> <C>
Net income $860,000 $595,000 $394,000
Adjustments to reconcile net income to
net cash provided by (used in) operating activities
Depreciation 795,000 997,000 1,015,000
Deferred income taxes 585,000 (358,000) (165,000)
Stock contribution to Employee
Stock Ownership Program (ESOP) -- -- 400,000
Changes in operating assets and
liabilities
Accounts receivable 350,000 1,254,000 2,655,000
Costs and estimated profits of
uncompleted contracts in excess
of related billings and other current assets (487,000) (1,003,000) (1,000)
Accounts payable and other current liabilities 204,000 1,131,000 (2,533,000)
Billings on uncompleted contracts in excess
of related costs and estimated profits 68,000 974,000 (456,000
Current income taxes (641,000) 678,000 (200,000)
------------ ------------ ------------
Net cash provided by
operating activities $1,734,000 $4,268,000 $1,109,000
Investing Activities
Purchase of property and equipment $(724,000) $(338,000) $(727,000)
Purchase of software (107,000) (19,000) (224,000)
(Increase) decrease in other assets 28,000 (40,000) 9,000
Loans receivable from officers -- (125,000) --
------------ ------------ ------------
Net cash used in investing
activities $(803,000) $(522,000) $(942,000)
Financing Activities
Proceeds from line of credit and
long term borrowings $92,435,000 $85,797,000 $84,412,000
Principal payments on line of credit and
long term borrowings (92,241,000) (90,183,000) (84,551,000)
------------ ------------ ------------
Net cash provided by (used in)
financing activities $194,000 $(4,386,000) $(139,000)
Increase (decrease) in cash 1,125,000 (640,000) 28,000
Cash at beginning of year 28,000 668,000 640,000
Cash at end of year $1,153,000 $28,000 $668,000
</TABLE>
See notes to consolidated financial statements.
-25-
<PAGE>
Notes to Consolidated Financial Statements
STV Group and Subsidiaries.
1. Significant Accounting Policies
Basis of Presentation
The Company and its subsidiaries consider themselves in a single line of
business: consulting engineering, architectural, surveying and related services.
The Company's clients consist primarily of various governmental agencies, with
an increasing presence in the private sector in geographic regions throughout
the United States.
Principles of Consolidation
The consolidated financial statements include the accounts of the Company and
its subsidiaries. All significant intercompany transactions and balances have
been eliminated.
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 amounts reported in the financial statements and accompanying notes.
Actual results could differ from those estimates.
Revenue Recognition
The Company uses the percentage-of-completion method of accounting for contract
revenues. Progress toward completion is measured on a contract-by-contract basis
using direct labor costs incurred to date as compared with estimated total labor
costs at completion. The asset, "Cost and estimated profits of uncompleted
contracts in excess of related billings," represents revenues recognized in
excess of amounts billed. The liability, "Billings on uncompleted contracts in
excess of related costs and estimated profits," represents billings in excess of
revenues recognized. Significant changes in contract terms affecting the results
of operations are recorded and recognized in the period in which the revisions
are determined.
Fair Value of Financial Instruments
The Company's financial instruments consist primarily of cash and cash
equivalents, trade receivables, investments in U.S. treasury bills, trade
payables, and debt instruments. The book value of cash and cash equivalents,
trade receivables, U.S. treasury bills, and trade payables are considered to be
representative of their respective fair values. The carrying value of the
Company's long-term debt approximates fair value. The fair value of the deferred
compensation plan liability is estimated to be $928,000.
Depreciation
Depreciation is primarily on the straight-line method over the estimated useful
lives of the assets. Depreciation of assets recorded under capital leases is
included in depreciation expense. For income tax purposes, accelerated
depreciation methods are used by certain subsidiaries and deferred income taxes
are provided, when applicable.
New Accounting Standards
In March 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards (SFAS) No. 121, "Accounting for
-26-
<PAGE>
the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed
of," which requires impairment losses to be recorded on long-lived assets used
in operations when indicators of impairment are present and the undiscounted
cash flows estimated to be generated by those assets are less than the assets'
carrying amount. The Company adopted SFAS 121 in the first quarter of fiscal
year 1997, and the effect of adoption was immaterial.
SFAS No. 123, "Accounting for Stock-Based Compensation," effective for fiscal
years beginning after December 15, 1995, provides companies with a choice to
follow the provisions of SFAS 123 in determining stock-based compensation
expense or to continue with the provisions of APB 25, "Accounting for Stock
Issued to Employees." The Company continues to follow APB 25 with respect to its
Stock Option Plan, and disclosures as required by SFAS 123 are included in Note
8 to the financial statements.
In February 1997, the Financial Accounting Standards Board issued Statement No.
128, "Earnings Per Share," which is required to be adopted for both interim and
annual periods ending after December 15, 1997. At that time, the Company will be
required to change the method currently used to compute earnings per share.
Under the new standard, the dilutive effect of stock options will be excluded
from basic earnings per share. If earnings per share had been calculated under
the new requirement, the effect would not have been material to the periods
presented.
2. Costs and Estimated Profits of Uncompleted
Contracts in Excess of Related Billings
Costs and estimated profits of uncompleted contracts at September 30, 1997, and
1996, respectively, are as follows:
1997 1996
Costs and estimated earnings
on uncompleted contracts $320,461,000 $328,090,000
Less billings to date 309,770,000 318,118,000
------------ ------------
$10,691,000 $9,972,000
Costs and estimated profits of uncompleted contracts are included in the
accompanying balance sheet under the following captions:
1997 1996
Costs and estimated profits of
uncompleted contracts
in excess of related billings $15,077,000 $14,290,000
Billings on uncompleted
contracts in excess of related
costs and estimated profits 4,386,000 4,318,000
----------- -----------
$10,691,000 $9,972,000
Included in accounts receivable are retainages related to uncompleted contracts
in the amount of $5,087,000 in 1997 and $3,161,000 in 1996. The collection of
retainages generally coincides with final project acceptance.
-27-
<PAGE>
3. Property and Equipment
Property and equipment, at cost, are as follows:
1997 1996
Land $54,000 $54,000
Equipment 3,408,000 5,895,000
Leased equipment 804,000 930,000
Furniture and
fixtures 1,236,000 2,673,000
Leased furniture
and fixtures 220,000 233,000
Leasehold
improvements 1,744,000 2,516,000
----------- -----------
$7,466,000 $12,301,000
Less: Accumulated
depreciation and
amortization 6,127,000 10,987,000
----------- -----------
$1,339,000 $1,314,000
4. Note Payable
The note payable on demand with the Company's bank is with interest at 1-1/2
percent above the prime rate (10 percent at September 30, 1997) and is secured
by substantially all assets. The weighted average interest rate was 9.9 percent
in both fiscal 1997 and 1996. The bank also provides letters of credit which
incur a charge of 2-1/2 percent of the face value. Currently, $1,232,000 letters
of credit are outstanding. The face value of the letters of credit and note
payable cannot exceed a maximum of $16,500,000 based on accounts receivable and
contracts in progress balances.
An agreement with this bank contains restrictive covenants regarding additional
debt and stockholders' equity. The restrictions include maintaining a minimum
tangible net worth, a maximum total debt to tangible net worth ratio, and a
minimum working capital amount.
5. Income Taxes
The Company uses the liability method of accounting for income taxes required by
Statement of Financial Accounting Standards (SFAS) No. 109, "Accounting for
Income Taxes."
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amount of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. Significant components of
the Company's deferred tax assets and liabilities as of September 30, 1997 and
1996, are as follows:
1997 1996
Deferred tax assets:
Vacation accruals $607,000 $574,000
Depreciation 98,000 88,000
Deferred compensation 789,000 662,000
Litigation 387,000 284,000
International asset sale 107,000 0
Postemployment benefits 12,000 18,000
Postretirement
medical benefits 374,000 314,000
---------- ----------
Total deferred
tax assets $2,374,000 $1,940,000
Deferred tax liabilities:
Retainage 1,410,000 391,000
---------- ----------
Total deferred tax
liabilities $1,410,000 $391,000
Net deferred
tax assets $964,000 $1,549,000
-28-
<PAGE>
Significant components of the provision (benefit) for income taxes are as
follows:
1997 1996 1995
Current:
Federal $208,000 $734,000 $520,000
State 86,000 330,000 200,000
----------- ----------- -----------
Total current $294,000 $1,064,000 $720,000
Deferred:
Federal $427,000 $(239,000) $(100,000)
State 187,000 (119,000) (65,000)
----------- ----------- -----------
Total deferred $614,000 $(358,000) $(165,000)
Income tax
expense $908,000 $706,000 $555,000
A reconciliation of federal income taxes at the statutory rate to the Company's
income tax provision follows:
1997 1996 1995
Federal income
tax rate 34.0% 34.0% 34.0%
Non-deductible
expenses and other 7.0 9.2 14.6
State taxes, net of
federal tax effect 10.0 10.8 9.4
---- ---- ----
51.0% 54.0% 58.0%
The Company made income tax payments of $971,000, $488,000, and $1,014,000 in
1997, 1996, and 1995, respectively. The Company received income tax refunds of
$7,000 in 1997, $51,000 in 1996, and $92,000 in 1995.
6. Earnings per Common Share
Earnings per common share is based on the weighted-average number of shares
outstanding during the periods presented after giving effect to the potential
dilutive effect, if any, of the exercise of stock options. Earnings per common
share are based upon 1,901,000 shares in 1997, 1,873,000 shares in 1996, and
1,832,000 shares in 1995.
7. Commitments and Contingencies
For the policy year beginning March 4, 1997, the Company's professional
liability arrangement provides for an annual aggregate $5,000,000 of coverage
with a $350,000 deductible per occurrence on a claims-made basis. For policy
years beginning March 4, 1993, and ending on March 3, 1997, the Company's
professional liability insurance arrangement provided for an annual aggregate
$5,000,000 of coverage with a $250,000 deductible per occurrence on a
claims-made basis. For the policy year beginning March 4, 1992, the Company's
professional liability insurance arrangement provided for an aggregate
$5,000,000 of coverage. There was a $500,000 deductible and a requirement to
indemnify the insurer for an additional aggregate $1,000,000. The Company had a
similar arrangement for professional liability coverage for the period October
1, 1986, to March 3, 1992, providing an aggregate $5,000,000 of professional
liability coverage. The Company has recognized the indemnity obligation by
charges of $4,500,000 to operations in prior years and the posting of a
$1,000,000 letter of credit. In addition to the professional liability coverage,
the Company has general liability insurance in excess of $10,000,000 per
occurrence and in the aggregate.
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<PAGE>
During 1992, the Company and its insurers settled a personal injury lawsuit for
$5,400,000, of which $2,700,000 was paid by the Company's professional liability
insurer from the funded indemnity and $2,700,000 by the general liability
insurer. There remains a declaratory judgement action pending as to whether
insurance coverage was to be provided under the previous general liability
policy or professional liability policy then in effect. In this proceeding, the
court has required that the limits of the Company's insured coverage be reserved
to pay this claim if the insurer is found liable. The Company and its
professional liability insurer believe that this matter should be covered under
its general liability policy in which case the $2,700,000 would be repaid to the
professional liability insurer to replenish the indemnity.
In addition, in 1992 the Company's former professional liability insurer was
found liable for approximately $4,000,000 due to a previous arbitration
proceeding allegedly relating to an asset acquisition. The judgement was
reversed on appeal in 1994. If the Company's professional liability insurer is
found ultimately liable under both of these actions, the Company may be required
to indemnify the professional liability insurer to the extent of the policy
limit of $5,000,000 as described above. Such payments would constitute a charge
to operations in the year the determination is made. The Company and the
Company's professional liability insurer continue to deny liability and intend
to vigorously pursue defenses available to them.
The Company is also involved in various other litigation arising out of the
ordinary course of business, which may require the payment of additional
amounts. The Company's management believes that the final resolution of the
above legal matters will not have a material adverse effect on the Company's
financial statements.
The Company sold its International Region as of March 13, 1997. No material gain
or loss is anticipated as a result of the sale, pending final settlement.
However, the Company does have contingent contractual liability to complete
those projects assigned to the purchaser, should the purchaser be unable to
complete them.
The Company has noncancellable lease agreements for the use of office space and
equipment. These agreements expire on varying dates and in some instances
contain renewal options. In addition to the base rental costs, occupancy lease
agreements generally provide for rent escalations resulting from increased
assessments for real estate taxes and other charges. Future minimum lease
payments under noncancellable leases (excluding automobile leases) with
remaining terms of more than one year are due as follows:
Capital Leases Operating Leases
1998 $ 228,000 $3,719,000
1999 $ -- $3,437,000
2000 $ -- $2,911,000
2001 $ -- $2,625,000
2002 $ -- $2,095,000
Thereafter $ -- $11,016,000
Total minimum
lease payments $228,000 $25,803,000
Less amount
representing interest $10,000
Present value of
net minimum
lease payments $218,000
Rental expense under operating leases amounted to $3,783,000, $2,892,000, and
$2,705,000 in 1997, 1996, and 1995, respectively.
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<PAGE>
8. Stock Plans
On October 1, 1981, the Company initiated an Employee Stock Ownership Plan
(ESOP) which covers substantially all of its employees. Contributions to the
plan are based on a percentage of eligible salaries. The total retirement
expense for the years 1997, 1996, and 1995 was $1,087,000, $1,002,000, and
$989,000, respectively. The liability is funded through either the issuance of
shares of Company stock (at fair market value on date of issuance) or a cash
payment for future stock purchases. The Company will fund the 1997 contribution
with cash payments throughout 1997 and 1998. At September 30, 1997, 1,288,000
shares of Company stock are held by the ESOP and are included in the earnings
per share computation.
The Company's 1985 Stock Option Plan, for grants of options to officers and key
employees, required that option prices be at least equal to the fair market
value of the common stock at the date of grant. No additional grants are
available under this plan. A new Stock Option Plan was approved in fiscal 1997.
Options are exercisable one year from the date of grant and expire 10 years from
the date of grant.
The company has elected to follow Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees" ("APB 25") and related
interpretations in accounting for its employee stock options. Under APB 25,
because the exercise price of the Company's employee stock options equals the
market price of the underlying stock on the date of grant, no compensation
expense is recognized.
Pro forma information regarding net income and earnings per common share is
required by Statement 123 and has been determined as if the Company had
accounted for its employee stock options under the fair value method of that
statement. The fair value for these options was estimated at the date of grant
using a Black-Scholes option pricing model with the following weighted-average
assumptions for grants in 1997: risk-free interest rates of 6 percent, dividend
yield of 0 percent, expected volatility of the market price of the Company's
common stock of 18 percent, and a weighted -average expected life of the option
of 10 years. There were no options granted in 1996.
The Black-Scholes option valuation model was developed for use in estimating the
fair value of traded options which have no vesting restrictions and are fully
transferable. In addition, option valuation models require the input of highly
subjective assumptions including the expected stock price volatility. Because
the Company's employee stock options have characteristics significantly
different from those of traded options, and because changes in the subjective
input assumptions can materially affect the fair value estimate, in management's
opinion, the existing models do not necessarily provide a reliable single
measure of the fair value of its employee stock options.
For purposes of pro forma disclosures, the estimated fair value of the options
is amortized to expense over the options' vesting period. Pro forma results are
not likely to be representative of the effects on reported or pro forma results
of operations for future years. The Company's pro forma information is as
follows:
1997
Pro forma net income $ 774,000
Pro forma earnings per share $ .41
Outstanding options to purchase shares of common stock have been granted to
officers and employees at prices ranging from $4.13 to $8.00 per share.
-31-
<PAGE>
The weighted-average remaining contractual life of those options is 7.14 years.
A summary of the option transactions is as follows:
Year ended September 30
1997 1996 1995
Options outstanding,
beginning of period 190,000 190,000 155,000
Granted 55,000 -- 80,000
Exercised -- -- --
Canceled -- -- (45,000)
Options outstanding,
end of period 245,000 190,000 190,000
Options exercisable 190,000 190,000 110,000
Shares available for
future option grants 445,000 500,000 500,000
The weighted average fair value of options granted during fiscal 1997 was $3.81
per share. The weighted average exercise price of options outstanding at
September 30, 1997, was $5.30, while the weighted average exercise price of
exercisable options at September 30, 1997, was $4.52.
On October 20, 1995, certain Company officers borrowed $125,000 from the Company
to purchase 25,000 shares of common stock from an outside director of the
Company. The five-year term loan, secured by a stock pledge agreement, is
payable at the term with interest at the Company bank borrowing rate currently
at 1-1/2 percent above prime rate. These loans have been recorded as a reduction
to stockholders' equity.
9. Postretirement Benefit Plan
The Company sponsors a defined benefit health care plan that provides
postretirement medical benefits to all current and retired officers and their
spouses upon attaining age 65, or age 55 with 10 years of service. The plan is
contributory, with retiree contributions adjusted annually, and contains other
cost-sharing features such as deductibles and coinsurance. The accounting for
the plan anticipates future cost-sharing changes to the written plan that are
consistent with the Company's expressed intent to increase the retiree
contribution rate annually for the expected general inflation rate for that
year.
The following table presents the plan's status reconciled with amounts
recognized in the Company's balance sheet:
1997 1996
Accumulated postretirement benefit obligation:
Retirees $(521,000) $(305,000)
Fully eligible active
plan participants (536,000) (489,000)
Other active
plan participants (351,000) (375,000)
----------- -----------
Accumulated
postretirement
benefit obligation $(1,408,000) $(1,169,000)
Unrecognized
net gain (448,000) (536,000)
Unrecognized prior
service costs 82,000 0
Unrecognized
transition obligation 895,000 951,000
----------- -----------
Accrued postretirement
benefit cost $(879,000) $(754,000)
Net periodic postretirement benefit costs include the following components:
1997 1996 1995
Service cost $36,000 $43,000 $67,000
Interest cost 101,000 119,000 185,000
Amortization of
transition obligation
over 20 years 56,000 84,000 124,000
Unrecognized
(gain) loss (3,000) (49,000) --
--------- --------- ---------
Net periodic
postretirement
benefit cost $190,000 $197,000 $376,000
Effective December 1,1995, STV switched from an indemnity to a combination
indemnity and managed care program. The cost assumptions
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<PAGE>
associated with a managed care plan are less than with an indemnity program. The
weighted-average annual assumed rate of increase in the per capita cost of
covered benefits (i.e., health care cost trend rate) is 11 percent for 1997
(11.5 percent in 1996, 12 percent in 1995) and is assumed to decrease gradually
to 6 percent in 2008 and remain at that level thereafter. The health care cost
trend rate assumption has a significant effect on the amounts reported. For
example, increasing the assumed health care cost trend rates by one percentage
point in each year would increase the accumulated post retirement benefit
obligation as of September 30, 1997, by $153,000, and the aggregate of the
service and interest cost components of net periodic postretirement benefit cost
for 1997, 1996 and 1995 by $16,000, $20,000 and $34,000 respectively.
The weighted-average discount rate used in determining the accumulated
postretirement benefit obligation was 7.75 percent at September 30, 1997 and
1996.
10. Major Customers
The percentage of total revenues derived from contracts with the United States
government for fiscal years 1997, 1996 and 1995 were 16 percent, 14 percent, and
19 percent, respectively.
11. Long-Term Debt
Long-term debt consists of the following:
1997 1996
Capital leases with various maturities through
September 1998, rates ranging from 8 percent to
11 percent, and monthly installments ranging
from $974 to $15,897 $218,000 $727,000
Deferred compensation liability payable in fixed
monthly installments of $12,000 through September
2006 with interest imputed at 16 percent 659,000 689,000
Executive deferred compensation liability for
certain executives with annual interest at 1
percent above prime rate as of November 1 payable
upon the termination of employment or approval of
the Board of Directors 634,000 558,000
Supplemental executive retirement agreements for
two current executives payable in monthly
installments upon retirement with interest
imputed at 7 percent. (1) 562,000 360,000
Other 378,000 461,000
---------- ----------
2,451,000 2,795,000
Less: Current portion 632,000 1,000,000
---------- ----------
$1,819,000 $1,795,000
-33-
<PAGE>
(1) These agreements for two current executives provide for future cash payments
of $141,000 and $261,000 annually, based on salary at retirement commencing
September 2003 and September 2005, respectively. If maximum Company performance
goals are achieved, these amounts would be increased 20 percent starting in
September 2003, or at a prorated rate based on the levels of performance
achieved.
Interest paid during 1997, 1996, and 1995 amounted to $1,310,000, $1,472,000,
and $1,517,000, respectively.
Annual maturities of long-term debt are as follows:
Year ending September 30
1998 $ 632,000
1999 $ 42,000
2000 $ 49,000
2001 $ 57,000
2002 $ 67,000
Thereafter $ 1,604,000
12. Quarterly Results (unaudited)
(All dollar amounts omit 000 except per share data.)
<TABLE>
<CAPTION>
Quarter Year
First Second Third Fourth
Revenue from services:
<S> <C> <C> <C> <C> <C>
1997 $ 22,736 $ 22,311 $ 24,637 $ 25,028 $ 94,712
1996 $ 22,983 $ 23,502 $ 24,949 $ 22,639 $ 94,073
Operating revenue:
1997 $ 18,123 $ 18,181 $ 18,113 $ 18,415 $ 72,832
1996 $ 18,004 $ 17,788 $ 17,982 $ 17,497 $ 71,271
Gross profit:
1997 $ 1,918 $ 2,092 $ 2,138 $ 2,322 $ 8,470
1996 $ 1,883 $ 1,781 $ 1,979 $ 2,071 $ 7,714
Net income:
1997 $ 158 $ 183 $ 228 $ 291 $ 860
1996 $ 103 $ 71 $ 159 $ 262 $ 595
Earnings per share:
1997 $ .08 $ .10 $ .12 $ .15 $ .45
1996 $ .06 $ .04 $ .08 $ .14 $ .32
</TABLE>
In the fourth quarter of 1996, STV revised its estimate of certain expenses. The
impact of these adjustments on fourth quarter earnings was an increase of $.05
per share.
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<PAGE>
EXHIBITS
Index
Exhibit 10.10 - Officers' and Directors' Liability Policy
Exhibit 11 - Statement Re: Computation of Per Share Earnings
Exhibit 13.1 - "Common Stock Market Prices" from Company's Annual Report
to Shareholders
Exhibit 13.2 - "Financial Highlights for Fiscal Years Ended September
30," 1993 through 1997 from Company's Annual Report to
Shareholders.
Exhibit 21.1 - Subsidiaries of the Company from Company's Annual Report
to Shareholders
Exhibit 10.10
Officers' and Directors' Liability Policy
<PAGE>
POLICY NUMBER:
485-38-16
RENEWAL OF:
483-12-48
AIG logo
American International Companies
Directors, Officers and Corporate Liability Insurance Policy
/_/ AIU Insurance Company /_/ Illinois National Insurance Company
/_/ American International
South Insurance Company /X/ National Union Fire Insurance Company
of Pitts., PA (R)
/_/ Birmingham Fire Insurance
Company of Penns. /_/ National Union Fire Insurance Company of
Louisiana
/_/ Granite State Insurance /_/ New Hampshire Insurance Company
Company
(each of the above being a capital stock company)
NOTICE: EXCEPT TO SUCH EXTENT AS MAY OTHERWISE BE PROVIDED HEREIN, THE COVERAGE
OF THIS POLICY IS GENERALLY LIMITED TO LIABILITY FOR ONLY THOSE CLAIMS THAT ARE
FIRST MADE AGAINST THE INSUREDS DURING THE POLICY PERIOD AND REPORTED IN WRITING
TO THE INSURER PURSUANT TO THE TERMS HEREIN. PLEASE READ THE POLICY CAREFULLY
AND DISCUSS THE COVERAGE THEREUNDER WITH YOUR INSURANCE AGENT OR BROKER.
NOTICE: THE LIMIT OF LIABILITY AVAILABLE TO PAY JUDGMENTS OR SETTLEMENTS SHALL
BE REDUCED BY AMOUNTS INCURRED FOR LEGAL DEFENSE. AMOUNTS INCURRED FOR LEGAL
DEFENSE SHALL BE APPLIED AGAINST THE RETENTION AMOUNT.
NOTICE: THE INSURER DOES NOT ASSUME ANY DUTY TO DEFEND; HOWEVER, THE INSURER
MUST ADVANCE DEFENSE COSTS PAYMENTS PURSUANT TO THE TERMS HEREIN PRIOR TO THE
FINAL DISPOSITION OF A CLAIM.
DECLARATIONS
ITEM 1. NAMED CORPORATION: STV GROUP, INC.
MAILING ADDRESS: 11 ROBINSON, STREET
POTTSTOWN, PA 19464
STATE OF INCORPORATION OF THE NAMED CORPORATION:
Pennsylvania
ITEM 2. SUBSIDIARY COVERAGE: any past, present or future Subsidiary of the
Named Corporation
ITEM 3. POLICY PERIOD: From: May 05, 1997 To: May 05, 1998
(12:01 A.M. standard time at the address stated in Item 1.)
ITEM 4. LIMIT OF LIABILITY: $6,000,000
aggregate for Coverages A and B combined (including Defense Costs)
21547
62334(5/95)
<PAGE>
ITEM 5. RETENTION:
SECURITIES CLAIMS:
Judgments & Settlements (all coverages) None
Defense Costs (non-Indemnifiable Loss) None
Defense Costs (Coverage B(i) and
Indemnifiable Loss) $125,000
for Loss arising
from Claims alleging
the same Wrongful
Act or related
Wrongful Acts
(waivable under
Clause 6 in certain
circumstances)
OTHER CLAIMS:
Judgments, Settlements and Defense
Costs (non-Indemnifiable Loss) None
Judgments, Settlements and Defense
Costs (Indemnifiable Loss) $125,000
for Loss arising
from Claims alleging
the same Wrongful
Act or related
Wrongful Acts
ITEM 6. CONTINUITY DATES:
A. Coverages A and B(ii): October 26, 1983
B. Coverage B(i): May 05, 1996
C. Coverages A and B:
Outside Entity Coverage
(Per Outside Entity)
See Endorsement #62790
ITEM 7. PREMIUM: $70,000
ITEM 8. NAME AND ADDRESS OF INSURER ("Insurer"):
(This policy is issued only by the insurance company indicated
below.)
National Union Fire Insurance Company of Pittsburgh, Pa.
175 Water Street
New York, NY 10038
21547
62334 (5/95)
<PAGE>
IN WITNESS WHEREOF, the Insurer has caused this policy to be signed on the
Declarations Page by its President, a Secretary and a duly authorized
representative of the Insurer.
/s/ Elizabeth M. Tuck /s/ Kris Moor
SECRETARY President
/s/ Ty Sagalow
AUTHORIZED REPRESENTATIVE
COUNTERSIGNATURE DATE COUNTERSIGNED AT
ROEHRS & COMPANY INC.
PO BOX 100
EXTON, PA l9341
21547
62334 (5/95)
<PAGE>
AIG LOGO
American International Companies
DIRECTORS, OFFICERS AND CORPORATE LIABILITY INSURANCE POLICY
In consideration of the payment of the premium, and in reliance upon the
statements made to the Insurer by application forming a part hereof and its
attachments and the material incorporated therein, the insurance company
designated in Item 8 of the Declarations, herein called the "Insurer", agrees as
follows:
1. INSURING AGREEMENTS
COVERAGE A: DIRECTORS AND OFFICERS INSURANCE
This policy shall pay the Loss of each and every Director or Officer of the
Company arising from a Claim first made against the Directors or Officers
during the Policy Period or the Discovery Period (if applicable) and
reported to the Insurer pursuant to the terms of this policy for any actual
or alleged Wrongful Act in their respective capacities as Directors or
Officers of the Company, except when and to the extent that the Company has
indemnified the Directors or Officers. The Insurer shall, in accordance
with and subject to Clause 8, advance Defense Costs of such Claim prior to
its final disposition.
COVERAGE B: CORPORATE LIABILITY INSURANCE
This policy shall pay the Loss of the Company arising from a:
(i) Securities Claim first made against the Company, or
(ii) Claim first made against the Directors or Officers,
during the Policy Period or the Discovery Period (if applicable) and
reported to the Insurer pursuant to the terms of this policy for any actual
or alleged Wrongful Act, but, in the case of (ii) above, only when and to
the extent that the Company has indemnified the Directors or Officers for
such Loss pursuant to law, common or statutory, or contract, or the Charter
or By-laws of the Company duly effective under such law which determines
and defines such rights of indemnity. The Insurer shall, in accordance with
and subject to Clause 8, advance Defense Costs of such Claim prior to its
final disposition.
62335 (5/95)
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<PAGE>
2. DEFINITIONS
(a) "Claim" means:
(1) a written demand for monetary or non-monetary relief; or
(2) a civil, criminal, or administrative proceeding for monetary or
non-monetary relief which is commenced by:
(i) service of a complaint or similar pleading; or
(ii) return of an indictment (in the case of a criminal
proceeding); or
(iii) receipt or filing of a notice of charges.
The term Claim" shall include a Securities Claim; provided, however,
that with respect to Coverage B(i) only, Claim or Securities Claim
shall not mean a criminal or administrative proceeding against the
Company.
(b) "Company" means the Named Corporation designated in Item 1 of the
Declarations and any Subsidiary thereof.
(c) "Continuity Date" means the date set forth in:
(1) Item 6A of the Declarations with respect to Coverages A and B
(ii); or
(2) Item 6B of the Declarations with respect to Coverage B(i); or
(3) Item 6C of the Declarations with respect to Coverages A and B for
a Claim against an Insured arising out of such Insured serving as
a director, officer, trustee or governor of an Outside Entity.
(d) "Defense Costs" means reasonable and necessary fees, costs and
expenses consented to by the Insurer (including premiums for any
appeal bond, attachment bond or similar bond, but without any
obligation to apply for or furnish any such bond) resulting solely
from the investigation, adjustment, defense and appeal of a Claim
against the Insureds, but excluding salaries of Officers or employees
of the Company.
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<PAGE>
(e) "Director(s) or Officer(s)" or "Insured(s)" means:
(1) with respect to Coverages A and B (ii), any past, present or
future duly elected or appointed directors or officers of the
Company. In the event the Named Corporation or a Subsidiary
thereof operates outside the United States, then the terms
"Director(s) or Officer(s)" or "Insured(s)" also mean those
titles, positions or capacities in such foreign Named Corporation
or Subsidiary which is equivalent to the position of Director(s)
or Officer(s) in a corporation incorporated within the United
States. Coverage will automatically apply to all new Directors
and Officers after the inception date of this policy;
(2) with respect to Coverage B(i) only, the Company.
(f) "Listed Event" means any of the following events:
(1) any event for which the Company has reported or is required to
report on Form 8-K filed with the Securities and Exchange
Commission pursuant to the Securities Exchange Act of 1934; or
(2) any restatement or correction of a Company financial statement
contained in any document filed with the Securities and Exchange
Commission; or
(3) any statement or disclosure made by or on the behalf of the
Company relating to a prior forecast, estimate or projection of
the Company's earnings or sales made by or on behalf of the
Company, which statement or disclosure represents a greater than
15% change from such prior forecast, estimate or projection.
(g) "Loss" means damages, judgments, settlements and Defense Costs;
however, Loss shall not include civil or criminal fines or penalties
imposed by law, punitive or exemplary damages, the multiplied portion
of multiplied damages, taxes, any amount for which the Insureds are
not financially liable or which are without legal recourse to the
Insureds, or matters which may be deemed uninsurable under the law
pursuant to which this policy shall be construed.
Further, with respect to Coverage B only, Loss shall not include
damages, judgments or settlements arising out of a Claim alleging that
the Company paid an inadequate or unfair price or consideration for
the purchase of its own securities or the securities of a Subsidiary.
Notwithstanding the foregoing, with respect to Coverage B(i) only and
subject to the other terms, conditions and exclusions of the policy,
Loss shall include punitive damages (if insurable by law) imposed upon
the Company.
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<PAGE>
(h) "No Liability" means with respect to a Securities Claim made against
the Insured(s): (1) a final judgment of no liability obtained prior to
trial, in favor of all Insureds, by reason of a motion to dismiss or a
motion for summary judgment, after the exhaustion of all appeals; or
(2) a final judgment of no liability obtained after trial, in favor of
all Insureds, after exhaustion of all appeals. In no event shall the
term "No Liability" apply to a Securities Claim made against an
Insured for which a settlement has occurred.
(i) "Outside Entity" means:
(1) a not-for-profit organization under section 501(c)(3) of the
Internal Revenue Code of 1986 (as amended); or
(2) any other corporation, partnership, joint venture or other
organization listed by endorsement to this policy.
(j) "Policy Period" means the period of time from the inception date shown
in Item 3 of the Declarations to the earlier of the expiration date
shown in Item 3 of the Declarations or the effective date of
cancellation of this policy; however, to the extent that coverage
under this policy replaces coverage in other policies terminating at
noon standard time on the inception date of such coverage hereunder,
then such coverage as is provided by this policy shall not become
effective until such other coverage has terminated.
(k) "Securities Claim" means a Claim made against an Insured which alleges
a violation of the Securities Act of 1933 or the Securities Exchange
Act of 1934, rules or regulations promulgated thereunder, the
securities laws of any state, or any foreign jurisdiction, and which
alleges a Wrongful Act in connection with the claimant's purchase or
sale of, or the offer to purchase or sell to the claimant, any
securities of the Company, whether on the open market or arising from
a public or private offering of securities by the Company.
(l) "Subsidiary" means:
(1) any corporation of which the Named Corporation owns on or before
the inception of the Policy Period more than 50% of the issued
and outstanding voting stock either directly, or indirectly
through one or more of its Subsidiaries;
(2) automatically any corporation whose assets total less than 10% of
the total consolidated assets of the Company as of the inception
date of this policy, which corporation becomes a Subsidiary
during the Policy Period. The Named Corporation shall provide the
Insurer with full particulars of the new Subsidiary before the
end of the Policy Period;
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4
<PAGE>
(3) any corporation which becomes a Subsidiary during the Policy
Period (other than a corporation described in paragraph (2)
above) but only upon the condition that within 90 days of its
becoming a Subsidiary the Named Corporation shall have provided
the Insurer with full particulars of the new Subsidiary and
agreed to any additional premium and/or amendment of the
provisions of this policy required by the Insurer relating to
such new Subsidiary. Further, coverage as shall be afforded to
the new Subsidiary is conditioned upon the Named Corporation
paying when due any additional premium required by the Insurer
relating to such new Subsidiary.
A corporation becomes a Subsidiary when the Named Corporation owns
more than 50% of the issued and outstanding voting stock, either
directly, or indirectly through one or more of its Subsidiaries. A
corporation ceases to be a Subsidiary when the Named Corporation
ceases to own more than 50% of the issued and outstanding voting stock
either directly, or indirectly through one or more of its
Subsidiaries.
In all events, coverage as is afforded under this policy with respect
to any Claim made against a Subsidiary or any Director or Officer
thereof shall only apply for Wrongful Acts committed or allegedly
committed after the effective time that such Subsidiary became a
Subsidiary and prior to the time that such Subsidiary ceased to be a
Subsidiary
(m) "wrongful Act" means:
(1) with respect to individual Directors or Officers, any breach of
duty, neglect, error, misstatement, misleading statement,
omission or act by the Directors or Officers of the Company in
their respective capacities as such, or any matter claimed
against them solely by reason of their status as Directors or
Officers of the Company, or any matter claimed against them
arising out of their serving as a director, officer, trustee or
governor of an Outside Entity in such capacities, but only if
such service is at the specific written request or direction of
the Company,
(2) with respect to the Company, any breach of duty, neglect, error,
misstatement, misleading statement, omission or act by the
Company, but solely as respects a Securities Claim.
62335 (5/95)
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<PAGE>
3. EXTENSIONS
Subject otherwise to the terms hereof, this policy shall cover Loss arising
from any Claims made against the estates, heirs, or legal representatives
of deceased Directors or Officers, and the legal representatives of
Directors or Officers in the event of incompetency, insolvency or
bankruptcy, who were Directors or Officers at the time the Wrongful Acts
upon which such Claims are based were committed.
Subject otherwise to the terms hereof, this policy shall cover Loss arising
from all Claims made against the lawful spouse (whether such status is
derived by reason of statutory law, common law or otherwise of any
applicable jurisdiction in the world) of an individual Director or Officer
for all Claims arising solely out of his or her status as the spouse of an
individual Director or Officer, including a Claim that seeks damages
recoverable from marital community property, property jointly held by the
individual Director or Officer and the spouse, or property transferred from
the individual Director or Officer to the spouse; provided, however, that
this extension shall not afford coverage for any Claim for any actual or
alleged Wrongful Act of the spouse, but shall apply only to Claims arising
out of any actual or alleged Wrongful Acts of an individual Director or
Officer, subject to the policy's terms, conditions and exclusions.
4. EXCLUSIONS
The Insurer shall not be liable to make any payment for Loss in connection
with a Claim made against an Insured:
(a) arising out of, based upon or attributable to the gaining in fact of
any profit or advantage to which an Insured was not legally entitled;
(b) arising out of, based upon or attributable to: (1) profits in fact
made from the purchase or sale by an Insured of securities of the
Company within the meaning of Section 16(b) of the Securities Exchange
Act of 1934 and amendments thereto or similar provisions of any state
statutory law; or (2) payments to an Insured of any remuneration
without the previous approval of the stockholders of the Company,
which payment without such previous approval shall be held to have
been illegal;
(c) arising out of, based upon or attributable to the committing in fact
of any criminal or deliberate fraudulent act;
[The Wrongful Act of a Director or Officer shall not be imputed to any
other Director or Officer for the purpose of determining the
applicability of the foregoing exclusions 4(a) through 4(c)]
62335 (5/95)
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<PAGE>
(d) alleging, arising out of, based upon or attributable to the facts
alleged, or to the same or related Wrongful Acts alleged or contained,
in any claim which has been reported, or in any circumstances of which
notice has been given, under any policy of which this policy is a
renewal or replacement or which it may succeed in time;
(e) alleging, arising out of, based upon or attributable to any pending or
prior litigation as of the Continuity Date, or alleging or derived
from the same or essentially the same facts as alleged in such pending
or prior litigation;
(f) alleging, arising out of, based upon or attributable to a Listed Event
that occurs no later than 90 days subsequent to the Continuity Date;
provided, however, that this exclusion shall only apply with respect
to coverage which would have otherwise been afforded under Coverage
B(i) of the policy;
(g) with respect to serving as a director, officer, trustee or governor of
an Outside Entity, for any Wrongful Act occurring prior to the
Continuity Date if the Insured knew or could have reasonably foreseen
that such Wrongful Act could lead to a Claim under this policy;
(h) alleging, arising out of, based upon or attributable to any actual or
alleged act or omission of the Directors or Officers serving in their
capacities as directors, officers, trustees or governors of any other
entity other than the Company or an Outside Entity, or by reason of
their status as directors, officers, trustees or governors of such
other entity;
(i) which is brought by any Insured or by the Company; or which is brought
by any security holder of the Company, whether directly or
derivatively, unless such security holder's Claim is instigated and
continued totally independent of, and totally without the solicitation
of, or assistance of, or active participation of, or intervention of,
any Insured or the Company; provided, however, this exclusion shall
not apply to a wrongful termination of employment Claim brought by a
former employee other than a former employee who is or was a Director
of the Company;
(j) for any Wrongful Act arising out of the Insured serving as a director,
officer, trustee or governor of an Outside Entity if such Claim is
brought by the Outside Entity or by any director, officer, trustee or
governor thereof; or which is brought by any security holder of the
Outside Entity, whether directly or derivatively, unless such security
holder's Claim is instigated and continued totally independent of, and
totally without the solicitation of, or assistance of, or active
participation of, or intervention of, the Outside Entity, any
director, officer, trustee or governor thereof, any Insured or the
Company;
(k) for bodily injury, sickness, disease, death or emotional distress of
any person, or damage to or destruction of any tangible property,
including the loss of use thereof, or for injury from libel or slander
or defamation or disparagement, or for injury from a violation of a
person's right of privacy;
62335 (5/95)
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<PAGE>
(l) alleging, arising out of, based upon, attributable to, or in any way
involving, directly or indirectly:
(1) the actual, alleged or threatened discharge, dispersal, release
or escape of pollutants; or
(2) any direction or request to test for, monitor, clean up, remove,
contain, treat, detoxify or neutralize pollutants,
including but not limited to a Claim alleging damage to the Company or
its securities holders.
Pollutants include (but are not limited to) any solid, liquid, gaseous
or thermal irritant or contaminant, including smoke, vapor, soot,
fumes, acids, alkalis, chemicals and waste. Waste includes (but is not
limited to) materials to be recycled, reconditioned or reclaimed;
(m) for violation(s) of any of the responsibilities, obligations or duties
imposed upon fiduciaries by the Employee Retirement Income Security
Act of 1974, or amendments thereto or any similar provisions of state
statutory law or common law.
5. LIMIT OF LIABILITY -(FOR ALL LOSS -INCLUDING DEFENSE COSTS)
The Limit of Liability stated in Item 4 of the Declarations is the limit of
the Insurer's liability for all Loss, under Coverage A and Coverage B
combined, arising out of all Claims first made against the Insureds during
the Policy Period and the Discovery Period (if applicable); however, the
Limit of Liability for the Discovery Period shall be part of, and not in
addition to, the Limit of Liability for the Policy Period. Further, any
Claim which is made subsequent to the Policy Period or Discovery Period (if
applicable) which pursuant to Clause 7(b) or 7(c) is considered made during
the Policy Period or Discovery Period shall also be subject to the one
aggregate Limit of Liability stated in Item 4 of the Declarations.
Defense Costs are not payable by the Insurer in addition to the Limit of
Liability. Defense Costs are part of Loss and as such are subject to the
Limit of Liability for Loss.
6. RETENTION CLAUSE
The Insurer shall only be liable for the amount of Loss arising from a
Claim which is in excess of the Retention amount stated in Item 5 of the
Declarations, such Retention amount to be borne by the Company and/or the
Insureds and shall remain uninsured, with regard to all Loss under: (i)
Coverage A or B(ii) for which the Company has indemnified or is permitted
or required to indemnify the Director(s) or Officer(s) ("Indemnifiable
Loss"); or (ii) Coverage B(i). A single Retention amount shall apply to
Loss arising from all Claims alleging the same Wrongful Act or related
Wrongful Acts.
8
62335 (5/95)
<PAGE>
Notwithstanding the foregoing, solely with respect to a Securities Claim
under this policy, the Retention shall only apply to Defense Costs;
provided, however, no Retention shall apply for a Securities Claim even as
respects Defense Costs in the event of a determination of No Liability of
all Insureds, and the Insurer shall thereupon reimburse such Defense Costs
paid by the Insured.
7. NOTICE/CLAIM REPORTING PROVISIONS
Notice hereunder shall be given in writing to the Insurer named in Item 8
of the Declarations at the address indicated in Item 8 of the Declarations.
If mailed, the case of mailing shall constitute the date that such notice
was given and proof of mailing shall be sufficient proof of notice.
(a) The Company or the Insureds shall, as a condition precedent to the
obligations of the Insurer under this policy, give written notice to
the Insurer of any Claim made against an Insured as soon as
practicable and either:
(1) any time during the Policy Period or during the Discovery Period
(if applicable); or
(2) within 30 days after the end of the Policy Period or the
Discovery Period (if applicable), as long as such Claim is
reported no later than 30 days after the date such Claim was
first made against an Insured.
(b) If written notice of a Claim has been given to the Insurer pursuant to
Clause 7(a) above, then any Claim which is subsequently made against
the Insureds and reported to the Insurer alleging, arising out of,
based upon or attributable to the facts alleged in the Claim for which
such notice has been given, or alleging any Wrongful Act which is the
same as or related to any Wrongful Act alleged in the Claim of which
such notice has been given, shall be considered made at the time such
notice was given.
(c) If during the Policy Period or during the Discovery Period (if
applicable) the Company or the Insureds shall become aware of any
circumstances which may reasonably be expected to give rise to a Claim
being made against the Insureds and shall give written notice to the
Insurer of the circumstances and the reasons for anticipating such a
Claim, with full particulars as to dates, persons, and entities
involved, then any Claim which is subsequently made against the
Insureds and reported to the Insurer alleging, arising out of, based
upon or attributable to such circumstances or alleging any Wrongful
Act which is the same as or related to any Wrongful Act alleged or
contained in such circumstances, shall be considered made at the time
such notice of such circumstances was given.
62335 (5/95)
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<PAGE>
8. DEFENSE COSTS, SETTLEMENTS, JUDGMENTS (INCLUDING THE ADVANCEMENT OF DEFENSE
COSTS)
Under both Coverage A and Coverage B of this policy, except as hereinafter
stated, the Insurer shall advance, at the written request of the Insured,
Defense Costs prior to the final disposition of a Claim. Such advanced
payments by the Insurer shall be repaid to the Insurer by the Insureds or
the Company severally according to their respective interests, in the event
and to the extent that the Insureds or the Company shall not be entitled
under the terms and conditions of this policy to payment of such Loss.
The Insurer does not, however, under this policy, assume any duty to
defend. The Insureds shall defend and contest any Claim made against them.
The Insureds shall not admit or assume any liability, enter into any
settlement agreement, stipulate to any judgment, or incur any Defense Costs
without the prior written consent of the Insurer. Only those settlements,
stipulated judgments and Defense Costs which have been consented to by the
Insurer shall be recoverable as Loss under the terms of this policy. The
Insurer's consent shall not be unreasonably withheld, provided that the
Insurer shall be entitled to effectively associate in the defense and the
negotiation of any settlement of any Claim.
The Insurer shall have the right to effectively associate with the Company
and the Insureds in the defense of any Claim that appears reasonably likely
to involve the Insurer, including but not limited to negotiating a
settlement. The Company and the Insureds shall give the Insurer full
cooperation and such information as it may reasonably require.
The Insurer may make any settlement of any Claim it deems expedient with
respect to any Insured subject to such Insured's written consent. If any
Insured withholds consent to such settlement, the Insurer's liability for
all Loss on account of such Claim shall not exceed the amount for which the
Insurer could have settled such Claim plus Defense Costs incurred as of the
date such settlement was proposed in writing by the Insurer.
The Company is not covered in any respect under Coverage A; the Company is
covered, subject to the policy's terms and conditions, only with respect to
its indemnification of its Directors or Officers under Coverage B(ii) as
respects a Claim against such Directors and Officers, and subject to the
policy's terms and conditions, under Coverage B(i) for a Securities Claim
made against the Company. Accordingly, the Insurer has no obligation under
this policy for Defense Costs incurred by, judgments against or settlements
by the Company arising out of a Claim made against the Company other than a
covered Securities Claim, or any obligation to pay Loss arising out of any
legal liability that the Company has to the claimant except as respects a
covered Securities Claim against the Company.
62335 (5/95)
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<PAGE>
With respect to (i) Defense Costs jointly incurred by, (ii) any joint
settlement made by, and/or (iii) any adjudicated judgment of joint and
several liability against the Company and any Director or Officer, in
connection with any Claim other than a Securities Claim, the Company and
the Director(s) or Officer(s) and the Insurer agree to use their best
efforts to determine a fair and proper allocation of the amounts as between
the Company and the Director(s) or Officers(s) and the Insurer, taking into
account the relative legal and financial exposures of and the relative
benefits obtained by the Directors and Officers and the Company. In the
event that a determination as to the amount of Defense Costs to be advanced
under the policy cannot be agreed to, then the Insurer shall advance such
Defense Costs which the Insurer states to be fair and proper until a
different amount shall be agreed upon or determined pursuant to the
provisions of this policy and applicable law.
9. PRE-AUTHORIZED SECURITIES DEFENSE ATTORNEYS
Only with respect to a Securities Claim:
Affixed as Appendix A hereto and made a part of this policy is a list of
Panel Counsel law firms ("Panel Counsel Firms"). The list provides the
Insured a choice of law firms from which a selection of legal counsel shall
be made to conduct the defense of any Securities Claim made against them.
The Insureds shall select a Panel Counsel Firm to defend a Securities Claim
made against the Insureds in the jurisdiction in which the Securities Claim
is brought. In the event a Securities Claim is brought in a jurisdiction
not included on the list, the Insureds shall select a Panel Counsel Firm in
the listed jurisdiction which is the nearest geographical jurisdiction to
either where the Securities Claim is brought or where the corporate
headquarters of the Named Corporation is located. In such instance the
Insureds also may, with the consent of the Insurer, which consent shall not
be unreasonably withheld, select a non-Panel Counsel Firm in the
jurisdiction in which the Securities Claim is brought to function as "local
counsel" on the Securities Claim to assist the Panel Counsel Firm which
will function as "lead counsel" in conducting the defense of the Securities
Claim.
With the express prior written consent of the Insurer, an Insured may
select a Panel Counsel Firm different from that selected by other Insured
defendants if such selection is required due to an actual conflict of
interest or is otherwise reasonably justifiable.
The list of Panel Counsel Firms may be amended from time to time by the
Insurer. However, no change shall be made to the specific list attached to
this policy during the Policy Period without the consent of the Named
Corporation. At the request of the Insured, the Insurer may in its
discretion add to the attached list of Panel Counsel Firms for the purposes
of defending a Securities Claim made against the Insured in any specified
jurisdiction (including a jurisdiction not originally included in the Panel
Counsel list) a Panel Counsel Firm not originally listed for such
jurisdiction. The Insurer may in its discretion waive, in part or in whole,
the provisions of this clause as respects a particular Securities Claim.
62335 (5/95)
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<PAGE>
10. DISCOVERY CLAUSE
Except as indicated below, if the Insurer or the Named Corporation shall
cancel or refuse to renew this policy, the Named Corporation shall have the
right, upon payment of an additional premium of 75% of the "full annual
premium", to a period of one year following the effective date of such
cancellation or nonrenewal (herein referred to as the "Discovery Period")
in which to give to the Insurer written notice of Claims first made against
the Insureds during said one year period for any Wrongful Act occurring
prior to the end of the Policy Period and otherwise covered by this policy.
As used herein, "full annual premium", means the premium level in effect
immediately prior to the end of the Policy Period. The rights contained in
this paragraph shall terminate, however, unless written notice of such
election together with the additional premium due is received by the
Insurer within 30 days of the effective date of cancellation or nonrenewal.
In the event of a Transaction, as defined in Clause 12, the Named
Corporation shall have the right, within 30 days before the end of the
Policy Period, to request an offer from the Insurer of a Discovery Period
(with respect to Wrongful Acts occurring prior to the effective time of the
Transaction) for a period of no less than three years or for such longer or
shorter period as the Named Corporation may request. The Insurer shall
offer such Discovery Period pursuant to such terms, conditions and premium
as the Insurer may reasonably decide. In the event of a Transaction, the
right to a Discovery Period shall not otherwise exist except as indicated
in this paragraph.
The additional premium for the Discovery Period shall be fully earned at
the inception of the Discovery Period. The Discovery Period is not
cancelable. This clause and the rights contained herein shall not apply to
any cancellation resulting from non-payment of premium.
11. CANCELLATION CLAUSE
This policy may be canceled by the Named Corporation at any time only by
mailing written prior notice to the Insurer or by surrender of this policy
to the Insurer or its authorized agent. This policy may also be canceled by
or on behalf of the Insurer by delivering to the Named Corporation or by
mailing to the Named Corporation, by registered, certified, or other first
class mail, at the Named Corporation's address as shown in Item 1 of the
Declarations, written notice stating when, not less than 60 days
thereafter, the cancellation shall be effective. The mailing of such notice
as aforesaid shall be sufficient proof of notice. The Policy Period
terminates at the date and hour specified in such notice, or at the date
and time of surrender.
If this policy shall be canceled by the Named Corporation, the Insurer
shall retain the customary short rate proportion of the premium herein.
If this policy shall be canceled by the Insurer, the Insurer shall retain
the pro rata proportion of the premium herein.
62335 (5/95)
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<PAGE>
Payment or tender of any unearned premium by the Insurer shall not be a
condition precedent to the effectiveness of cancellation, but such payment
shall be made as soon as practicable,
If the period of limitation relating to the giving of notice is prohibited
or made void by any law controlling the construction thereof, such period
shall be deemed to be amended so as to be equal to the minimum period of
limitation permitted by such law.
12. CHANGE IN CONTROL OF NAMED CORPORATION
If during the Policy Period:
a. the Named Corporation shall consolidate with or merge into, or sell
all or substantially all of its assets to any other person or entity
or group of persons and/or entities acting in concert; or
b. any person or entity or group of persons and/or entities acting in
concert shall acquire an amount of the outstanding securities
representing more than 50% of the voting power for the election of
Directors of the Named Corporation, or acquires the voting rights of
such an amount of such securities;
(either of the above events herein referred to as the "Transaction")
then this policy shall continue in full force and effect as to Wrongful
Acts occurring prior to the effective time of the Transaction, but there
shall be no coverage afforded by any provision of this policy for any
actual or alleged Wrongful Act occurring after the effective time of the
Transaction. This policy may not be canceled after the effective time of
the Transaction and the entire premium for this policy shall be deemed
earned as of such time. The Named Corporation shall also have the right to
an offer by the Insurer of a Discovery Period described in Clause 10 of the
policy.
The Named Corporation shall give the Insurer written notice of the
Transaction as soon as practicable, but not later than 30 days after the
effective date of the Transaction.
13. SUBROGATION
In the event of any payment under this policy, the Insurer shall be
subrogated to the extent of such payment to all the Company's and the
Insureds' rights of recovery thereof, and the Company and the Insureds
shall execute all papers required and shall do everything that may be
necessary to secure such rights including the execution of such documents
necessary to enable the Insurer to effectively bring suit in the name of
the Company and/or the Insureds. In no event, however, shall the Insurer
exercise its rights of subrogation against an Insured under this policy
unless such Insured has been convicted of a criminal act, or been
judicially determined to have committed a deliberate fraudulent act, or
obtained any profit or advantage to which such Insured was not legally
entitled.
62335 (5/95)
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<PAGE>
14. OTHER INSURANCE AND INDEMNIFICATION
Such insurance as is provided by this policy shall apply only as excess
over any other valid and collectible insurance.
In the event of a Claim against a Director or Officer arising out of his or
her serving as director, officer, trustee or governor of an Outside Entity,
coverage as is afforded by this policy shall be specifically excess of
indemnification provided by such Outside Entity and any insurance provided
to such Outside Entity with respect to its directors, officers, trustees or
governors. Further, in the event such other Outside Entity insurance is
provided by the Insurer or any member company of American International
Group, Inc. ("AIG") (or would be provided but for the application of the
retention amount, exhaustion of the limit of liability or failure to submit
a notice of a Claim) then the maximum aggregate Limit of Liability for all
Losses combined covered by virtue of this policy as respects any such Claim
shall be reduced by the limit of liability (as set forth on the
declarations page) of the other AIG insurance provided to such Outside
Entity.
15. NOTICE AND AUTHORITY
It is agreed that the Named Corporation shall act on behalf of its
Subsidiaries and all Insureds with respect to the giving notice of Claim or
giving and receiving notice of cancellation, the payment of premiums and
the receiving of any return premiums that may become due under this policy,
the receipt and acceptance of any endorsements issued to form a part of
this policy and the exercising or declining to exercise any right to a
Discovery Period.
16. ASSIGNMENT
This policy and any and all rights hereunder are not assignable without the
written consent of the Insurer.
17. ARBITRATION
It is hereby understood and agreed that all disputes or differences which
may arise under or in connection with this policy, whether arising before
or after termination of this policy, including any determination of the
amount of Loss, shall be submitted to the American Arbitration Association
under and in accordance with its then prevailing commercial arbitration
rules. The arbitrators shall be chosen in the manner and within the time
frames provided by such rules. If permitted under such rules the
arbitrators shall be three disinterested individuals having knowledge of
the legal, corporate management or insurance issues relevant to the matters
in dispute.
62335 (5/95)
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<PAGE>
Any party may commence such arbitration proceeding in either New York, New
York; Atlanta, Georgia; Chicago, Illinois; or Denver, Colorado. The
arbitrators shall give due consideration to the general principles of
Delaware law in the construction and interpretation of the provisions of
this policy; provided, however, that the terms, conditions, provisions and
exclusions of this policy are to be construed in an evenhanded fashion as
between the parties, including without limitation, where the language of
this policy is alleged to be ambiguous or otherwise unclear, the issue
shall be resolved in the manner most consistent with the relevant terms,
conditions, provisions or exclusions of the policy (without regard to the
authorship of the language, the doctrine of reasonable expectation of the
parties and without any presumption or arbitrary interpretation or
construction in favor of either party or parties, and in accordance with
the intent of the parties.)
The written decision of the arbitrators shall be provided to both parties
and shall be binding on them. The arbitrators' award shall not include
attorney fees or other costs.
Each party shall bear equally the expenses of the arbitration.
18. ACTION AGAINST INSURER
Except as provided in Clause 17 of the policy, no action shall lie against
the Insurer unless, as a condition precedent thereto, there shall have been
full compliance with all of the terms of this policy, nor until the amount
of the Insureds' obligation to pay shall have been finally determined
either by judgment against the Insureds after actual trial or by written
agreement of the Insureds, the claimant and the Insurer.
Any person or organization or the legal representative thereof who has
secured such judgment or written agreement shall thereafter be entitled to
recover under this policy to the extent of the insurance afforded by this
policy. No person or organization shall have any right under this policy to
join the Insurer as a party to any action against the Insureds or the
Company to determine the Insureds' liability, nor shall the Insurer be
impleaded by the Insureds or the Company or their legal representatives.
Bankruptcy or insolvency of the Company or the Insureds or of their estates
shall not relieve the Insurer of any of its obligations hereunder.
19. HEADINGS
The descriptions in the headings of this policy are solely for convenience,
and form no part of the terms and conditions of coverage.
62335 (5/95)
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<PAGE>
-1-
APPENDIX A
PANEL COUNSEL
California
Brobeck, Phleger & Harrison
Spear Street Tower
One Market
San Francisco, CA 94105
Contact:
Tower C. Snow Jr. 415-442-0900
Gibson, Dunn & Crutcher
333 South Grand Avenue
Los Angeles, CA 90071-3197
Contact:
Robert S. Warren 213-229-7326
John H. Sharer 213-229-7476
Wayne W. Smith 213-229-7464
Heller, Ellman, White & McAuliffe
333 Bush Street San Francisco,
CA 94104 Main Tel:
Contact: 415-772-6000
Douglas N. Schwab
M. Laurence Popofsky
Heller, Ellman, White & McAuliffe
525 University Avenue
Palo Alto, CA 94301
Contact:
Norman J. Blears 415-324-7000
Irell & Manella
1800 Avenue of the Stars
Suite 900
Los Angeles, CA 90067
Contact:
Richard Borow 310-277-1010
Latham & Watkins
633 West Fifth Avenue
Suite 4000
Los Angeles CA, 90071-2007
Contact:
Hugh Stevens Wilson 213-485-1234
Latham & Watkins
505 Montgomary Street
Suite 1900
San Francisco, CA 94111
Contact:
Paul H. Dawes 415-391-0600
McCutchen Doyle, Brown & Emerson
355 South Grand Avenue
Suite 4400
Los Angeles, CA 90071-1560
Contact:
John C. Morrissey 213-680-6400
McCutchen, Doyle, Brown & Emerson
Three Embarcadero Center
San Francisco, CA 94111
Contact:
David M. Balabanian 415-393-2000
Mary Huser 415-393-2000
Morrison & Foerster
425 Market Street
San Francisco, GA 94104-2482
Contact:
Paul T. Friedman 415-268-7444
Morrison & Foerster
555 West 5th Street -Suite 3500
Los Angles, CA 90013-1024
Contact:
Rober S. Stern 213-892-5464
Munger, Tolles & Olson
355 South Grand Avenue-35th Floor
Los Angeles, CA 90071-1560
Contact:
Dennis L. Kinnaird 213-683-9264
John W. Spiegel 213-683-9152
O'Melveny & Myers
400 South Hope Street
Los Angeles, CA 90071-2899
Main Tel: 213-669-6000
Contact:
Seth Aronson
Robert Vanderet
O'Melveny & Myers
610 Newport Center
Newport Beach, CA 92660
Contact:
Phillip Kaplan 714-760-9600
<PAGE>
-2-
APPENDIX A (continued)
PANEL COUNSEL
O'Melveny & Myers
275 Battery Street
San Francisco, CA 94111
Contact:
Richard Warner 415-984-8700
Orrick Herrington & Sutcliffe
Old Federal Reserve Bank Building
400 Sansome Street
San Francisco, CA 94111
Main Tel: 415-392-1122
Contact:
James A. Hughes
W. Reece Bader
Richard J. Lucas
Pillsbury Madison & Sutro
225 Bush Street
P.O. Box 7880
San Francisco, CA 94104
Contact:
Gary H. Anderson 415-983-1000
Pillsbury Madison & Sutro
725 South Figueroa Street
Suite 1200
Los Angeles CA 90017
Contact:
Steve 0. Kramer 213-488-7100
Pillsbury Madison & Sutro
101 West Broadway
Suite 1800
San Diego, CA 92101
Contact:
David E. Kleinfeld 619-234-5000
Sherman & Sterling
555 California Street
San Francisco, CA 94104
Contact:
Susan Samuels Muck 415-616-1198
Skadden, Arps, Slate, Meagher & Flom
300 South Grand Avenue
Los Angeles, CA 90071
Main Tel: 213-687-5000
Contact:
Frank Rothman
James E. Lyons
Wilson, Sonsini, Goodrich & Rosati
650 Page Mill Road
Palo, Alto, CA 94304-1050
Main Tel: 415-493-9300
Contact:
Bruce G. Vanyo
Steven M. Sethatz
District of Columbia
Arnold & Porter
555 Twelfth Street N.W.
Washington, D.C. 20004-1202
Contact:
Scott Schreiber 202-942-5672
Davis, Polk & Wardwell
1300 I Street, N.W.
Washington, DC 20005
Main Tel: 202-962-7000
Contact
Scott W. Muller
Gibson, Dunn & Crutcher
1050 Connecticut Avenue, N.W.
Washington, D.C. 20036-5306
Contact:
F. Joseph Warin 202-887-3609
Patton Boggs, L.L.P.
2550 M Street N.W.
Washington, D.C. 20037
Contact:
C. Allen Foster 202-457-6320
Charles H. Camp 202-457-5265
Sherman & Sterling
801 Pennsylvania Avenue, N.W.
Washington, DC 20004-2604
Main Tel: 202-508-8000
Contact:
Thomas S. Martin
Jonathan L. Greenblat
Willkie Farr & Gallagher
Three Lafayette Centre
1155 21st Street N.W.
Washington, D.C. 20036-3384
Contact:
Kevin B. Clark 202-328-8000
<PAGE>
-3-
APPENDIX A (continued)
PANEL COUNSEL
Florida
Fowler White, Gillen, Boggs, Villareal
and Banker, P.A.
501 East Kennedy Boulevard
Suite 1700
Tampa, Fl 33602
Contact:
W. Donald Cox 813-228-7411
Fowler, White, Gillen, Boggs, Villareal
and Banker, P.A.
601 Cleveland Street
Suite 800
Clearwater Florida 34615
Contact:
Burton W. Wiand 813-446-8525
Katz, Barron, Squtiero, Faust & Berman, P.A.
2699 South Bayshore Drive
Seventh Floor
Miami, Florida 33133-5408
Contact:
Richard E. Berman 305-856-2444
Zuckerman Spaeder Taylor & Evans LLP
900 Miami Center
201 South Biscayne Boulevard
Miami, Fl 33131
Main Tel: 305-358-5000
Ronald B. Ravikoff
Thomas J. Meeks
Guy A. Rasco
Steel, Hector & Davis LLP
200 South Biscayne Boulevard
Miami, FL 33131-2398
Contact:
Lewis F. Murphy, P.A. 305-577-2957
Holland & Knight
400 North Ashley Drive
Suite 2300
Tampa, FL 33602
Main Tel: 813-227-8500
Contact:
Frederick S. Schrils
Calvin Hayes
Gregory P. Hansel
Holland & Knight
50 North Laura Street
Suite 3900
Jacksonville, Fl 32202
Main Tel: 904-353-2000
Contact:
George E. Schultz, Jr.
Holland & Knight
701 Brickell Avenue
Suite 3000
Miami, FL 33131
Main Tel: 305-374-8500
Contact:
Marty Steinberg
William F. Hamilton
Holland & Knight
315 South Calhoun Street
Suite 600
Tallahassee, FL 32301
Main Tel: 904-224-7000
Contact:
Robert R. Feagin, Ill
Georgia
Alston & Bird
One Atlantic Center
1201 W. Peachtree Street
Atlanta, GA 30309
Contact:
Peter Q Bassett 404-881-7343
Mary C. Gill 404-881-7276
King & Spalding
191 Peachtree Street
Atlanta, GA 30303-1763
Main Tel: 404-572-4600
Contact:
Grippin B. Bell
Michael R. Smith
Long, Aldridge & Norman
One Peachtree Center-Suite 5300
303 Peachtree Street
Atlanta, GA 30308
Contact:
J. Allen Maines 404-527-8340
Sharon Glenn 404-527-8391
<PAGE>
-4-
APPENDIX A (continued)
PANEL COUNSEL
Smith Gambrell & Russel
3343 Peachtree Road, N.E.-Suite 1800
Atlanta, GA 30326-1010
Contact:
David A. Handley 404-264-2671
Robert C. Schwartz 404-264-2658
Illinois
Jenner & Block
One IBM Plaza
Chicago, IL 60611
Contact:
Jerold Solovy 312-222-9350
Freeborn & Peters
311 South Wacker Drive
Suite 3000
Chicago, IL 60606-6677
Contact:
David H. Kistenbroker 312-360-6567
Kirkland & Ellis
2000 East Randolph Drive
Chicago, IL 60601
Main Tel: 312-861-2000
Contact:
Garrett B. Johnson
Robert J. Kopecky
Sidley & Austin
One First National Plaza
Chicago, IL 60603
Contact:
Walter C. Carlson 312-853-7734
Robert A. Downing 312-853-7434
Eugene A. Schoon 312-853-7279
Skadden, Arps, Slate, Meager & Flom
333 West Wacked Drive
Chicago, IL 60606
Main Tel: 312-407-0700
Contact: Susan Getzendanner
Timothy A. Nelsen
Sonnenschein Nath & Rosenthal
8000 Sears Tower
Chicago, IL 60606
Contact:
Harold D. Shapiro 312-876-8035
Massachusetts
Goodwin, Procter & Hoar
Exchange Place
Boston, MA 02109
Contact:
Don M. Kennedy 617-570-1000
Hale & Dorr
60 State Street
Boston, MA 02109
Main Tel: 617-526-6000
Contact:
Jeffrey Rudman
John Batter
Mintz, Levin, Cohn, Feris, Glovsky & Popeo
One Financial Center
Boston, MA 02111
Contact:
Peter M. Saparoff 617-542-6000
Palmer & Dodge
One Beacon Street
Boston, MA 02108
Contact:
Peter S. Terris 617-573-0100
Ropes & Gray
One International Plaza
Boston, MA 02110-2624
Contact: John D. Donovan, Jr. 617-951-7566
Skadden, Arps, Slate, Meager & Flom
One Beacon Street
Boston, Ma 02108
Main Tel: 617-573-4800
Contact:
Thomas A. Dougherty
George J. Skelly
<PAGE>
-5-
APPENDIX A (continued)
PANEL COUNSEL
Testa, Hurwitz & Thibeault
High Street Tower
125 High Street
Boston, MA 02110
Contact:
Brian E. Pastuszenski 617-248-7000
Edmund G. Case
New York
Arnold & Porter
399 Park Avenue
New York, NY 10022-4690
Contact:
Scott Schreiber 212-715-1000
Cahill Gordon & Reindel
80 Pine Street
New York, NY 10005
Main Tel: 212-701-3000
Contact:
Charles A. Gilman
Immanuel Kohn
Thomas J. Kavaler
Davis Polk & Wardwell
450 Lexington Avenue
New York, NY 10017
Main Tel: 212-450-4000
Contact:
Henry L. King
Daniel F. Kolb
Fried, Frank, Harris, Shiver & Jacobson
One New York Plaza
New York, NY 10004
Contact:
Sheldon Raab 212-859-8090
Kaye, Scholer, Fiernan, Hays & Handler
425 Park Avenue
New York, NY 10022
Contact:
Frederic W. Yerman 212-836-8663
Kirkland & Ellis
Citicorp Center
153 East 53rd Street
New York, NY 10022-4675
Main Tel: 212-446-4800
Contact:
Yosef J. Riemer
Frank M. Holozubiec
Mikbank, Tweed Hadley & McCloy
One Chase Manhattan Plaza
New York, NY 10005
Contact: 212-530-5554
Russell Brooks
Shearman & Sterling
Citicorp Center
153 East 53rd Street
New York, NY 10022-4676
Contact
Jeremy G. Epstein 212-848-8000
Simpson Thacher & Bartlett
425 Lexington Avenue
New York, NY 10017
Main Tel: 212-455-2000
Contact:
Roy L. Reardon
James J. Hagan
Michael J. Chepiga
Skadden, Arps, Slate, Meager & Folm
919 Third Avenue
New York, NY 10022
Main Tel: 212-735-3000
Contact:
Barry H. Garfinkel
Jonathan J. Lerner
Stroock, & Stroock & Lavan
Seven Hanover Square
New York, NY 10004-2696
Main Tel: 212-806-5400
Contact
Melvin A Brosterman
Lawrence Greenwald
Alvin K. Hellerstein
<PAGE>
-6-
APPENDIX A (continued)
PANEL COUNSEL
Sullivan & Cromwell
125 Broad Street
New York, NY 10004-2498
Main Tel: 212-558-4000
Contact:
John L. Warden
Philip L. Grahman, Jr.
Robinson, Silverman, Pearce, Aronachn
& Berman
1290 Avenue of the Americas
New York, NY 10104
Contact:
Herbert Teitelbaum 212-541-2000
Mark Bunin
Wachtell, Lipton, Rosen & Katz
51 West 57th Street
New York, NY 10019
Contact:
Norman Redlich 216-371-9200
Weil, Gotshal & Manges
767 Fifth Avenue
New York, NY 10153
Contact:
Dennis J. Block 213-310-8000
Wilkie, Farr & Gallagher
One Citicorp Center
153 East 53rd Street
New York, NY 10022-4677
Main Tel: 212-821-8000
Contact:
David L. Foster
Richard L. Posen
Michael R. Young
Ohio
Jones Day, Reavis & Pogue
North Point
Lakeside Avenue
Cleveland, OH 44114
Contact: John Newman Jr. 216-586-3939
Philadelphia
Blank, Rome, Comisky & McCauley
1200 Four Penn Center
Philadelphia, PA 19103
Main Tel: 215-569-5500
Contact: Alexander D. Bono
Richard P. McElroy
Jerome R. Richter
Cozen and O'Connor
The Atrium
1900 Market Street
Philadelphia, PA 19103
Main Tel: 215-665-2000
Contact:
Patrick J. O'Connor
Thomas C. Zielinski
H. Robert Fiebach
Dechert Price & Rhoads
4000 Bell Atlantic Tower
1717 Arch Street
Philadelphia, PA 19103-2793
Main Tel: 215-994-4000
Contact:
Seymour Kurland
Jeffrey G. Weil
Morgan, Lewis & Bockius
2000 One Logan Square
Philadelphia, PA 19103-6993
Main Tel: 215-963-5000
Contact:
Gregory M. Harvey
Marc J. Sonnenfeld
Elizabeth Hoop Fay
Pepper, Hamilton & Scheetz
3000 Two Logan Square
Eighteenth & Arch Streets
Philadelphia, PA 19103-2799
Main Tel: 215-981-4000
Contact:
Jon A. Baughman
Laurence Z. Shiekman
<PAGE>
-7-
APPENDIX A (continued)
PANEL COUNSEL
Wolf, Block, Schorr and Solis-Cohen
12th Floor-Packard Building
S.E. Corner 15th & Chestnut Streets
Philadelphia, PA 19102-2678
Contact:
Jay A. Dubow 215-977-2058
Washington
Foster Pepper & Shefelman
1111 Third Avenue, Suite 3400
Seattle, Washington 98101-2399
Main Tel: 206-447-4400
Main Fax: 206-447-9700
Contact:
Peter S. Ehrlichman 206-447-8998
Stellman Keehnel 206-447-8935
Davis Wright Tremain
2600 Century Square
1501 Fourth Avenue
Seattle, Washington 98101-1688
Main Tel: 206-622-3150
Contact:
Stephen M. Rummage 206-628-7755
Bogle & Gates
Two Union Square
601 Union Street
Seattle, Washington 98101-2346
Main Tel: 206-682-5151
Contact:
206-621-1478
206-621-1448
Lane Powell Spearslubersky
1420 Fifth Avenue, Suite 4100
Seattle, WA 98101-2338
Main Telephone: 206-223-7000
Main Fax: 206-223-7107
Contact:
James L. Robart
Rudy A. Englund
James B. Stoetzer
Perkins Cole
1201 Third Avenue, 40th Floor
Seattle, WA 98101-3099
Main Telephone: 206-583-8888
Main Fax: 206-583-8500
Contact:
Ronald L. Berenstein
Harry H. Schneider
Texas
Akin, Gump, Strauss, Hauer & Feld, LLP
1700 Pacific Avenue, Suite 4100
Dallas, TX 75201-4618
Main Telephone: 214-969-2800
Contact:
Lou Bickel
Mike Lowenberg
Akin, Gump, Strauss, Hauer & Feld, LLP
Pennzoil Place - South Tower
711 Louisianna Street, Suite 1900
Houston, TX 77002
Main Telephone: 713-220-5800
Contact:
Charlie Moore
Paula Hinton
Baker & Botts, L.L.P.
910 Louisianna Street
Houston, TX 77002-4995
Main Telephone: 713-229-1234
Contact:
William C. Slusser
Harold L. Metts
Baker & Botts, L.L.P.
2001 Ross Avenue
Dallas, TX 75201-2916
Main Telephone: 214-953-6500
Contact:
Ronald L. Palmer
<PAGE>
-8-
APPENDIX A (continued)
PANEL COUNSEL
Fulbright & Jaworski, L.L.P.
1301 McKinney
Suite 5100
Houston, TX 77010
Main Tel: 713-651-5151
Contact:
Frank G. Jones
Richard N. Carroll
Fullbright & Jaworski, L.L.P.
2200 Ross Avenue
Suite 2800
Dallas, TX 75201
Contact:
Karl G. Dial 214-855-8000
Haynes & Boone, L.L.P.
3100 Nationsbank Plaza
901 Main Street
Dallas, TX 75202-3789
Main Tel: 214-651-5000
Contact:
Michael Boone
George Bramblett
Noel Hensley
Locke Purnell Rain Harrell
2200 Ross Avenue
Suite 2200
Dallas, TX 75201-6776
Contact:
John McElhaney 214-740-8458
Peter Flynn 214-740-8654
Morris Harrell 214-740-8404
Thompson & Knight, P.C.
1700 Pacific
Suite 3300
Dallas, TX 75201-4693
Contact:
Timothy R. McCormick 214-969-1103
Vinson & Elkins
2500 First City Tower
1001 Fannin
Houston, TX 77002-6760
Contact: David T. Hedges, Jr. 713-758-2676
Vinson & Elkins
3700 Trammell Crow Center
2001 Ross Avenue
Dallas, TX 75201-2975
Contact:
Orrin L. Harrison
<PAGE>
ENDORSEMENTS #1
This endorsement, effective 12:01 AM May 05, 1997 forms a part of
policy number 485-38-16
issued to STV GROUP, INC.
by National Union Fire Insurance Company of Pittsburgh, Pa.
NUCLEAR ENERGY LIABILITY EXCLUSIONS ENDORSEMENT
(BROAD FORM)
In consideration of the premium charged, it is hereby understood and agreed that
the Insurer shall not be liable to make any payment for Loss in connection with
any Claim made against any Insured(s):
A. alleging, arising out of, based upon, attributable to, or in any way
involving, directly or indirectly the hazardous properties of nuclear
material, including but not limited to:
(1) nuclear material located at any nuclear facility owned by, or operated
by or on behalf of, the Company, or discharged or dispersed therefrom;
or
(2) nuclear material contained in spent fuel or waste which was or is at
any time possessed, handled, used, processed, stored, transported or
disposed of by or on behalf of the Company; or
(3) the furnishing by an Insured or the Company of services, materials,
parts or equipment in connection with the planning, construction,
maintenance, operation or use of any nuclear facility; or
(4) claims for damages to the Company or its shareholders which alleges,
arises from, is based upon, is attributed to or in any way involves,
directly or indirectly, the hazardous properties of nuclear material.
B. (1) which is insured under a nuclear energy liability policy issued by
Nuclear Energy Liability Insurance Association, Mutual Atomic Energy
Liability underwriters, or Nuclear Insurance Association of Canada, or
would be insured under any such policy but for its termination or
exhaustion of its Limit of Liability; or,
(2) with respect to which (a) any person or organization is required to
maintain financial protection pursuant to the Atomic Energy Act of
1954, or any law amendatory thereof, or (b) the Insured is, or had
this policy not been issued would be entitled to indemnity from the
United States of America, or any agency thereof, under any agreement
entered into the United States of America, or any agency thereof, with
any person or organization.
62739 (5/95) ED0592
-1-
<PAGE>
ENDORSEMENT #1 (Continued)
As used in this endorsement
"hazardous properties" include radioactive, toxic or explosive properties;
"nuclear material" means source material, special nuclear material or byproduct
material;
"source material", "special nuclear material", and "byproduct material" have the
meanings given them in the Atomic Energy Act of 1954 or in any law amendatory
thereof;
"spent fuel" means any fuel element or fuel component, solid or liquid, which
has been used or exposed to radiation in a nuclear reactor;
"waste" means any waste material (1) containing byproduct material and (2)
resulting from the operation by any person or organization of any nuclear
facility included within the definition of nuclear facility under paragraph (a)
or (b) thereof;
"nuclear facility" means --
(a) any nuclear reactor,
(b) any equipment or device designed or used for (1) separating the
isotopes of uranium or plutonium, (2) processing or utilizing spent
fuel, or (3) handling, processing or packaging waste,
(c) any equipment or device used for the processing, fabricating or
alloying of special nuclear material if at any time the total amount
of such material in the custody of the insured at the premises where
such equipment or device is located consists of or contains more than
25 grams of plutonium or uranium 233 or any combination thereof, or
more than 250 grams of uranium 235,
(d) any structure, basin, excavation, premises or place prepared or used
for the storage or disposal of waste, and includes the site on which
any of the foregoing is located, all operations conducted on such site
and all-premises used for such operations;
"nuclear reactor" means any apparatus designed or used to sustain nuclear
fission in a self-supporting chain reaction or to contain a critical mass of
fissionable material.
All other terms, conditions and exclusions remain unchanged.
/s/ Ty Sagalow
AUTHORIZED REPRESENTATIVE
62739 (5/95) EDO592
-2-
<PAGE>
ENDORSEMENT# 2
This endorsement, effective 12:01 AM May 05, 1997 forms a part of
policy number 485-38-16
issued to STV GROUP, INC.
by National Union Fire Insurance Company of Pittsburgh, Pa.
CAPTIVE INSURANCE COMPANY
In consideration of the premium charged, it is hereby understood and agreed
that the Insurer shall not be liable to make any payments for Loss in
connection with any Claim made against any Insured(s) alleging, arising out
of, based upon, attributable to the ownership, management, maintenance
and/or control by the Company of any captive insurance company or entity
including but not limited to Claims alleging the insolvency or bankruptcy
of the Named Corporation as a result of such ownership, operation,
management and control.
All other terms, conditions and exclusions remain unchanged.
/s/ Ty Sagalow
AUTHORIZED REPRESENTATIVE
62738 (5/95) ED0598
<PAGE>
ENDORSEMENT # 3
This endorsement, effective 12:01 AM May 05, 1997 forms a part of
policy number 485-38-16 issued
to STV GROUP, INC.
by National Union Fire Insurance Company of Pittsburgh, Pa.
COMMISSIONS EXCLUSION
In consideration of the premium charged, it is hereby understood and agreed that
the Insurer shall not be liable to make any payment for Loss in connection with
any Claim made against any Insured(s) alleging, arising out of, based upon,
attributable to:
(i) Payments, commissions, gratuities, benefits or any other favors to or for
the benefit of any full or part-time domestic or foreign government or
armed services officials, agents, representatives, employees or any members
of their family or any entity with which they are affiliated; or
(ii) Payments, commissions, gratuities, benefits or any other favors to or for
the benefit of any full or part-time officials, directors, agents,
partners, representatives, principal shareholders, or owners or employees,
or affiliates (as that term is defined In The Securities Exchange Act of
1934, including any of their officers, directors, agents, owners, partners,
representatives, principal shareholders or employees) of any customers of
the company or any members of their family or any entity with which they
are affiliated; or
(iii) Political contributions, whether domestic or foreign.
All other terms, conditions and exclusions remain unchanged.
/s/ Ty Sagalow
AUTHORIZED REPRESENTATIVE
62737 (5/95) ED0591
<PAGE>
ENDORSEMENT # 4
This endorsement, effective 12:01 AM May 05, 1997 forms a part of
policy number 485-38-16
issued to STV GROUP, INC.
by National Union Fire Insurance Company of Pittsburgh, Pa.
PENNSYLVANIA AMENDATORY ENDORSEMENT
TAIL COVERAGE CLAUSE
In consideration of the premium charged, it is hereby understood and agreed that
the first paragraph of the clause which is referred to in the policy as the
"Extended Reporting Clause" or "Discovery Clause" is deleted in its entirety and
replaced by the following;
1. DEFINITIONS
The following definitions apply for purposes of this endorsement:
1) "Termination of Coverage" means:
a) cancellation of this policy: or
b) non-renewal of the policy.
2) "Authorized Insured" means the "Named Insured", the "First Named
Insured", Named Corporation", "Named Sponsor", or "Named Organization"
first named in item 1 of the Declarations page of this policy.
3) "Full Annual Premium" means the premium level in effect immediately
prior to termination of coverage.
4) "Insurer" means the insurance company which issued the policy to which
this endorsement is attached.
II. TAIL COVERAGE CLAUSE
Upon Termination of Coverage by the Insurer or the Insured, the Authorized
Insured shall have the right to purchase Tail Coverage. The premium for the
Tail Coverage shall be 40% of the Full Annual Premium.
Tail Coverage shall be effective for a period of one (1) year following the
effective date of Termination of Coverage. If purchased, the Authorized
Insured can give written notice to the Insurer of claims first made against
an Insured during said one year period for a Wrongful act occurring prior
to such Termination of Coverage and otherwise covered by the policy.
62805 (5/95) ED0524
-1-
<PAGE>
ENDORSEMENT # 4 (continued)
The right of the Authorized Insured to buy Tail Coverage will terminate unless
the Insurer within sixty (60) days from the effective date of Termination of
Coverage receives written acceptance of the Tail Coverage from the Authorized
Insured together with payment from the Authorized Insured of an amount equal to:
(a) the premium for the Tail Coverage plus (b) any premium for the Policy Period
which is owed and not yet paid.
The premium for the Tail Coverage shall be fully earned by the Insurer at
the inception of the Tail. The Tail Coverage shall not be cancelable.
The Limit of Liability for the Tail Coverage shall be part of and not in
addition to the Limit Of Liability for the policy period.
The offer by the Insurer of renewal terms, conditions, limits of liability
and for premiums different from those of the expiring policy shall not
constitute a refusal to renew.
All other terms, conditions and exclusions remain unchanged.
/s/ Ty Sagalow
AUTHORIZED REPRESENTATIVE
62805 (5/95) ED0524
-2-
<PAGE>
ENDORSEMENT #5
This endorsement, effective 12:01 AM May 05, 1997 forms a part of
policy number 485-38-16
issued to STV GROUP, INC.
by National Union Fire Insurance Company of Pittsburgh, Pa.
PENNSYLVANIA
AMENDATORY ENDORSEMENT
Wherever used in this endorsement: 1) "we", "us", "our", and "Insurer" mean the
insurance company which issued this policy; and 2) "you", "your", "named
Insured", "First Named Insured", and "Insured" mean the Named Corporation, Named
Organization, Named Sponsor, Named Insured, or Insured stated in the
declarations page; and 3) "Other Insured(s)" means all other persons or entities
afforded coverage under the policy.
CANCELLATION/NONRENEWAL
The cancellation provision of this policy is amended as follows:
Canceling a policy midterm is prohibited except if:
1. A condition material to insurability has changed substantially;
2. Loss of reinsurance or a substantial decrease in reinsurance has occurred;
3. Material misrepresentation by the Insured;
4. Policy was obtained through fraud;
5. The Insured has failed to pay a premium when due;
6. The Insured has requested cancellation;
7. Material failure to comply with terms;
8. Other reasons that the commissioner may approve.
Notice Requirements for Midterm Cancellation and Nonrenewal
Notice shall be mailed by registered or first class mail by the Insurer directly
to the named Insured. Written notice will be forwarded directly to the named
Insured at least sixty (60) days in advance of the termination date unless one
or more of the following exists:
1) The Insured has made a material misrepresentation which affects the
insurability of the risk, in which case the prescribed written notice
of cancellation shall be forwarded directly to the named Insured at
least fifteen (15) days in advance of the effective date of
termination.
2) The Insured has failed to pay a premium when due, whether the premium
is payable directly to the Insurer or its agents or indirectly under a
premium finance plan or extension of credit, in which case the
prescribed written notice of cancellation shall be forwarded directly
to the Named Insured at least fifteen (15) days in advance of the
effective date of termination.
52165 (11796)
-1-
<PAGE>
ENDORSEMENTS #5 (continued)
3) The policy was cancelled by the named Insured, in which case written
notice of cancellation shall not be required and coverage shall be
terminated on the data requested by the Insured. Nothing in these
three sections shall restrict the Insurer's right to rescind an
insurance policy ab initio upon discovery that the policy was obtained
through fraudulent statements, omissions or concealment of fact
material to the acceptance of the risk or to the hazard assumed by the
Insurer.
The notice shall be clearly labeled "Notice of Cancellation" or "Notice of
Nonrenewal". A midterm cancellation or nonrenewal notice shall state the
specific reasons for the cancellation or nonrenewal. The reasons shall identify
the condition or loss experience which caused the midterm cancellation or
nonrenewal. The notice shall provide sufficient information or data for the
Insured to correct the deficiency.
A midterm cancellation or nonrenewal notice shall state that, at the Insured's
request, the Insurer shall provide loss information to the Insured for at least
three years or the period of time during which the Insurer has provided coverage
to the Insured, whichever is less. Loss information on the Insured shall consist
of the following:
1) Information on closed claims, including date and description or
occurrence, and any amount of payments, if any;
2) Information on open claims, including date and description of
occurrence, amount of payment, if any, and amount of reserves, if any;
3) Information on notices of occurrence, including date and description
of occurrence and amount or reserves, if any.
The Insured's written request for loss information must be made within ten (10)
days of the Insured's receipt of the midterm cancellation or nonrenewal notice.
The Insurer shall have thirty (30) days from the date of receipt of the
Insured's written request to provide the requested information.
Notice of Increase in Premium
The Insurer shall provide not less than sixty (60) days notice of intent to
increase the Insured's renewal premium with thirty (30) days notice of an
estimate of the renewal premium. The notice of renewal premium increase will be
mailed or delivered to the Insured's last known address. If notice is mailed, it
will be by registered or first class mail.
Return of Unearned Premium
Cancellation Initiated by Insurer --Unearned premium must be returned to the
Insured not later than ten (10) business days after the effective date of
termination.
Cancellation Initiated by Insured --Unearned premium must be returned to the
Insured not later than thirty (30) days after the effective date of termination.
All other terms, conditions and exclusions shall remain the same.
/s/ Ty Sagalow
AUTHORIZED REPRESENTATIVE
52165 (11/96)
-2-
<PAGE>
ENDORSEMENT # 6
This endorsement, effective 12:01 AM May 05, 1997 forms a part of
policy number 485-38-16
issued to STV GROUP, INC.
by National Union Fire Insurance Company of Pittsburgh, Pa.
OUTSIDE ENTITY ENDORSEMENT
(2x)
In consideration of the premium charged, it is hereby understood and agreed that
the following entities shall be deemed an "Outside Entity", but only as respects
the Outside Entity's respective Continuity Date below:
OUTSIDE ENTITY CONTINUITY DATE
1) A not-for-profit organization under
section 501(c) (3) of the Internal
Revenue Code of 1986 (as amended). May 05, 1996
ALL OTHER TERMS, CONDITIONS AND EXCLUSIONS REMAIN UNCHANGED.
/s/ Ty Sagalow
AUTHORIZED REPRESENTATIVE
62790 (6/95) EDO506
<PAGE>
Endorsement # 7
This endorsement, effective 12:01 a.m., MAY 05, 1997, forms a part of
policy number 485-38-16
issued to STV GROUP, INC.
by National Union Fire Insurance Company of Pittsburgh, PA.
In consideration of the premium charged, it is hereby understood and agreed
that, Clause 4.Exclusions (e), of the form(s) 62335 is deleted in its entirety
and replaced by the following:
(e) alleging, arising out of, based upon or attributable to any pending or
prior litigation as of MAY 05,1992 or alleging or derived from the same or
essentially the same facts as alleged in such pending or prior litigation.
It is further understood and agreed that with respect to the Limit of Liability
$1,000,000 excess of $3,000,000. exclusion 4(e) is amended to indicate that the
Insurer shall not be liable to make any payment for Loss in connection with any
claim or claims made against the Directors or Officers alleging, arising out of,
based upon or attributable to any pending or prior litigation as of AUGUST 19,
1992, or alleging or derived from the same facts as alleged in such pending or
prior litigation.
It is further understood and agreed that with respect to the Limit of Liability
$2,000,000 excess of $4,000,000. exclusion 4(e) is amended to indicate that the
Insurer shall not be liable to make any payment for Loss in connection with any
claim or claims made against the Directors or Officers alleging, arising out of,
based upon or attributable to any pending or prior litigation as of MAY 05,
1994, or alleging or derived from the same facts as alleged in such pending or
prior litigation.
/s/ Ty Sagalow
Authorized Representative
<PAGE>
ENDORSEMENT# 8
This endorsement, effective 12:01 AM May 05, 1997 forms a part of
policy number 485-38-16
issued to STV GROUP, INC.
by National Union Fire Insurance Company of Pittsburgh, Pa.
SEC Exclusion Relating to Secondary Public Offerings of Securities
(With 30 day reporting provision)
In consideration of premium charged, it is hereby understood and agreed that the
Insurer shall not be liable to make any payment for Loss in connection with any
claim or claims made against the Directors and Officers (including but not
limited to claims brought by any governmental or regulatory entity or any
security holder, whether directly, derivatively or by class action, or by any
other claimant) whether under federal, state or foreign, statutory, regulatory
or common law, if such claim alleges, arises out of, is based upon or is
attributable to the purchase or sale, or offer or solicitation of an offer to
purchase or sell, any security of the Company in a public offering of securities
(hereinafter an OFFERING OF SECURITIES).
This exclusion shall apply, but not be limited to, any such claim which alleges,
arises out of, is based upon or is attributable to any claim arising out of any
alleged misrepresentations or non-disclosures in any written or oral statement,
including but not limited to any Registration Statement, prospectus, offering
circular, private placement memorandum or other document or statement relating
to the OFFERING OF SECURITIES, as well as any failure to file any document
required to be filed with the Securities and Exchange Commission.
Notwithstanding the above, this endorsement shall not apply to the OFFERING OF
SECURITIES described below:
REGISTRATION STATEMENT NO. DATE
Notwithstanding the foregoing, however, this exclusion shall not apply in the
event that within thirty days prior to the effective time of an OFFERING OF
SECURITIES not scheduled or described above, the Company gives written notice
thereof together with all particulars and underwriting information relating
thereto; the Insurer agrees, in its discretion, to grant coverage subject to
such terms, conditions and additional premium as it may require; and the Company
accepts such terms, conditions and additional premium. Such coverage is also
subject to the Company paying when due such additional premium.
ALL OTHER TERMS AND CONDITIONS REMAIN UNCHANGED.
/s/ Ty Sagalow
AUTHORIZED REPRESENTATIVE
60059 (4/94) EDO308
<PAGE>
ENDORSEMENT# 9
This endorsement, effective 12:01 AM May 05, 1997 forms a part of
policy number 485-38-16
issued to STV GROUP, INC.
by National Union Fire Insurance Company of Pittsburgh, Pa.
ARCHITECT OR ENGINEER E&O EXCLUSION
In consideration of the premium charged, it is hereby understood and agreed that
the Insurer shall not be liable to make any payment for Loss in connection with
any Claim made against an Insured(s) alleging, arising out of, based upon or
attributable to the performance of or failure to perform services as an
architect or engineer, or any act, error or omission related thereto.
ALL OTHER TERMS, CONDITIONS AND EXCLUSIONS REMAIN UNCHANGED.
/s/ Ty Sagalow
AUTHORIZED REPRESENTATIVE
62777 (5/95) ED0569
<PAGE>
ENDORSEMENT# 10
This endorsement, effective 12:01 AM May O5, 1997 forms a part of
policy number 485-38-16
issued to STV GROUP, INC.
by National Union Fire Insurance Company of Pittsburgh, Pa.
GENERAL PARTNER/PARTNERSHIP MANAGER/
JOINT VENTURE MANAGER EXCLUSION
In consideration of the premium charged, it is hereby understood and agreed that
the Insurer shall not be liable to make any payment for Loss in connection with
any Claim made against any Insured(s) alleging, arising out of, based upon or
derived from an Insured's or the Company's acting as a general partner of any
limited partnership, or a partnership manager of any general partnership, or
joint venture manager of any joint venture.
ALL OTHER TERMS, CONDITIONS AND EXCLUSIONS REMAIN UNCHANGED.
/s/ Ty Sagalow
AUTHORIZED REPRESENTATIVE
62677 (5/95) EDO570
<PAGE>
ENDORSEMENT # 11
This endorsement, effective 12:01 a.m., MAY 05, 1997, forms a part of
policy number 485-38-16
issued to STV GROUP, INC.
by National Union Fire Insurance Company of Pittsburgh, PA.
CrisisFund (Service Mark)
(Crisis Communications Management Insurance)
In consideration of the premium charged, it is hereby understood and agreed that
policy form 62335 (5/95) is amended to provide Crisis Management Coverage
pursuant to the terms and conditions set forth below:
1. Clause I, Insuring Agreements, is amended to add the following new insuring
agreement:
CRISIS MANAGEMENT COVERAGE
This policy shall pay the Crisis Management Loss of the Company
arising from a Crisis Management Event first commencing during the
Policy Period, up to the amount of the Crisis Management Fund.
2. Clause 4, Exclusions, shall not be applicable to Crisis Management Loss.
3. Clause 5, Limit of Liability, is amended to add the following:
The limit of the Insurer's liability for Crisis Management Loss
arising from all Crisis Management Events occurring during the Policy
Period, in the aggregate, shall be the amount set forth as the Crisis
Management Fund. This limit shall be the maximum limit of the Insurer
under this policy regardless of the number of Crisis Management Events
occurring during the Policy Period. Provided, however, that this
single Crisis Management Event(s) limit shall be part of and not in
addition to the Limit of Liability stated in Item 4 of the
Declarations, which shall in all events be the maximum liability of
the Insurer for all loss under this policy.
4. There shall be no Retention amount applicable to Crisis Management Loss,
and the Insurer shall pay such Loss from first dollar subject to the other
terms and conditions of this endorsement.
5. An actual or anticipated Crisis Management Event shall be reported to the
66083(8/96)
<PAGE>
Insurer as soon as practicable but in no event later than thirty (30) days
after the Company first incurs Crisis Management Loss for which coverage
will be requested under this endorsement.
6. Clause 8 of the policy shall have no applicability to Crisis Management
Events. There shall be no requirement for the Company to obtain prior
written approval of the Insurer before incurring any Crisis Management
Loss, provided that the Crisis Management Firm selected by the Company to
perform the Crisis Management Services has been approved by the Insurer.
Definitions
For the purposes of this endorsement, the following definitions shall apply:
A. Material Effect on the Company's Common Stock Price shall mean, within a
period of 24 hours, that the price per share of the Company's common stock
shall decrease by the greater of $5 per share or 10% net of the change in
the Standard & Poor's Composite Index.
B. Crisis Management Event shall mean:
I. One of the following events which, in the good faith opinion of the
Chief Financial Officer of the Company, did cause or is reasonably
likely to cause, a Material Effect on the Company's Common Stock
Price:
(l) Negative earning or sales announcement
The public announcement of the Company's past or future earnings
or sales, which is substantially less favorable than any of the
following: (i) the Company's prior year's earnings or sales for
the same period, (ii) the Company's prior public statements or
projections regarding earnings or sales for such period, or (iii)
an outside securities analyst's published estimate of the
Company's earnings or sales.
(2) Loss of a patent, trade mark or copyright or major customer or
contract
The public announcement of an unforeseen loss of: (i) the
Company's intellectual property rights for a patent, trade mark
or copyright, other than by expiration, (ii) a major customer or
client of the Company; or (iii) a major contract
660B3(8/96)
<PAGE>
with the Company.
(3) Product recall or delay
The public announcement of the recall of a major product of the
Company or the unforeseen delay in the production of a major
product of the Company.
(4) Mass tort
The public announcement or accusation that the Company has caused
the bodily injury, sickness, disease, death or emotional distress
of a group of persons, or damage to or destruction of any
tangible group of properties, including the loss of use thereof.
(5) Employee layoffs or loss of key executive officer(s)
The public announcement of employee layoffs, or the death or
resignation of one or more key executive officer(s) of the
Company.
(6) Restatement of financial statement
The public announcement of a restatement of the Company's
previously filed financial statements.
(7) Elimination or suspension of dividend
The public announcement of the elimination or suspension of a
regularly scheduled dividend previously being paid by the
Company.
(8) Write-off of assets
The public announcement that the Company intends to write off a
material amount of its assets.
(9) Debt restructuring or default
The public announcement that the Company has defaulted or intends
to default on its debt or intends to engage in a debt
restructuring.
(10) Bankruptcy
66083(8/96)
<PAGE>
The public announcement that the Company intends to file for
bankruptcy protection or that a third party is seeking to file
for involuntary bankruptcy on behalf of the Company; or the
imminence of bankruptcy proceedings, whether voluntary or
involuntary.
(11) Governmental or regulatory litigation
The public announcement of the commencement or threat of
commencement of litigation or governmental or regulatory
proceedings against the Company.
(12) Other
Any other event previously consented to by the Insurer which, in
the good faith opinion of the Chief Financial Officer of the
Company, did cause or is reasonably likely to cause, a Material
Effect on the Company's Common Stock Price, but only if such
event is specifically scheduled by written endorsement to the
policy.
II. Unsolicited takeover bid
An unsolicited written offer or bid by any person or entity other than
an Insured or any affiliate of any Insured, whether publicly announced
or privately made to a director or executive officer of the Company,
to effect a Transaction (as Transaction is defined in Clause 12 of the
policy) of the Company.
Provided, however, that the term Crisis Management Event shall not include any
event relating to:
(1) any claim which has been reported, or any circumstances of which
notice has been given, under any policy of which this policy is a
renewal or replacement or which it may succeed in time;
(2) any pending or prior litigation as of MAY 05, 1997.
(3) the actual, alleged or threatened discharge, dispersal, release or
escape of pollutants; or any direction or request to test for,
monitor, clean up, remove, contain, treat, detoxify or neutralize
pollutants; provided, however, the foregoing shall not apply if the
policy contains any endorsement modifying or deleting, in part or in
whole, exclusion (1) of the policy;
66083(8/96)
<PAGE>
(4) the hazardous properties of nuclear materials; provided, however, the
foregoing shall not apply to any Crisis Management Event arising from
the ownership of, operation of, construction of, management of,
planning of, maintenance of or investment in any nuclear facility.
The descriptions in the headings of the Crisis Management Events are solely for
convenience and form no part of the terms and conditions of coverage.
For the purposes of this endorsement, a Crisis Management Event shall first
commence when the Company or any of its directors or executive officers shall
first become aware of the event and shall conclude at the earliest of the time
when the Crisis Management Firm advises the Company that the crisis no longer
exists or when the Crisis Management Fund has been exhausted.
C. Crisis Management Firm shall mean any public relations firm, crisis
management firm or law firm hired by the Company or its directors, officers
or employees to perform Crisis Management Services in connection with the
Crisis Management Event which has been consented to by the Insurer, the
consent for which shall not be unreasonably withheld. Attached to this
endorsement is a list of firms which have been pre-approved by the Insurer
and may be hired by the Company without further approval by the Insurer:
D. Crisis Management Fund shall mean Fifty Thousand Dollars ($50,000).
E. Crisis Management Loss shall mean the following amounts incurred during the
pendency of or within 90 days prior to and in anticipation of, the Crisis
Management Event, regardless of whether a Claim is ever made against an
Insured arising from the Crisis Management Event and, in the case where a
Claim is made, regardless of whether the amount is incurred prior to or
subsequent to the making of the Claim:
(1) Amounts for which the Company is legally liable for the reasonable and
necessary fees and expenses incurred by a Crisis Management Firm in
the performance of Crisis Management Services for the Company arising
from a Crisis Management Event; and
(2) Amounts for which the Company is legally liable for the reasonable and
necessary printing, advertising, mailing of materials, or travel by
directors, officers, employees or agents of the Company or the Crisis
Management Firm, in connection with the Crisis Management Event.
F. Crisis Management Services means those services performed by a Crisis
Management Firm in advising the Company or any of its directors, officers
66083(8/96)
<PAGE>
or employees on minimizing potential harm to the Company arising from the
Crisis Management Event, including but not limited to maintaining and
restoring investor confidence in the Company.
ALL OTHER TERMS, CONDITIONS AND EXCLUSIONS REMAIN UNCHANGED.
/s/ Ty Sagalow
Authorized Representative
66083(8/96)
<PAGE>
PRE-APPROVED CRISIS MANAGEMENT FIRMS
(1) Abernathy MacGregor Scanlon
501 Madison Avenue
New York, NY 10022
(212) 371-5999
Contact: James T. MacGregor
(2) Burson-Marsteller
230 Park Avenue South
New York, NY 10003-1566
(212) 614-5236
Contact: Michael Claes
(3) Kekst and Company.
437 Madison Avenue
New York, NY 10022
(212) 593-2655
Contact: Andrew Baer
(4) Kroll Associates
900 Third Avenue
New York, NY 10022
(212) 833-3385
Contact: Richard G. McCormick
(5) Robinson Lerer & Montgomery
75 Rockefeller Plaza, 6th floor
New York, NY 10019
(212) 484-7721
Contact: Michael Gross
(6) Sard Verbinnen & Co.
630 Third Avenue
New York, NY 10017
(212) 687-8080
Contact: Paul Verbinnen or George Sard
(7) Sitrick & Company
2029 Century Park East
Suite 1750
Los Angeles, CA 90067
(310) 788-2850
Contact: Michael Sitrick
66083(8/96)
<PAGE>
ENDORSEMENT # 12
This endorsement, effective 12:01 a.m. MAY 05, 1997, forms a part of
policy number 485-38-16
issued to STV GROUP, INC.
by National Union Fire Insurance Company of Pittsburgh, PA.
EMPLOYMENT PRACTICES ENDORSEMENT
COVERAGE
in consideration of the premium charged it is hereby understood and agreed that
the coverage as is afforded by this policy is extended to Employment Practice
Claims against an individual "Insured" (defined below) (whether such Claims are
brought by (i) a past, present or prospective employee or employees, whether
directly or by class action; or (ii) by the Employee Equal Opportunity
Commission (EEOC) or any other state or federal governmental authority
regulating employment practices; or (iii) by any other person or entity),
subject to both the terms, conditions and exclusions of this endorsement and the
policy.
DEFINITIONS
It is further understood and agreed that for the purposes of this endorsement
only, the following definitions shall apply:
(1) "Employment Practice Claims" shall mean any Claim relating to a past,
present or prospective employee of the Company for, or arising out of
the following: (i) any actual or alleged wrongful dismissal, discharge
or termination (either actual or constructive), of employment; (ii)
employment-related misrepresentation; (iii) wrongful failure to employ
or promote; (iv) wrongful deprivation of career opportunity; (v)
wrongful discipline; (vi) failure to grant tenure or negligent
employee evaluation; (vii) failure to provide adequate employee
policies and procedure; or (viii) sexual or workplace harassment of
any kind, (including the alleged creation of a harassing workplace
environment); or (ix) unlawful discrimination, (including sexual or
workplace harassment or creation of a harassing workplace environment)
whether direct, indirect, or unintentional.
Employment Practices Claims shall include Claims brought under state, local
or federal law(whether common or statutory)and shall include, but not be limited
to, allegations of violations of the following federal laws (as amended),
including regulations promulgated thereunder:
1. Family and Medical Leave Act of 1993
2. Americans with Disabilities Act of 1992 (ADA),
3. Civil Rights Act of 1991,
62748(5/95)
<PAGE>
4. Age Discrimination in Employment Act of 1967 (ADEA), including the
Older Workers Benefit Protection Act of 1990.
5. Title VII of the Civil Rights Law of 1964, as amended, including the
Pregnancy Discrimination Act of 1978,
6. Civil Rights Act of 1866, Section 1981, and
7. Fifth and Fourteenth Amendments of the U.S. Constitution.
(2) The term "Insured" shall include, for the purposes of Employment Practices
Claims only, any past, present or future duly elected individual Director
or Officer or any past, present of future employee of the Company whether
such individual is in a supervisory, co-worker or subordinate position or
otherwise. Coverage shall automatically apply to all new employees after
the inception date of the policy.
EXCLUSIONS
It is further understood and agreed that solely for the additional coverage
hereby granted for Employment Practices Claims exclusions (i) and (k) are
amended as follows:
(1) Exclusion (i) is amended by deleting the phrase, "wrongful termination of
employment claims", and substituting the phrase, "Employment Practice
Claims" (as defined in this endorsement) and by deleting the word "former
employee" and substituting the word "employee" to read as follows:
(i) which are brought by any Insured or the Company; or which are brought
by any security holder of the Company, whether directly or
derivatively, unless such security holder's Claim(s) is instigated and
continued totally independent of, and totally without the solicitation
of, or assistance of, or active participation of, or intervention of;
any Insured or the Company; provided, however, this exclusion shall
not apply to Employment Practice Claims brought by an employee other
than an employee who is or was a Director of the Company.
(2) Exclusion (k) is amended by deleting the phrase, "emotional distress", and
by deleting the phrase, "or for injury from libel or slander or defamation
or disparagement or for injury from a violation of a person's right of
privacy", to read as follows:
(k) for bodily injury, sickness, disease or death of any person, or damage
to or destruction of any tangible property, including the loss of use
thereof;
It is further understood and agreed that only as respects any additional
coverage granted by virtue of this endorsement, the following exclusions shall
apply:
<PAGE>
(1) The Insurer shall not be liable for any Loss in connection with any Claim
or Claims made against an Insured alleging, arising out of, based upon or
attributable to any pending or prior litigation as of MAY 05, 1996, or
alleging or derived from the same or essentially the same facts as alleged
in such pending or prior litigation.
(2) The Insurer shall not be liable for any Loss in connection with any Claim
or Claims made against an Insured for any alleged Wrongful Act committed
prior to if any Insured(s), as of such date, knew or could have reasonably
foreseen that such Wrongful Act could lead to a Claim.
ALL OTHER TERMS, CONDITIONS, AND EXCLUSIONS OF THE POLICY REMAIN UNCHANGED.
/s/ Ty Sagalow
AUTHORIZED REPRESENTATIVE
62748(5/95)
Exhibit 11 - Statement Re: Computation of Per-Share Earnings
<PAGE>
<TABLE>
<CAPTION>
Year ended September 30
1997 1996 1995
<S> <C> <C> <C>
Primary
Average shares outstanding 1,821,000 1,821,000 1,812,000
Net effect of dilutive stock options - based
on the treasury stock method using
average market price 80,000 52,000 20,000
---------- ---------- ----------
Total 1,901,000 1,873,000 1,832,000
========== ========== ==========
Net income $860,000 $595,000 $394,000
========== ========== ==========
Per-share amount $.45 $.32 $.22
========== ========== ==========
</TABLE>
Exhibit 13.1
"Common Stock Market Prices" from Company's Annual Report to Shareholders
<PAGE>
Shareholder Information
STV Group Managing Officers
Michael Haratunian, P.E., Chairman
& Chief Executive Officer
Dominick M. Servedio, P.E., President
& Chief Operating Officer
Peter W. Knipe, Secretary-Treasurer
Board of Directors
Michael Haratunian, P.E., Chairman
& Chief Executive Officer
Dominick M. Servedio, P.E., President
& Chief Operating Officer
William J. Doyle, Director
Richard L. Holland, P.E., Director
Maurice L. Meier, P.E., Director
R.M. Monti, P.E., Director
Harry Prystowsky, M.D., Director
Transfer Agent and Registrar
Continental Stock Transfer & Trust Co.
2 Broadway
New York, NY 10004-2207
Counsel
Blank, Rome, Comisky & McCauley
One Logan Square
Philadelphia, PA 19103
Auditors
Ernst & Young LLP
Commerce Court, Suite 200
2601 Market Place
Harrisburg, PA 17110-9359
Annual Meeting
The annual meeting of stockholders of STV Group, Inc., will be held at 10:00
a.m., Tuesday, March 31, 1998, at 225 Park Avenue South, New York, N.Y.
Shareholders of Record
There were 319 shareholders of record as of September 30, 1997.
Common Stock Market Prices
The common stock of STV Group, Inc., is traded in the over-the-counter market
under the symbol STVI. The following table sets forth the reported high and low
bid prices for the periods indicated. Such quotations, supplied by NASDAQ,
represent interdealer prices without retail mark-up, mark-down or commission.
1997 High Ask Low Bid
4th Quarter 8 3/4 7 3/4
3rd Quarter 8 1/4 7 3/4
2nd Quarter 8 1/4 7 1/2
1st Quarter 8 7 1/4
1996 High Ask Low Bid
4th Quarter 7 3/4 7
3rd Quarter 7 1/2 6
2nd Quarter 7 5 3/4
1st Quarter 6 1/4 5
Form 10K Available
Copies of the STV Group, Inc., Form 10K report to the Securities and Exchange
Commission may be obtained without charge by writing or calling:
Peter W. Knipe, Secretary-Treasurer
STV Group, Inc.
205 West Welsh Drive
Douglassville, PA 19518
610/385-8200, FAX 610/385-8500
Exhibit 13.2
"Financial Highlights for Fiscal Years Ended September 30," 1993 through 1997
from Company's Annual Report to Shareholders.
<PAGE>
FINANCIAL HIGHLIGHTS
for fiscal years ended September 30
<TABLE>
<CAPTION>
1997 1996 1995 1994 1993
<S> <C> <C> <C> <C> <C>
Total Revenues $94,712,000 $94,073,000 $89,232,000 $89,465,000 $87,361,000
Operating Revenues 72,832,000 71,271,000 69,397,000 65,746,000 62,692,000
Net Income 860,000 595,000 394,000 563,000 529,000
Net Income
Per Common Share .45 .32 .22 .32 .33
Working Capital 9,306,000 8,721,000 8,220,000 7,184,000 6,630,000
Stockholders' Equity 11,202,000 10,342,000 9,872,000 9,078,000 8,515,000
Total Assets 41,825,000 39,995,000 41,626,000 43,960,000 40,719,000
Long-Term Obligations 1,819,000 1,795,000 2,021,000 1,939,000 1,875,000
</TABLE>
[GRAPHICS OMITTED]
Exhibit 21.1
Subsidiaries of the Company from Company's Annual Report to Shareholders
<PAGE>
Financial Report
1997 Annual Report For STV Group And Subsidiaries
Subsidiaries:
STV Incorporated
STV Architects, Inc.
STV Construction Services, Inc.
STV Environmental, Inc.
STV International, Inc.
STV/Silver & Ziskind, Inc.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
TRANSMITTING STV GROUP'S FISCAL 1997 FORM 10-K.
</LEGEND>
<CIK> 0000095045
<NAME> STV GROUP, INC
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> Sep-30-1997
<PERIOD-END> Sep-30-1997
<CASH> 1,153,000
<SECURITIES> 9,000
<RECEIVABLES> 20,154,000
<ALLOWANCES> 0
<INVENTORY> 15,077,000
<CURRENT-ASSETS> 38,110,000
<PP&E> 7,466,000
<DEPRECIATION> 6,127,000
<TOTAL-ASSETS> 41,825,000
<CURRENT-LIABILITIES> 28,804,000
<BONDS> 0
0
0
<COMMON> 1,921,000
<OTHER-SE> 9,281,000
<TOTAL-LIABILITY-AND-EQUITY> 41,825,000
<SALES> 94,712,000
<TOTAL-REVENUES> 94,712,000
<CGS> 64,362,000
<TOTAL-COSTS> 71,064,000
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,380,000
<INCOME-PRETAX> 1,768,000
<INCOME-TAX> 908,000
<INCOME-CONTINUING> 860,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 860,000
<EPS-PRIMARY> 0.45
<EPS-DILUTED> 0
</TABLE>
