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, 1998 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 ($.50 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 (ss.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 27, 1998 is $17,925,648. (1)
The number of shares outstanding of the registrant's classes of common stock as
of November 27, 1998 is as follows:
Common Shares 3,800,318
DOCUMENTS INCORPORATED BY REFERENCE
Part I Part II Part III Part IV
(None) Annual Report Proxy Statement 1984, 1987, 1989, 1990, 1991,
to Shareholders and Annual Re- 1992, 1993, 1995, and 1996
for fiscal 1998 port to Share- Form 10-K; Registration
holders for Statement No. 2-88904
fiscal 1998
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(1) Based on the last traded price on November 27, 1998. Excludes 812,710 shares
held by executive officers, directors and shareholders owning in excess of 10%
of the Company's common stock (other than the 2,541,456 shares held in trust by
the ESOP which are included). 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, construction management 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., STV Construction Services, Inc., STV Construction,
Inc., and STV/Silver & Ziskind. 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, 1998, the Company employed 1,014
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,
1998 1997 1996
Architectural Engineering 27% 24% 25%
Civil, Highway, Bridge, Airport
and Port Engineering 24 24 33
Defense Systems Engineering 3 4 4
Industrial Process Engineering 2 2 1
Transportation Engineering 39 39 35
Other Engineering Services and Design Build 5 7 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
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chemicals, 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.
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,
1998 1997 1996
U.S. Government Contracts .......... 14% 16% 14%
State and Local Government Contracts 56 56 56
Foreign Government Contracts ....... 0 1 2
Private Contracts .................. 30 27 28
______________
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.
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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.
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 79% and 84% of total assets
as of September 30, 1998 and 1997, 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
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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, 1998 and 1997 was
approximately $150,000,000 and $110,000,000, 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 23.4% in 1998, 23.1% in 1997,
and 24.2% in 1996.
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.
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
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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, 1998, the Company had 1,014 employees, of whom 890
were engaged in engineering and architectural services, 88 were engaged in
administration and 36 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.
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
Position with STV Group, Inc. Business
Name Age Experience During the Past 5 Years
---- --- ----------------------------------------
Michael Haratunian (1) 65 Chairman of the Board and Chief
Executive Officer of STV Group, Inc.
Dominick M. Servedio (2) 58 Director, President and Chief Operating
Officer of STV Group, Inc. and President
and Chief Operating Officer of STV
Incorporated
W. A. Sanders II (3) 51 Senior Vice President of STV
Incorporated
Peter W. Knipe (4) 49 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.
(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 involved in various litigation arising out of the
ordinary course of business. The Company's management believes that the final
resolution of this litigation will not have a material adverse effect on the
Company's financial statements.
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 a funded indemnity program and $2,700,000 by
the general liability insurer. As part of the settlement, the court had required
that the limits of the Company's professional insurance coverage be reserved to
pay this claim
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if the insurer is found liable. In connection with the lawsuit, a declaratory
judgment action was filed on or about February, 1991 by the general liability
insurer in the Supreme Court of New York pursuant to which the general liability
insurer is seeking a judgment that the professional liability insurer and the
Company are obligated to reimburse the general liability insurer for the
payments which it made, plus expenses. The Company had counterclaimed against
the general liability insurer, alleging breach of insurance contracts among
other issues. In January 1998, the court dismissed the claim by the general
liability carrier against the Company. This ruling has been appealed. The
Company and its professional liability insurer believe that this matter should
be covered under its general liability policy and that the professional
liability insurer should be repaid the funds it advanced.
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 judgment
was reversed on appeal in 1994. The plaintiffs in that action filed an action to
enforce the arbitration in the Supreme Court of New York in 1992 against the
Company. On March 3, 1994 the plaintiffs sought to garnish the proceeds of the
professional liability policy by commencing a proceeding in the Philadelphia
Court of Common Pleas against the Company's professional liability insurer. The
Company intervened in the garnishment proceeding and this proceeding has been
stayed.
If the Company's professional liability insurer is found ultimately
liable under these actions, the Company may be required to indemnify the
professional liability insurer to the extent of the policy limits of $5,000,000.
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. The
Company and the Company's professional liability insurer continue to deny
liability and intend to vigorously pursue defenses available to them.
If the outcome 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 this litigation 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, 1998, is incorporated herein by reference.
ITEM 6. SELECTED FINANCIAL DATA
The information contained under the caption "Financial Highlights for
Fiscal Years Ended September 30, 1994 through 1998" in the Company's Annual
Report to Shareholders for the fiscal year ended September 30, 1998 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 1998 Compared to Fiscal Year 1997
Total revenues for the fiscal year ended September 30, 1998, increased
11.1 percent to $105,256,000. This is up from a .7 percent increase in fiscal
1997. The increase in total revenues in fiscal 1998 was mostly due to a 10.7
percent increase in operating revenues mainly in the transportation and
infrastructure area. Revenues from U.S. government contracts decreased 6.1
percent in fiscal 1998 as compared to fiscal 1997 and increased 15.1 percent in
fiscal 1997 as compared to fiscal 1996. This decrease is attributable to the
government's reduced spending, particularly in defense systems projects.
Operating revenues (total revenues excluding pass-through costs) increased 10.7
percent to $80,648,000 compared to a 2.2 percent increase to $72,832,000 in
fiscal 1997. 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 23.4 percent in fiscal 1998 compared to 23.1 percent in fiscal
1997. 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
86.3 percent in fiscal 1998, which is a decrease from 88.4 percent in fiscal
1997. This percentage decrease is due to an increase in margins on design-build
projects and labor utilization improvements. Costs increased
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from $64,362,000 in fiscal 1997 to $69,580,000 in fiscal 1998. This increase is
due primarily to increases in engineering service costs and office-related
expenses.
General and administrative expense, expressed as a percentage of
operating revenues, increased to 7.8 percent in fiscal 1998 from 7.3 percent in
1997. Total general and administrative costs increased 18.5 percent in fiscal
1998 to $6,307,000 from $5,322,000 in fiscal 1997. This increase is due
primarily to higher labor and concomitant expenses.
Interest expense, expressed as a percentage of operating revenues, was
.6 percent in fiscal 1998, and 1.9 percent in fiscal 1997. This decrease is due
to STV's ability to pay off the loan balance during the year with efficient
advance billings and higher net income.
The Company had a pre-tax profit of $4,292,000. Income tax expense was
49 percent of pre-tax income compared to 51 percent in fiscal 1997. The variance
in the rate is due to a reduction in nondeductible expenses as a percent of
higher pre-tax income.
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. 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. 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. 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
88.4 percent in fiscal 1997, which is a decrease from the 89.2 percent in fiscal
1996. 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. 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.
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Interest expense, expressed as a percentage of operating revenues, was
1.9 percent in fiscal 1997 and 2.1 percent in fiscal 1996. 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. 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. 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. 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. 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. 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. 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
89.2 percent in fiscal 1996, which is a decrease from the 89.3 percent in fiscal
1995. 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.
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. 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. The variance
in the rate is due to reduction in non-deductible expenses as a percent of
pre-tax income.
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In the fourth quarter, the Company had a pre-tax profit of $483,000 as
compared to $286,000 in fiscal 1995. The increase in pre-tax profit from fiscal
1995 is due to a decrease in employee-related costs and interest expense.
Liquidity, Capital Resources and Financing Agreements.
Cash provided in operating activities was $14,509,000 in fiscal 1998
compared to $1,734,000 in fiscal 1997. This increase was due mainly to increases
in billings in excess of related costs and increases in accounts payable and
other current liabilities. Working capital increased $2,242,000 to $12,341,000
in fiscal 1998 compared to a $1,378,000 increase in 1997 and a $501,000 increase
in 1996. Investing activities increased, consisting of $1,097,000 for the
continued purchase of computer hardware and software compared to $831,000 in
1997. Financing activities included a $10,228,000 net decrease in short-term
borrowing due to the previously mentioned improved cash flow from operating
activities.
Capital resources available to the Company include an existing line of
credit for working capital. The current line is a maximum of $15.5 million based
on accounts receivable and work-in-progress, of which approximately $12,881,000
is currently available. An agreement was signed this year which reduced the
borrowing rate to the bank's base rate and reduced the amount charged for
Letters of Credit. 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
line of credit are adequate to meet current fiscal year requirements. 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.
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 (see Note 7).
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.
Year 2000
The Year 2000 issue, or "The Y2K Bug" as it is sometimes called, is the
result of computer programs and equipment that were written and manufactured
using two digits rather than four to define the applicable year. Date-sensitive
computer programs and equipment may recognize a date using only the last two
digits. This could result in the year 2000 being recognized as the year 1900.
System failures or miscalculations can occur, which would cause disruptions in
operations and/or the inability to process normal business transactions.
-12-
<PAGE>
STV has recently acquired new financial and project management systems
that are certified Year 2000-compliant. The Company is also continuing on a
normal basis to replace or upgrade other systems that may not be compliant. This
process will be completed in 1999. Costs of becoming 2000 compliant will not be
materially more than normal information technology (IT) purchases and associated
IT costs. However, STV has taken and will continue to take reasonable and
prudent actions, consistent with the standards of care prevalent in the
industry, to comply with Year 2000 standards and to prevent interruptions to STV
operations. The Company is taking action to obtain certification from its
suppliers, including suppliers of IT and non-IT systems, and its clients of
their Year 2000 compliance, and to test the Company's existing equipment and
software under simulated Year 2000 conditions to further ensure that normal
operation will continue beyond 2000. A steering committee of senior managers has
been formed to coordinate and manage all Year 2000 issues, both internally and
externally. The cost of this endeavor is not believed to be material.
The maximum potential risk exposure to STV is as follows: (a)
Disruptions could occur with the failure of project-specific applications or
unique computer assisted design and drafting and other software products that
are not 2000-compliant. This would halt or delay completion of engineering or
construction designs and could subject STV to litigation for failure to complete
designs according to contract timetables; and (b) There is the potential for a
governmental unit or other large client to have 2000 compliance problems in
remitting to the Company or otherwise interrupting collections or bank
processes. The amount of potential liability and lost revenue cannot be
reasonably estimated at this time. The Company currently has a contingency plan
to immediately replace any defective computer or software system. This plan is
considered adequate because all STV systems are PC-based, and STV has sufficient
hardware and financial assets to make such corrections on a near real-time
basis.
Cautionary Statement Regarding Forward-Looking Statements
Certain oral statements made by management from time to time and
certain statements contained herein, such as statements regarding STV's ability
to meet its liquidity needs and control costs, certain statements in Notes to
Consolidated Financial Statements, and other statements contained herein
regarding matters which are not historical facts are forward-looking statements
(as such term is defined in the Securities Act of 1933). Because such statements
involve risks and uncertainties, actual results may differ materially from those
expressed or implied by such forward-looking statements. Factors that could
cause actual results to differ materially include, but are not limited to those
discussed below:
1. The Company's ability to secure the capital and the related cost of
such capital necessary to fund its future growth.
2. STV's continued ability to operate in a heavily regulated government
environment. 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. Under certain circumstances, the
government can also suspend or debar individuals or firms from obtaining future
contracts with the government.
-13-
<PAGE>
3. The level of competition in the Company's industry, including
companies with significantly larger operations and resources than STV.
4. The Company's ability to identify and win suitable projects and to
consummate or complete any such projects.
5. STV's ability to perform design-build projects, which may include
the responsibility of ensuring the actual construction of a project for a
guaranteed price.
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 provision or
fixed-price contracts which include inflation assumptions when bid upon.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The report of independent auditors and consolidated financial
statements included in the Company's Annual Report to Shareholders for the year
ended September 30, 1998, 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 1998 Proxy Statement is incorporated herein by reference.
ITEM 11. EXECUTIVE COMPENSATION.
The information contained under the caption "Executive Compensation" in
the Company's 1998 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 1998 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 1998 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, 1998 and
1997
Consolidated Statements of Income - Years ended
September 30, 1998, 1997 and 1996
Consolidated Statements of Stockholders' Equity -
Years ended September 30, 1998, 1997 and 1996
Consolidated Statements of Cash Flows - Years ended
September 30, 1998, 1997 and 1996
Notes to Consolidated Financial Statements -
September 30, 1998
-15-
<PAGE>
(2) Financial statement 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, 1998.
(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.
* 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.
-16-
<PAGE>
* 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.
****** 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.
-17-
<PAGE>
******* 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.
10.37 Amendment dated June 30, 1998, between the Company and First
Union Bank, decreasing the maximum amount of the line of
credit as well as reducing the borrowing rate and the amount
charged for Letters of Credit.
13.1 "Common Stock Market Prices" from Company's Annual Report to
Shareholders.
13.2 "Financial Highlights for Fiscal Years Ended September 30,"
1994 through 1998 from Company's Annual Report to
Shareholders.
21.1 Subsidiaries of the Company from Company's Annual Report to
Shareholders.
23.1 Consent of Ernst & Young LLP.
________________
-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, 1995.
**********Incorporated by reference from Form 10-K and the Annual Report for
the year ended September 30, 1996.
-19-
<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, 1998 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.
SIGNATURE CAPACITY DATE
/s/ Michael Haratunian Chairman of the Board, December 29, 1998
MICHAEL HARATUNIAN Chief Executive Officer
and Director (Principal
Executive Officer)
/s/ Dominick M. Servedio President, Chief December 29, 1998
DOMINICK M. SERVEDIO Operating Officer and
Director
/s/ Peter W. Knipe Secretary/Treasurer December 29, 1998
PETER W. KNIPE (Principal Accounting
and Financial Officer)
/s/ Richard L. Holland Director December 29, 1998
RICHARD L. HOLLAND
/s/ Harry Prystowsky Director December 29, 1998
HARRY PRYSTOWSKY
/s/ Ray M. Monti Director December 29, 1998
RAY M. MONTI
/s/ Maurice L. Meier Director December 29, 1998
MAURICE L. MEIER
/s/ William J. Doyle Director December 29, 1998
WILLIAM J. DOYLE
<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
<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, 1998 and 1997, and the related
consolidated statements of income, stockholders' equity, and cash flows for each
of the three years in the period then ended. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with 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, 1998 and 1997, and the
consolidated results of their operations and their cash flows for each of the
three years in the period then ended, in conformity with generally accepted
accounting principles.
/s/ ERNST & YOUNG LLP
Harrisburg, Pennsylvania
November 12, 1998
-22-
<PAGE>
CONSOLIDATED BALANCE SHEETS
STV Group and Subsidiaries.
<TABLE>
<CAPTION>
September 30
1998 1997
<S> <C> <C>
Assets
Current Assets:
Cash and cash equivalents $ 4,444,000 $ 1,153,000
Accounts receivable 23,485,000 20,154,000
Costs and estimated profits of uncompleted
contracts in excess of related billings 13,218,000 15,077,000
Prepaid income taxes 84,000 503,000
Prepaid expenses and other current assets 1,065,000 1,223,000
----------- -----------
Total Current Assets 42,296,000 38,110,000
Property and equipment, net 1,553,000 1,339,000
Deferred income taxes 1,882,000 1,660,000
Other assets 757,000 716,000
----------- -----------
Total Assets $46,488,000 $41,825,000
Liabilities and Stockholders' Equity
Current Liabilities:
Note payable $ 0 $10,228,000
Current maturity of long-term debt 564,000 632,000
Accounts payable 6,382,000 5,707,000
Billings on uncompleted contracts in
excess of related costs and estimated profits 13,375,000 4,386,000
Accrued payroll and related expenses 5,669,000 4,754,000
Accrued expenses 2,007,000 1,608,000
Deferred income taxes 1,862,000 696,000
Income tax payable 96,000 0
----------- -----------
Total Current Liabilities 29,955,000 28,011,000
Long-term debt 2,134,000 1,819,000
Post-retirement benefits 927,000 793,000
----------- -----------
Total Liabilities 33,016,000 30,623,000
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,
authorized 2,000,000 shares,
issuable in series, no shares issued or outstanding 0 0
Common stock, par $.50, authorized 12,000,000 shares
in 1998; par $1, authorized 6,000,000 shares in 1997 2,025,000 1,921,000
Capital in excess of par 3,350,000 3,003,000
Retained earnings 8,868,000 6,674,000
----------- -----------
14,243,000 11,598,000
Less: Treasury stock 771,000 271,000
Loans receivable from officers 0 125,000
----------- -----------
Total Stockholders' Equity 13,472,000 11,202,000
----------- -----------
Total Liabilities and Stockholders' Equity $46,488,000 $41,825,000
</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
1998 1997 1996
<S> <C> <C> <C>
Total revenues $105,256,000 $ 94,712,000 $ 94,073,000
Subcontract and procurement costs 24,608,000 21,880,000 22,802,000
------------ ------------ ------------
Operating revenue $ 80,648,000 $ 72,832,000 $ 71,271,000
Costs and expenses:
Costs of services $ 69,580,000 $ 64,362,000 $ 63,557,000
General and administrative .. 6,307,000 5,322,000 4,912,000
Interest 469,000 1,380,000 1,501,000
------------ ------------ ------------
$ 76,356,000 $ 71,064,000 $ 69,970,000
Income before income taxes $ 4,292,000 $ 1,768,000 $ 1,301,000
Income tax expense 2,098,000 908,000 706,000
------------ ------------ ------------
Net income $ 2,194,000 $ 860,000 $ 595,000
Basic earnings per share $ .59 $ .24 $ .16
Diluted earnings per share $ .55 $ .23 $ .16
</TABLE>
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, 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
Treasury stock purchases 28,992 500,000
Exercise of options 138,726 104,000 347,000
2-for-1 stock split 1,989,456 120,118
Net income for the year 2,194,000
Balance, September 30, 1998 4,049,154 $2,025,000 $3,350,000 $8,868,000 248,836 $ 771,000
</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
1998 1997 1996
<S> <C> <C> <C>
Operating Activities
Net income $ 2,194,000 $ 860,000 $ 595,000
Adjustments to reconcile net income to
net cash provided by operating activities
Depreciation 741,000 795,000 997,000
Deferred income taxes 944,000 585,000 (358,000)
Changes in operating assets and
liabilities
Accounts receivable (3,331,000) 350,000 1,254,000
Costs and estimated profits of
uncompleted contracts in excess of
related billings and other current assets 2,017,000 (487,000) (1,003,000)
Accounts payable and
other liabilities 2,440,000 204,000 1,131,000
Billings on uncompleted contracts in excess
of related costs and estimated profits 8,989,000 68,000 974,000
Current income taxes 515,000 (641,000) 678,000
------------ ------------ ------------
Net cash provided by
operating activities $ 14,509,000 $ 1,734,000 $ 4,268,000
Investing Activities
Purchase of property and equipment $ (843,000) $ (724,000) $ (338,000)
Purchase of software (254,000) (107,000) (19,000)
Decrease (increase) in other assets 68,000 28,000 (40,000)
Purchase of treasury stock (342,000) -- --
Loans receivable from officers -- -- (125,000)
------------ ------------ ------------
Net cash used in investing
activities $ (1,371,000) $ (803,000) $ (522,000)
Financing Activities
Proceeds from issuance of common stock $ 451,000 -- --
Proceeds from line of credit and
long term borrowings 55,073,000 92,435,000 85,797,000
Principal payments on line of credit and
long term borrowings (65,371,000) (92,241,000) (90,183,000)
------------ ------------ ------------
Net cash (used in) provided by
financing activities $ (9,847,000) $ 194,000 $ (4,386,000)
Increase (decrease) in cash 3,291,000 1,125,000 (640,000)
Cash and cash equivalents at beginning of year 1,153,000 28,000 668,000
Cash and cash equivalents at end of year $ 4,444,000 $ 1,153,000 $ 28,000
</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 specialize in consulting engineering,
architectural, planning, environmental, construction management 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, which includes all highly liquid investments, 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 $851,000.
-26-
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
STV Group and Subsidiaries.
Depreciation
Depreciation is computed 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.
Reclassifications
Certain previously reported amounts have been reclassified to conform to their
1998 presentation.
Long-lived Assets
The carrying amount of the long-lived assets are reviewed if facts and
circumstances suggest that they may be impaired. If this review indicates that
book value of assets to be held or disposed of exceeds the undiscounted future
cash flows, an impairment loss would be recognized for the excess of book over
fair values.
New Accounting Standards
In February 1997, the Financial Accounting Standards Board issued Statement No.
128, "Earnings Per Share," which the Company adopted in 1998. All prior period
amounts have been restated, and disclosures as required by SFAS 128 are included
in Note 6 to the financial statements.
In June 1997, the FASB issued SFAS No. 131, "Disclosures about Segments of an
Enterprise and Related Information." SFAS No. 131 establishes standards for the
way that public business enterprises report information about operating segments
in annual financial statements and requires that those enterprises report
selected information about operating segments in interim financial reports
issued to stockholders. It also establishes standards for related disclosures
about products and services, geographic areas, and major customers. SFAS No. 131
is effective for financial statements for fiscal years beginning after December
15, 1997. The Company is evaluating the disclosure requirements of SFAS No. 131
and currently believes that its adoption will have no material impact on its
future disclosure requirements.
2. COSTS AND ESTIMATED PROFITS OF UNCOMPLETED CONTRACTS IN EXCESS OF RELATED
BILLINGS
Costs and estimated profits of uncompleted contracts at September 30, 1998 and
1997, respectively, are as follows:
1998 1997
Costs and estimated
earnings on
uncompleted contracts $ 350,044,000 $ 320,461,000
Less billings to date 350,201,000 309,770,000
------------- -------------
$ (157,000) $ 10,691,000
-27-
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
STV Group and Subsidiaries.
Costs and estimated profits of uncompleted contracts are included in the
accompanying balance sheets under the following captions:
1998 1997
Costs and estimated
profits of uncompleted
contracts in excess of
related billings $ 13,218,000 $ 15,077,000
Billings on uncompleted
contracts in excess of
related costs and
estimated profits 13,375,000 4,386,000
------------ ------------
$ (157,000) $ 10,691,000
Included in accounts receivable are retainages related to uncompleted contracts
in the amount of $7,225,000 in 1998 and $5,087,000 in 1997. The collection of
retainages generally coincides with final project acceptance.
3. PROPERTY AND EQUIPMENT
Property and equipment, at cost, are as follows:
1998 1997
Land $ 54,000 $ 54,000
Equipment 4,572,000 4,212,000
Furniture and
fixtures 1,825,000 1,456,000
Leasehold
improvements 1,744,000 1,744,000
---------- ----------
$8,195,000 $7,466,000
Less:
Accumulated
depreciation and
amortization 6,642,000 6,127,000
---------- ----------
$1,553,000 $1,339,000
4. NOTE PAYABLE
The Company's current credit facility, as amended, includes a note payable on
demand ($0 borrowings outstanding at September 30, 1998) which bears interest at
the bank's base rate (8.25 percent at September 30, 1998) and is secured by
substantially all assets. The weighted average interest rate was 9.7 percent in
fiscal 1998 and 9.9 percent in fiscal 1997. The bank also provides letters of
credit which incur a charge of 1.5 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 $15,500,000 based on accounts
receivable and contracts in progress balances.
An agreement with the 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. To date, the Company has been in compliance with
these covenants.
5. INCOME TAXES
The Company uses the liability method of accounting for income taxes required by
-28-
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
STV Group and Subsidiaries.
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, 1998 and
1997, are as follows:
1998 1997
Deferred tax assets:
Vacation accruals $ 694,000 $ 607,000
Depreciation 50,000 98,000
Deferred compensation 920,000 789,000
Litigation 479,000 387,000
International asset sale 107,000 107,000
Postemployment benefits 5,000 12,000
Postretirement
medical benefits 427,000 374,000
---------- ----------
Total deferred
tax assets $2,682,000 $2,374,000
Deferred tax liabilities:
Retainage 2,662,000 1,410,000
---------- ----------
Total deferred tax
liabilities $2,662,000 $1,410,000
Net deferred
tax assets $ 20,000 $ 964,000
Significant components of the provision (benefit) for income taxes are as
follows:
1998 1997 1996
Current:
Federal $ 798,000 $ 208,000 $ 734,000
State 356,000 86,000 330,000
---------- ---------- ----------
Total current $1,154,000 $ 294,000 $1,064,000
Deferred:
Federal $ 592,000 $ 427,000 $ (239,000)
State 352,000 187,000 (119,000)
---------- ---------- ----------
Total deferred $ 944,000 $ 614,000 $ (358,000)
Income tax
expense $2,098,000 $ 908,000 $ 706,000
A reconciliation of federal income taxes at the statutory rate to the Company's
income tax provision follows:
1998 1997 1996
Federal income
tax rate 34.0% 34.0% 34.0%
Non-deductible
expenses and other 4.3 7.0 9.2
State taxes, net of
federal tax effect 10.7 10.0 10.8
------ ------ ------
49.0% 51.0% 54.0%
The Company made income tax payments of $618,000, $971,000, and $488,000 in
1998, 1997 and 1996, respectively. The Company received no income tax refunds in
1998, $7,000 in 1997 and $51,000 in 1996.
-29-
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
STV Group and Subsidiaries.
6. EARNINGS PER SHARE
SFAS No. 128, "Earnings per Share," has been adopted by the Company. SFAS 128
replaces primary earnings per share (EPS) with basic EPS and fully diluted EPS
with diluted EPS. Basic EPS is computed by dividing net income by the weighted
average number of shares of common stock outstanding during the period. Diluted
EPS recognizes the potential dilutive effects of the future exercise of common
stock options.
Years ended September 30
1998 1997 1996
Net income $2,194,000 $ 860,000 $ 595,000
Weighted average
shares for basic
earnings per share 3,719,000 3,642,000 3,642,000
Weighted average
shares for diluted
earnings per share 3,959,000 3,803,000 3,746,000
Basic earnings
per share .59 .24 .16
Diluted earnings
per share .55 .23 .16
A 2-for-1 split was effected April 13, 1998, for shareholders of record as of
March 31, 1998. This split and the effects of Statement 128 are reflected in the
earnings per share and weighted average number of shares outstanding
calculations above for all periods persented.
7. COMMITMENTS AND CONTINGENCIES
The Company is involved in various litigation arising out of the ordinary course
of business. The Company's management believes that the final resolution of this
litigation will not have a material adverse effect on the Company's financial
statements.
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 a funded indemnity program and $2,700,000 by the general liability
insurer. As part of the settlement, the court had required that the limits of
the Company's professional insurance coverage be reserved to pay this claim if
the insurer is found liable. In connection with the lawsuit, a declaratory
judgment action was filed on or about February, 1991 by the general liability
insurer in the Supreme Court of New York pursuant to which the general liability
insurer is seeking a judgment that the professional liability insurer and the
Company are obligated to reimburse the general liability insurer for the
payments which it made, plus expenses. The Company had counterclaimed against
the general liability insurer, alleging breach of insurance contracts among
other issues. In January 1998, the court dismissed the claim by the general
liability carrier against the Company. This ruling has been appealed. The
Company and its professional liability insurer believe that this matter should
be covered under its general liability policy and that the professional
liability insurer should be repaid the funds it advanced.
-30-
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
STV Group and Subsidiaries.
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 judgment was reversed
on appeal in 1994. The plaintiffs in that action filed an action to enforce the
arbitration in the Supreme Court of New York in 1992 against the Company. On
March 3, 1994 the plaintiffs sought to garnish the proceeds of the professional
liability policy by commencing a proceeding in the Philadelphia Court of Common
Pleas against the Company's professional liability insurer. The Company
intervened in the garnishment proceeding and this proceeding has been stayed.
If the Company's professional liability insurer is found ultimately liable under
these actions, the Company may be required to indemnify the professional
liability insurer to the extent of the policy limits of $5,000,000. 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. The Company
and the Company's professional liability insurer continue to deny liability and
intend to vigorously pursue defenses available to them.
If the outcome 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 this litigation will not have a material adverse effect on the
Company's financial condition.
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. Management does not believe such contingency would have a
material impact on the Company's operating results.
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:
Operating Leases
1999 $ 4,460,000
2000 3,420,000
2001 2,892,000
2002 2,115,000
2003 1,944,000
Thereafter 9,012,000
Total minimum
lease payments $ 23,843,000
Rental expense under operating leases amounted to $4,314,000, $3,783,000 and
$2,892,000 in 1998, 1997 and 1996, respectively.
-31-
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
STV Group and Subsidiaries.
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 1998, 1997 and 1996 was $1,144,000, $1,087,000 and
$1,002,000, 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 1998 contribution
with cash payments throughout 1998 and 1999. At September 30, 1998, 2,541,000
shares of Company stock are held by the ESOP and are included in the earnings
per share computations.
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 1995 Stock Option Plan was approved in fiscal
1996. 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 1998 and 1997: risk-free interest rates of 5 and 6
percent respectively, 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 five years.
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.
-32-
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
STV Group and Subsidiaries.
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:
1998 1997
Pro forma net income $ 1,849,000 $ 774,000
Pro forma earnings per share .50 .21
Pro forma diluted earnings
per share .47 .20
Outstanding options to purchase shares of common stock have been granted to
officers and employees at prices ranging from $2.06 to $4.38 per share. The
weighted-average remaining contractual life of those options is 8.29 years. A
summary of the option transactions is as follows:
Year ended September 30
1998 1997 1996
Options outstanding,
beginning of period 245,000 190,000 190,000
Granted 172,000 55,000 --
Effect of split 344,000 -- --
Exercised (139,000) -- --
Canceled (5,000) -- --
Options outstanding,
end of period 617,000 245,000 190,000
Options exercisable 273,000 190,000 190,000
Shares available for
future option grants 379,000 445,000 500,000
The weighted average fair value of options granted during fiscal 1998 and 1997
was $1.16 and $1.21 per share respectively. The weighted average exercise price
of options granted during fiscal 1998 and 1997 was $4.22 and $4.00 respectively.
The weighted average exercise price of options exercised in 1998 was $3.25. The
weighted average exercise price of options outstanding at September 30, 1998 and
1997, was $3.69 and $2.65 respectively, while the weighted average exercise
price of exercisable options at September 30, 1998, was $3.03.
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. These loans were satisfied in 1998, plus interest at the Company's bank
borrowing rate, by the Company acquiring shares of treasury stock from the
officers.
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.
-33-
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
STV Group and Subsidiaries.
The following table presents the plan's status reconciled with amounts
recognized in the Company's balance sheet (current and long-term):
1998 1997
Accumulated postretirement
benefit obligation:
Retirees $ (575,000) $ (521,000)
Fully eligible active
plan participants (757,000) (536,000)
Other active
plan participants (352,000) (351,000)
----------- -----------
Accumulated
postretirement
benefit obligation $(1,684,000) $(1,408,000)
Unrecognized
net gain (222,000) (448,000)
Unrecognized prior
service costs 41,000 82,000
Unrecognized
transition obligation 839,000 895,000
----------- -----------
Accrued postretirement
benefit cost $(1,026,000) $ (879,000)
Net periodic postretirement benefit costs include the following components:
1998 1997 1996
Service cost $ 32,000 $ 36,000 $ 43,000
Interest cost 114,000 101,000 119,000
Amortization of
transition obligation
over 20 years 56,000 56,000 84,000
Unrecognized
(gain) loss 17,000 (3,000) (49,000)
--------- --------- ---------
Net periodic
postretirement
benefit cost $ 219,000 $ 190,000 $ 197,000
Effective December 1,1995, STV switched from an indemnity to a combination
indemnity and managed care program. The cost assumptions 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 10.5 percent for 1998 (11 percent in 1997
and 11.5 percent in 1996) 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, 1998, by $111,000, and the aggregate of the service and
interest cost components of net periodic postretirement benefit cost for 1998,
1997 and 1996 by $17,000, $16,000 and $20,000, respectively.
The weighted-average discount rate used in determining the accumulated
postretirement benefit obligation was 7.0 percent at September 30, 1998, and
7.75 percent at September 30, 1997.
10. MAJOR CUSTOMERS
The percentage of total revenues derived from contracts with the United States
government for fiscal years 1998, 1997 and 1996 were 14 percent, 16 percent and
14 percent, respectively.
-34-
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
STV Group and Subsidiaries.
11. LONG-TERM DEBT
Long-term debt consists of the following:
<TABLE>
<CAPTION>
1998 1997
<S> <C> <C>
Deferred compensation liability payable in fixed monthly installments of
$11,542 through September 2006 with interest imputed at 16 percent $ 623,000 $ 659,000
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 699,000 634,000
Supplemental executive retirement agreements for two current executives payable
in monthly installments upon retirement with interest imputed at 7 percent. (1) 850,000 562,000
Other, including capital leases in 1997 526,000 596,000
---------- ----------
2,698,000 2,451,000
Less: Current portion 564,000 632,000
---------- ----------
$2,134,000 $1,819,000
<FN>
1) These agreements for two current executives provide for annual future cash
payments based on salary at retirement commencing September 2003 and September
2005, respectively. Subsequent to September 30, 1998, these agreements were
superceded to provide for cash payments of $212,000 and $325,000 annually for a
period of 15 years. The benefit will be accrued over the term of the employment
agreements which extend through 2003. These payments would be increased should
the cost of living index increase.
</FN>
</TABLE>
Interest paid during 1998, 1997 and 1996 amounted to $505,000, $1,310,000 and
$1,472,000, respectively,
Annual maturities of long-term debt are as follows:
Year ending September 30
1999 $ 564,000
2000 49,000
2001 57,000
2002 67,000
2003 79,000
Thereafter 1,882,000
-35-
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
STV Group and Subsidiaries.
12. QUARTERLY RESULTS (UNAUDITED) (All dollar amounts omit 000 except per share
data.)
Quarter Year
First Second Third Fourth
Revenue from services:
1998 $ 24,135 $ 25,997 $ 25,550 $ 29,574 $ 105,256
1997 $ 22,736 $ 22,311 $ 24,637 $ 25,028 $ 94,712
Operating revenue:
1998 $ 19,158 $ 19,796 $ 20,040 $ 21,654 $ 80,648
1997 $ 18,123 $ 18,181 $ 18,113 $ 18,415 $ 72,832
Gross profit:
1998 $ 2,583 $ 2,582 $ 2,744 $ 3,159 $ 11,068
1997 $ 1,918 $ 2,092 $ 2,138 $ 2,322 $ 8,470
Net income:
1998 $ 412 $ 495 $ 602 $ 685 $ 2,194
1997 $ 158 $ 183 $ 228 $ 291 $ 860
Basic earnings per share:
1998 $ .11 $ .14 $ .16 $ .18 $ .59
1997 $ .04 $ .05 $ .07 $ .08 $ .24
Diluted earnings per share:
1998 $ .11 $ .12 $ .15 $ .17 $ .55
1997 $ .04 $ .05 $ .06 $ .08 $ .23
A 2-for-1 stock split was effected at the close of business on April 13, 1998,
for shareholders of record as of March 31, 1998. Earnings-per-share amounts have
been restated to reflect this split.
-36-
<PAGE>
EXHIBITS
Index
Exhibit 10.10 - Officers' and Directors' Liability Policy
Exhibit 10.31 - Employment Agreement of Dominick M. Servedio
Exhibit 10.32 - Employment Agreement of Michael Haratunian
Exhibit 10.37 - Amendment dated June 30, 1998, between the Company and
First Union Bank, decreasing the maximum amount of the
line of credit as well as the borrowing rate and the
amount charged for Letters of Credit.
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," 1994 through 1998 from Company's Annual Report to
Shareholders.
Exhibit 21.1 - Subsidiaries of the Company from Company's Annual Report
to Shareholders
Exhibit 23.1 - Consent of Ernst & Young LLP
AIG logo
American International Companies (R)
856-27-73
/_/ AIU Insurance Company /_/ Granite State Insurance Company
/_/ American Home Assurance /_/ Illinois National Insurance Co.
Company /X/ National Union Fire Insurance Company
/_/ American International of Pittsburgh, Pa.
Pacific Insurance Company /_/ National Union Fire Insurance Company of
/_/ American International Louisiana
South Insurance Company /_/ New Hampshire Insurance Company
/_/ Birmingham Fire Insurance
Company of Pennsylvania
(each of the above being a capital stock company)
- --------------------------------------------------------------------------------
DIRECTORS, OFFICERS AND CORPORATE LIABILITY INSURANCE POLICY
D&O GOLD (SM)
NOTICE: THIS IS A CLAIMS MADE POLICY. 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: DE
ITEM 2. SUBSIDIARY COVERAGE: any past, present or future Subsidiary of the
Named Corporation
ITEM 3. POLICY PERIOD: From: May 05, 1998 To: May 05, 1999
(12:01 A.M. at the address stated in Item 1.)
1
<PAGE>
ITEM 4. LIMIT OF LIABILITY: $6,000,000 aggregate for
Coverages A and B
combined (including
Defense Costs)
ITEM 5. RETENTION:
SECURITIES CLAIMS (INCLUDING YEAR 2000 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)
YEAR 2000 CLAIMS (OTHER THAN YEAR 2000
SECURITIES CLAIMS):
Judgments, Settlements and Defense
Costs (non-Indemnifiable Loss) None
Judgments, Settlements and Defense
Costs (Coverage B(ii) 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. YEAR 2000 THIRD PARTY CLAIMS ALLOCATION
Judgments, Settlements and Defense
Costs (non-Indemnifiable Loss)
100%
Coverage B(ii) and Indemnifiable Loss:
2
<PAGE>
DEFENSE COSTS
(A) Pre-trial n/a
(B) Trial and appeal 100%
SETTELEMENTS AND JUDGEMENTS
(C) Joint Settlements and Judgements
(except in (D) below) n/a
(D) Joint Judgments (Company insolvency) 100%
ITEM 7. CONTINUITY DATES:
A. All Coverages (other than Outside
Entity Coverage) October 26, 1983
B. Outside Entity Coverage: Per Outside
Entity: May 5, 1996
ITEM 8. PREMIUM: $76,475
ITEM 9. 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
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
3
<PAGE>
DIRECTORS, OFFICERS AND CORPORATE LIABILITY INSURANCE POLICY
D&O GOLD (SM)
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 9 of the Declarations, herein called the "Insurer", agrees as
follows:
1. INSURING AGREEMENTS
COVERAGE A: NATURAL PERSON INSUREDS INSURANCE
This policy shall pay the Loss of each and every Natural Person Insured(s)
arising from a Claim (including a Securities Claim and a Year 2000 Claim)
first made against the Natural Person Insured(s) 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 Natural Person Insured(s) except when and
to the extent that the Company has indemnified the Natural Person Insureds.
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 (including a Year 2000 Securities Claim) first made
against the Company, or
(ii) Year 2000 Third Party Claim first made against the Company, or
(iii)Claim (including a Securities Claim or Year 2000 Claim) first made
against a Natural Person Insured(s),
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 during the
time that the Claim was also made against a Director or Officer, and, in
the case of (iii) above, only to the extent that the Company has
indemnified the Natural Person Insureds 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.
COVERAGE C: YEAR 2000 CRISIS FUND (SM) INSURANCE
This policy shall pay the Year 2000 Crisis Loss of the Company arising from
a Year 2000 Crisis first occurring during the Policy Period and reported to
the Insurer pursuant to Clause 7(a) of this policy up to the amount of the
Year 2000 Crisis Fund(SM). Clause 4, Exclusions, shall not be applicable to
Year 2000 Crisis Loss. There shall be no Retention amount applicable to
Year 2000 Crisis Loss, and the Insurer shall pay such Loss from first
dollar subject to the other terms and conditions of this policy. Clause 8
of this policy shall have no applicability to any Year 2000 Crisis.
1
<PAGE>
2. DEFINITIONS
(a) "Claim" means:
(1) a written demand for monetary or non-monetary relief;
(2) a civil, criminal, administrative, regulatory or arbitration
proceeding for monetary or nonmonetary relief which is commenced by:
(i) service of a complaint or similar pleading; or
(ii) return of an indictment, information or similar document (in the
case of a criminal proceeding); or
(iii) receipt or filing of a notice of charges; or
(3) a civil, criminal, administrative or regulatory investigation
(including a Securities and Exchange Commission, Equal Employment
Opportunity Commission or grand jury investigation) of a Natural
Person Insured but only after such Natural Person Insured is
identified in writing by the investigating authority as a person
against whom a proceeding described in clause (2) above may be
commenced, or in the case of a securities investigation, after the
service of a subpoena on such Natural Person Insured.
The term "Claim" shall include a Securities Claim and a Year 2000 Claim;
provided, however, that with respect to Coverage B(i) only, Claim or
Securities Claim shall not mean an administrative or regulatory proceeding
against the Company.
(b) "Company" means the entity designated in Item I of the Declarations and any
Subsidiary thereof and any limited liability company specifically listed in
an endorsement to this policy ("LLC"); and, in the event any bankruptcy
proceeding shall be instituted by or against the Named Corporation or any
Subsidiary thereof or any LLC, the Debtor in Possession (or equivalent
status outside the United States), if any.
(c) "Continuity Date" means the date set forth in:
(1) Item 7A of the Declarations with respect to all coverages (other than
Outside Entity Coverage); or
(2) Item 7B of the Declarations with respect to a Claim against a Director
or Officer arising out of such Director or Officer 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 arising out of a covered judgment, 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.
Further, with respect to the limit of liability set forth in Clause
5(c)(1), Defense Costs shall also include the reasonable and necessary
fees, costs and expenses consented to by the Insurer resulting solely from
the prosecution or appeal of a Year 2000 Claim brought by the Insured in
the same proceeding as a counterclaim, cross-claim or third-party claim
which results directly from a Year 2000 Claim brought against such Insured
("Prosecution Costs").
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(e) "Director(s) or Officer(s)" means any past, present or future duly elected
or appointed directors or officers of the Company or any past, present or
future duly elected, appointed or designated member of the Board of
Managers or officers of an LLC. In the event the Named Corporation, a
Subsidiary or a LLC thereof operates outside the United States, then the
term "Director(s) or Officer(s)" shall also mean those titles, positions or
capacities in such foreign Named Corporation, Subsidiary or LLC which is
equivalent to the position of Director or Officer in a corporation
incorporated or LLC formed within the United States. Coverage will
automatically apply to all new Directors and Officers after the inception
date of this policy.
(f) "Employment Practices Violation(s)" means any actual or alleged:
(1) wrongful dismissal, discharge or termination (either actual or
constructive) of employment, including breach of an implied contract;
(2) harassment (including sexual harassment whether "quid pro quo",
hostile work environment or otherwise);
(3) discrimination, (including but not limited to discrimination based
upon age, gender, race, color, national origin, religion, sexual
orientation or preference, pregnancy, or disability);
(4) retaliation (including lockouts);
(5) employment-related misrepresentation(s) to an Employee or applicant
for employment with the Company or an Outside Entity;
(6) employment-related libel, slander, humiliation, defamation or invasion
of privacy;
(7) wrongful failure to employ or promote;
(8) wrongful deprivation of career opportunity, wrongful demotion or
negligent employee evaluation, including the giving of negative or
defamatory statements in connection with an employee reference;
(9) wrongful discipline;
(10) failure to grant tenure;
(11) failure to provide or enforce adequate or consistent corporate
policies and procedures relating to any other Employment Practices
Violation;
(12) violation of any natural person's civil rights relating to any of the
above,
but only if the Employment Practices Violation relates to an Employee(s),
Officer or applicant(s) for employment, with the Company or an Outside
Entity, whether direct, indirect, intentional or unintentional.
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With respect to any customer(s), client(s) or other natural person(s),
other than an Employee, Officer or applicant for employment with the
Company or an Outside Entity, Employment Practices Violation shall mean
only any actual or alleged discrimination, sexual harassment or violation
of any natural person's civil rights relating to such discrimination or
sexual harassment, whether direct, indirect, intentional or unintentional.
(g) "Employee" means any past, present or future employee of the Company (other
than an employee who is a Director or Officer) whether such employee is
full-time, part-time, seasonal, permanent or temporary and shall include
employees in a supervisory, managerial, co-worker or subordinate position
or otherwise.
(h) "Indemnifiable Loss" means Loss for which the Company has indemnified or is
permitted or required to indemnify a Natural Person Insured.
(i) "Insured(s)" means:
(1) with respect to Coverages A and B(iii), any Natural Person Insured;
(2) with respect to Coverage B(i) only, the Company; and
(3) with respect to Coverage B(ii) only, the Company, but only during the
time that the Claim was also made against a Director or Officer.
(j) "Loss" means damages judgments (including any award of pre-judgment
and post-judgment interest), settlements, Defense Costs and Year 2000
Crisis Loss; 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, any judgment solely against, or settlement
solely by, the Company and/or any Employee in a Year 2000 Third Party
Claim, any cost or expense incurred by the Company in connection with
the assessing, auditing, testing, correcting, converting, renovating,
rewriting, designing, evaluating, inspecting, installing, maintaining,
repairing or replacing any Computer System of the Company with respect
to a potential Year 2000 Problem (as such terms are defined below in
definition (r)).
In the event of a Claim alleging that the price or consideration paid
or proposed to be paid for the acquisition or completion of the
acquisition of all or substantially all of the stock issued by or
assets owned by any entity is inadequate or excessive, Loss with
respect to such Claim shall not include any amount of any judgment or
settlement by which such price or consideration is increased or
decreased, directly or indirectly; provided, however, that the
foregoing shall not apply to any non-Indemnifiable Loss resulting from
any judgment (other than a stipulated judgment) against a Natural
Person Insured.
Notwithstanding the foregoing, with respect to Securities Claims only
and subject to the other terms, conditions and exclusions of the
policy, Loss shall include punitive or exemplary damages imposed upon
any Insured. It is further understood and agreed that the
enforceability of the foregoing coverage shall be governed by such
applicable law which most favors coverage for punitive or exemplary
damages.
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(k) "Natural Person Insured(s)" means:
(1) with respect to all Claims any Director or Officer;
(2) with respect to Securities Claims, any Employee; and
(3) with respect to Year 2000 Third Party Claims, any Employee, but only
during the time that the Claim was also made against a Director or
Officer.
(1) "No Liability" means with respect to a Securities Claim or a Year 2000
Third Party Claim made against the Insured(s): (1) a final judgment of no
liability obtained prior to trial, in favor of all Insureds, or with
respect to a Year 2000 Third Party Claim, in favor of all Directors and
Officers, 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, or with
respect to a Year 2000 Third Party Claim, in favor of all Directors and
Officers, after the exhaustion of all appeals. In no event shall the term
"No Liability" apply to a Claim made against an Insured for which a
settlement has occurred.
(m) "Outside Entity" means:
(1) any not-for-profit organization; or
(2) any other corporation, partnership, joint venture or other
organization listed by endorsement to this policy.
(n) "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.
(o) "Securities Claim" means a Claim (including a civil lawsuit or criminal
proceeding brought by any governmental body) made against an Insured and
brought anywhere in the world alleging a violation of any law, regulation
or rule, whether statutory or common law, which is
(1) brought by any person or entity alleging, arising out of, based upon
or attributable to, in part or in whole, the purchase or sale or offer
or solicitation of an offer to purchase or sell, any securities of the
Company, or
(2) in the form of a securities holder derivative claim brought on the
behalf of the Company, or
(3) brought by a securities holder of the Company, with respect to such
securities holder's interest in such securities of the Company,
whether directly or by class action.
(p) "Subsidiary" means:
(1) (A) a 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 or (B) a corporation of which the Named
Corporation owns on or before the inception of the Policy Period
exactly 50% of the issued and outstanding voting stock and which,
pursuant to or in connection with a written agreement with the
owner(s) of the
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remaining 50% of the issued and outstanding voting stock of such
corporation, solely controls such corporation (a "Controlled Joint
Venture") in each case either directly or indirectly through one or
more of its Subsidiaries;
(2) automatically a corporation whose assets total less than 15% 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;
(3) a 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;
(4) a not-for-profit organization under section 501(c)(3) of the Internal
Revenue Code of 1986 (as amended) sponsored exclusively by the
Company.
A corporation becomes a Subsidiary when the Named Corporation (1) owns more
than 50% of the issued and outstanding voting stock or (2) in the case of a
Controlled Joint Venture, owns exactly 50% of the issued and outstanding
voting stock and, pursuant to or in connection with a written agreement
with the owner(s) of the remaining 50% of the issued and outstanding voting
stock of such corporation, solely controls such corporation, in each case
either directly, or indirectly through one or more of its Subsidiaries. A
corporation ceases to be a Subsidiary when the Named Corporation (1) ceases
to own more than 50% of the issued and outstanding voting stock, either
directly, or indirectly through one or more of its Subsidiaries or (2) in
the case of a Controlled Joint Venture, ceases to own exactly 50% of the
issued and outstanding voting stock or solely to control, pursuant to or in
connection with a written agreement with the owner(s) of the remaining 50%
of the issued and outstanding voting stock of such corporation. such
corporation, in each case either directly, or indirectly through one or
more of its Subsidiaries.
In all events, coverage as is afforded with respect to a Claim made against
a Subsidiary or any Natural Person Insured 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.
(q) "Wrongful Act" means:
(1) with respect to a Director or Officer, any actual or alleged
Employment Practice Violation or other actual or alleged breach of
duty, neglect, error, misstatement, misleading statement, omission or
act by the Directors or Officers 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 a Director or Officer arising out of their serving as a
director, officer, trustee or governor of
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an Outside Entity in such capacities, but only if such service is at
the specific written request or direction of the Company, and
(2) with respect to an Employee, any actual or alleged breach of duty,
neglect, error, misstatement, misleading statement, omission or act by
the Employees in their respective capacities as such or any matter
claimed against them solely by reason of their status as Employees of
the Company but solely as respects a Securities Claim or a Year 2000
Claim, and
(3) with respect to the Company, any actual or alleged breach of duty,
neglect, error, misstatement, misleading statement, omission or act by
the Company, but solely as respects a Securities Claim or Year 2000
Claim.
(r) "Year 2000 Claim" means: (i) any Claim (including a Securities Claim)
against a Director(s) or Officer(s), or (ii) any Year 2000 Securities Claim
against the Company and/or any Employee, or (iii) any Year 2000 Third Party
Claim against the Company and/or any Employee (but only during the time the
Claim is also made against a Director or Officer) alleging, arising out of,
based upon, attributable to or involving, directly or indirectly, in whole
or in part:
(1) any computer, computer system or code (including but not limited to
firmware, hardware, microprocessors, software, operating systems,
networks, peripherals attached to or used in conjunction with any of
the foregoing, or any other computerized or electronic equipment or
components) ("Computer System"), of any organization (whether or not
an Insured):
(A) failing to accurately and properly read, process, perform
mathematical calculations, store, sort, distinguish, recognize,
accept or interpret prior to, during or after, the year 2000 any
data containing date information;
(B) failing to accurately and properly read and process the fact that
the year 2000 is a leap year;
(C) reading and processing so-called "magic dates" such as the date
"9/9/99" or any other date field data used by an organization to
signify information other than the date;
(D) failing to be compatible with any other organization's Computer
System with respect to (A), (B) and (c) above.
(the foregoing individually or collectively being sometimes referred
to as the "Year 2000 Problem");
(2) any assessing, auditing, correcting, converting, renovating,
rewriting, designing, evaluating, inspecting, installing, maintaining,
repairing or replacing any Computer System with respect to a potential
or actual Year 2000 Problem, or any failure to do any of the foregoing
activities, or any disclosure, advice, consultation or supervision of
any of the foregoing activities or any failure relating thereto.
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(s) "Year 2000 Crisis" means a Negative Earnings or Sales Announcement
resulting from a Year 2000 Problem which, in the good faith opinion of the
chief financial officer of the Named Corporation reported in writing to the
Insurer pursuant to Clause 7(a) of the policy, reasonably may have been
associated with, or reasonably has the potential to be associated with, a
Material Effect on the Company's Common Stock Price within a period of 48
hours after the time of the public announcement.
"Negative Earnings or Sales Announcement" means a public announcement of
the Company's past or future earnings or sales which is substantially
below: (1) the Company's last prior public statement or projection of
earnings or sales for such period, (2) the last consensus outside
securities analysts' estimate as published by First Call (or if First Call
does not publish financial estimates regarding the Company then any other
similar consensus outside analysis estimate), or (3) the Company's prior
year's earnings or sales for the same period.
"Material Effect on the Company's Common Stock Price" means that the price
per share of the Company's common stock shall experience a decrease net of
the change in the Standard & Poor's Composite Stock Index of the greater
of: $5 per share ($2.50 per share if the Company is solely traded on The
Nasdaq Stock Market) or 10%.
(t) "Year 2000 Crisis Fund" means Ten Thousand Dollars ($10,000).
(u) "Year 2000 Crisis Loss" means the following amounts incurred during the
Pendency of a Year 2000 Crisis, regardless of whether a Claim is ever made
against an Insured arising from the Year 2000 Crisis 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 Year 2000 Crisis Management
Firm in the performance of Year 2000 Crisis Management Services for
the Company arising from a Year 2000 Crisis; and
(2) amounts for which the Company is legally liable for the reasonable and
necessary printing, mailing of materials, or travel by Directors,
Officers, Employees or agents of the Company or the Year 2000 Crisis
Management Firm in connection with the Year 2000 Crisis.
The "Pendency of a Year 2000 Crisis" means the period of time beginning
when the Year 2000 Crisis or anticipated Year 2000 Crisis is first reported
to the Insurer or the Year 2000 Crisis Management Firm and ending with the
earliest of the following events: (A) the Year 2000 Crisis Management Firm
advises the Company that the Year 2000 Crisis no longer exists or (B) the
Year 2000 CrisisFund has been exhausted.
(v) "Year 2000 Crisis Management Firm" means any public relations firm, crisis
management firm or law firm hired by the Company with the Insurer's consent
(which consent shall not be unreasonably withheld) to perform Year 2000
Crisis Management Services. Attached to this policy 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.
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(w) "Year 2000 Crisis Management Services" means those services performed by a
Year 2000 Crisis Management Firm in advising the Company or any of its
Directors, Officers or Employees on minimizing potential harm to the
Company arising from the Year 2000 Crisis, including but not limited to
maintaining and restoring investor confidence in the Company.
(x) "Year 2000 Securities Claim" means any Year 2000 Claim in the form of a
Securities Claim.
(y) "Year 2000 Third Party Claim" means any Year 2000 Claim other than a Year
2000 Securities Claim.
3. EXTENSIONS
Subject otherwise to the terms hereof, this policy shall cover Loss arising
from a Claim made against the estates, heirs, or legal representatives of
deceased Natural Person Insureds, and the legal representatives of Natural
Person Insureds in the event of incompetency, insolvency or bankruptcy, who
were Natural Person Insureds 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 a Claim 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 a Natural Person Insured for a Claim arising
solely out of his or her status as the spouse of a Natural Person Insured,
including a Claim that seeks damages recoverable from marital community
property, property jointly held by the Natural Person Insured and the
spouse, or property transferred from the Natural Person Insured 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 a Natural Person Insured, 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 the Insured was not legally entitled;
(b) arising out of, based upon or attributable to payments to an Insured
of any remuneration without the previous approval of the stockholders
or members 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 deliberate criminal or deliberate fraudulent act by the
Insured;
[For the purpose of determining the applicability of the foregoing
exclusions 4(a) through 4(c), the facts pertaining to and knowledge
possessed by any Insured shall not be imputed to any Natural Person
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Insured; only facts pertaining to and knowledge possessed by any past,
present or future chairman of the board, president, chief executive
officer, chief operating officer or chief financial officer of the
Company shall be imputed to the Company.]
(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) for emotional distress or for injury from libel, slander, defamation,
disparagement, or a violation of a person's right of privacy;
provided, however, this exclusion shall not apply to any Claim
alleging an Employment Practices Violation;
(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 Natural Person Insureds serving in
their capacities as directors, officers, trustees, employees or
governors of any other entity other than the Company or an Outside
Entity, or by reason of their status as directors, officers, trustees,
employees or governors of such other entity;
(i) which is brought by or on behalf of any Insured or the Company; or
which is brought by any security holder or member of the Company,
whether directly or derivatively, unless such securities holder's or
member'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 Director or Officer or the
Company; provided, however, this exclusion shall not apply to:
(1) any Claim brought by a Natural Person Insured in the form of a
cross-claim or third-party claim for contribution or indemnity
which is part of and results directly from a Claim which is not
otherwise excluded by the terms of this policy; or
(2) any Claim alleging an Employment Practices Violation brought by
any past or present Natural Person Insured other than a past or
present Natural Person Insured who is or was a member of the
Company's Board of Directors or, in the case of an LLC, the Board
of Managers; or
(3) any Claim brought by or against an Employee; or
(4) in any bankruptcy proceeding by or against the Named Corporation
or any Subsidiary thereof, any Claim brought by the Examiner or
Trustee of the Company, if any, or any assignee of such Examiner
or Trustee;
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(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 or officer 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 or officer
thereof, the Company or any Director or Officer;
(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;
(1) 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, provided, however, that this exclusion shall
not apply to non-Indemnifiable Loss arising from a Claim alleging
damage to the Company or its securities holders.
Pollutants include (but is 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.
EXCLUSIONS NOT APPLICABLE TO YEAR 2000 CLAIMS
Notwithstanding the foregoing, with respect to Year 2000 Claims:
(1) exclusion 4(b) shall not apply;
(2) exclusion 4(c) shall not apply to any Year 2000 Securities Claim which
arises out of, is based upon or is attributable to any statement or other
disclosure (including any statement filed with the Securities and Exchange
Commission) if all such statements and other disclosure had been written or
approved by a Panel Counsel Firm (as defined in Clause 9);
(3) exclusion 4(e) shall not apply.
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
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Coverages A, B and C combined, arising out of all Claims first made against
the Insureds or all Year 2000 Crises occurring 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, a 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.
In the event of a Year 2000 Securities Claim, this policy shall provide
coverage for 100% of Loss incurred by the Directors, Officers, Employees,
the Company, individually or collectively, up to the Limit of Liability of
the policy, subject to the policy's terms, conditions and exclusions.
In the event of a Year 2000 Third Party Claim, the following provisions
shall apply:
(a) During the time in which the Claim is solely made against a Director
or Officer, this policy shall provide coverage for 100% of Loss
incurred by the Insureds up to the Limit of Liability of the Policy,
Subject to the policy's terms, conditions and exclusions;
(b) During the time in which the Claim is solely made against the Company
and/or any Employee(s), this policy shall not provide any coverage for
Loss incurred by the Company and/or any Employee(s);
(c) Except as provided in (d) below, during the time in which the Claim is
jointly made against both the Company and/or any Employee(s) on the
one hand, and one or more Directors and Officers on the other hand,
this policy shall pay Loss as follows (subject to the policy's other
terms, conditions and exclusions):
(1) the total combined amount of Defense Costs (including Prosecution
Costs) incurred by the Directors and Officers, the Company and/or
any Employee(s), prior to the commencement of trial multiplied by
the percent set forth in Item 6A of the Declarations;
(2) the total combined amount of Defense Costs incurred by the
Directors and Officers, the Company and/or any Employee(s), after
the commencement of trial (including appeal) multiplied by the
percent set forth in Item 6B of the Declarations;
(3) the total combined net monetary amount of any: (1) joint judgment
(other than one described in (4) below) against, or (2) joint
settlement (including any stipulated judgment) entered into by,
the Directors or Officers, the Company and/or any Employee(s)
multiplied by the percent set forth in Item 6C of the
Declarations;
(4) the total combined net monetary amount of any joint judgment
(other than a stipulated judgment against the Directors or
Officers, the Company and/or any Employee(s) multiplied by the
percent set forth in Item 6D of the Declarations, but only to the
extent the Company has insufficient assets to pay the judgment.
(d) Notwithstanding (e) above, in the event of a Year 2000 Third Party
Claim jointly made against both the Company and/or any Employee on the
one hand, and one or more Directors and Officers on the other hand,
for which non-Indemnifiable Loss is incurred by the Directors and
Officers, this policy shall provide coverage for 100% of such
non-Indemnifiable Loss and shall pay, in addition, the combined
Indemnifiable Loss and Coverage B(ii) Loss for the Claim multiplied by
the applicable
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percent set forth in (e) above, subject to the other terms, conditions
and exclusions of the policy.
The limit of the Insurer's liability for Year 2000 Crisis Loss arising from
all Year 2000 Crises occurring during the Policy Period, in the aggregate,
shall be the amount set forth as the Year 2000 Crisis Fund. This limit
shall be the maximum liability of the Insurer under this policy regardless
of the number of Year 2000 Crises occurring during the Policy Period.
The amounts referred to in all of the foregoing shall be part of and not in
addition to the Limit of Liability stated in Item 4 of the Declarations and
shall in no way be construed to increase such limit.
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 applicable 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: (i) all
Indemnifiable Loss; and (ii) Loss under Coverages B(i) and B(ii). A single
Retention amount shall apply to Loss arising from all Claims alleging the
same Wrongful Act or related Wrongful Acts.
Notwithstanding, the foregoing, solely with respect to a Securities Claim,
the Retention shall only apply to Defense Costs. Further, solely with
respect to a Securities Claim or a Year 2000 Claim, no Retention shall
apply to Loss arising from Such Claims and the Insurer shall reimburse
Defense Costs otherwise covered hereunder paid by the Insured, in the event
of
(1) a determination of No Liability of all Insureds in a Securities
Claim; or
(2) a determination of No Liability of all Directors and Officers in
a Year 2000 Third Party Claim; or
(3) a dismissal or a stipulation to dismiss all Insureds in a
Securities Claim without prejudice and without the payment of any
consideration by any Insured; or
(4) a dismissal or a stipulation to dismiss all Directors and
Officers in a Year 2000 Third Party Claim without prejudice and
without the payment of any consideration by such Insureds;
provided, however, that in the case of (3) and (4) above, such
reimbursement shall occur 90 days after the date of dismissal or
stipulation as long as such Claim is not brought (or any other Claim which
is subject to the same single retention by virtue of Clause 6 is not
brought) again within that time, and further subject to an undertaking by
the Company in a form acceptable to the Insurer that such reimbursement
shall be paid back by the Company to the Insurer in the event the Claim (or
any other Claim which is subject to the same single retention by virtue of
Clause 6) is brought after such 90-day period and before the expiration of
the statute of limitations for such Claim.
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7. NOTICE/CLAIM REPORTING PROVISIONS
Notice hereunder shall be given in writing to the Insurer named in Item 9
of the Declarations at the address indicated in Item 9 of the Declarations.
If mailed, the date 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 a Claim made against an Insured as soon as practicable
after the Named Corporation's risk manager or general counsel first
becomes aware of the Claim but in all events no later than either:
(1) anytime 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 a 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 a 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.
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 excess of the applicable retention
amount, at the written request of the Insured, covered Defense Costs every
ninety (90) days. Such advance 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
14
<PAGE>
Insurer's consent shall not be unreasonably withheld, provided that the
Insurer shall be entitled to effectively associate in the defense, the
prosecution and the negotiation of any settlement of any Claim that
involves or appears reasonably likely to involve the Insurer.
The Insurer shall have the right to effectively associate with the Company
and the Insureds in the defense and prosecution of any Claim that involves
or 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.
Notwithstanding any of the foregoing, if all Insured defendants are able to
dispose of all Claims which are subject to one retention amount for an
amount not exceeding such retention amount (inclusive of Defense Costs),
then the Insurer's consent shall not be required for such disposition.
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 Natural Person Insureds under Coverage B(iii) as
respects a Claim against such Natural Person Insureds and subject to the
policy's terms and conditions under Coverage B(i) for a Securities Claim
and B(ii) for a Year 2000 Third Party Claim made against the Company.
Accordingly, the Insurer has no obligation under this policy for covered
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 Year 2000 Claim, or any obligation to pay Loss arising
out of any legal liability that the Company has to a claimant except as
respects a covered Securities Claims or Year 2000 Third Party Claim against
the Company.
With respect to (i) Defense Costs jointly incurred by, (ii) any joint
settlement entered into by and/or (iii) any judgment of joint and several
liability against: the Company and any Natural Person Insured in connection
with any Claim other than a Securities Claim and a Year 2000 Claim (other
than claims described in clause 5(d)) the Company and the Natural Person
Insureds 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
Natural Person Insureds and the Insurer taking into account the relative
legal and financial exposures, and the relative benefits obtained by, the
Natural Person Insureds 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.
In the event of Loss arising from a Claim or Claims for which payment is
due under the provisions of this policy, then the Insurer shall:
(a) first, pay such non-Indemnifiable Loss for which coverage is provided
under Coverage A of this Policy; and
(b) then, with respect to whatever remaining amount of the Limit of
Liability is available after payment of such non-Indemnifiable Loss,
at the written request of the chief executive officer of the Named
Corporation, either pay or withhold payment of such other Loss for
which coverage is provided
15
<PAGE>
under this policy.
In the event the Insurer withholds payment pursuant to subparagraph (b)
above, then the Insurer shall at such time and in such manner as shall be
set forth in written instructions of the chief executive officer of the
Named Corporation, remit such payment to the Company or directly to or on
behalf of a Natural Person Insured.
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 the Claim made against them.
The Insureds shall select a Panel Counsel Firm to defend the Claim made
against the Insureds in the jurisdiction in which the Claim is brought. In
the event the 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 geographic jurisdiction to either where the Claim is
brought or where the corporate headquarters of the Named Corporation is
located. In such instance the Insureds also may, with the express prior
written consent of the Insurer, which consent shall not be unreasonably
withheld, select a non-Panel Counsel Firm in the jurisdiction in which the
Claim is brought to function as "local counsel" on the 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. The Insurer may in its discretion add to the attached list of
Panel Counsel Firms for the purposes of defending the 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 Claim.
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 to a period of either one, two or three years following the effective
date of such cancellation or nonrenewal upon payment of the respective
"Additional Premium Amount" described below (herein referred to as the
"Discovery Period") in which to give to the Insurer written notice pursuant
to Clause 7(a) of Claims first made against the Insureds during said
Discovery Period or pursuant to Clause 7(c) of circumstances of which the
Company or the Insureds shall become aware during said Discovery Period, in
each case with respect to any Wrongful Act occurring prior to the end of
the Policy Period and otherwise covered by this policy.
16
<PAGE>
The Additional Premium Amount for: (1) one year shall be 75% of the "full
annual premium"; (2) two years shall be 150% of the "full annual premium";
(3) three years shall be a reasonable premium amount to be mutually agreed
upon by the Insured and the Insurer. 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 60 days of the
effective date of cancellation or nonrenewal. 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.
Notwithstanding the First paragraph of Clause 5, if the Insurer or the
Named Corporation gives notice of its intention to cancel or non-renew this
policy, then the Named Corporation shall also have the right, within 60
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 end of the Policy Period) for a period of one, two or three
years with an aggregate limit of liability applicable to Claims made
against the Insured during such Discovery Period which is in addition to,
and not part of, the applicable Limit of Liability set forth in Item 4 of
the Declarations. The Insurer shall quote such a Discovery Period pursuant
to such terms, conditions, exclusions and additional premium as it deems
appropriate in its sole and absolute discretion.
In the event of a Transaction, as defined in Clause 12, or the confirmation
of a Bankruptcy Plan of Reorganization of the Named Corporation, 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 or such confirmation) 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, exclusions and additional premium as the Insurer may reasonably
decide. In the event of a Transaction or such a confirmation, 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 I of the
Declarations, written notice stating when, not less than 60 days thereafter
(15 days in the case of cancellation for non-payment of premium), 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
17
<PAGE>
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.
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 as set forth
above is also set forth in any law controlling the construction thereof,
the period set forth above shall be deemed to be amended so as to be equal
to the minimum period of limitation set forth in the controlling law.
12. TERMINATION OF COVERAGE FOR WRONGFUL ACTS AFTER CERTAIN TRANSACTIONS
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 ownership interests
representing more than 50% of the voting or designation power for the
election of Directors of the Named Corporation, or acquires the voting
or designation rights of such an amount of such ownership interests;
(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 effectively to bring suit in the name of
the Company and/or the Insureds. Any amounts recovered in connection with a
Year 2000 Claim by the Insured shall be applied first to reimburse the
Insurer for any Prosecution Costs paid by the Insurer in connection with
such Year 2000 Claim and then to reimburse the Insurer and the Insureds in
proportion to their respective payments of Loss. In no
18
<PAGE>
event, however, shall the Insurer exercise its rights of subrogation
against an Insured under this policy unless such Insured has been convicted
of a deliberate criminal act, or been determined to have in fact committed
a deliberate fraudulent act, or obtained any profit or advantage to which
such Insured was not legally entitled.
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 a 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 or officers.
In the event of a Year 2000 Third Party Claim or Year 2000 Crisis, coverage
as is afforded by this policy shall be specifically excess of any other
insurance provided for such Claim or Crisis for any Insured. Further, in
the event such other Outside Entity insurance or Year 2000 Crisis insurance
is provided by the Insurer or any other 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 of 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. DISPUTE RESOLUTION PROCESS
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 alternate dispute resolution
process ("ADR") set forth in this clause.
Either the Insurer or the Insureds may elect the type of ADR discussed
below; provided, however, that the Insureds shall have the right to reject
the Insurer's choice of the type of ADR at any time prior to its
commencement, in which case the Insureds' choice of ADR shall control.
The Insurer and the Insured agree that there shall be two choices of ADR:
(1) non-binding mediation administered by the American Arbitration
Association, in which the Insurer and the Insureds shall try in good
19
<PAGE>
faith to settle the dispute by mediation under or in accordance with its
then-prevailing Commercial Mediation Rules; or (2) arbitration submitted to
the American Arbitration Association under or in accordance with its then
prevailing Commercial Arbitration Rules, in which the arbitration panel
shall consist of three disinterested individuals. In either mediation or
arbitration, the mediator(s) or arbitrators shall have knowledge of the
legal, corporate management, or insurance issues relevant to the matters in
dispute. The mediator(s) or arbitrators shall also give due consideration
to the general principles of the law of the state where the Named
Corporation is incorporated in the construction or 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
even-handed fashion in the manner most consistent with the relevant terms,
conditions, provisions and exclusions of the policy. In the event of
arbitration, the decision of the arbitrators shall be final and binding and
provided to both parties, and the arbitrators' award shall not include
attorneys fees or other costs. In the event of mediation, either party
shall have the right to commence a judicial proceeding; provided , however,
that no such judicial proceeding shall be commenced until the mediation
shall have been terminated and at least 120 days shall have elapsed from
the date of the termination of the mediation. In all events, each party
shall share equally the expenses of the ADR.
Either choice of ADR may be commenced in either New York, New York;
Atlanta, Georgia; Chicago, Illinois; Denver, Colorado, or in the state
indicated in Item I of the Declarations page as the mailing address for the
Named Corporation. The Named Corporation shall act on behalf of all
Insureds in deciding to proceed with ADR under this clause.
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. WORLDWIDE TERRITORY
This policy shall apply to Claims made against an Insured anywhere in the
world.
20. HEADINGS
The descriptions in the headings of this policy are solely for convenience,
and form no part of the terms and conditions of coverage.
20
<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, CA 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, III
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 Wacker 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:
Evan Schweb 206-621-1478
Arthur C. Claflin 206-621-1448
Heller, Ehrman, White & McAuliffe
701 Fifth Avenue
Seattle, WA 98104-7098
Main Tel: 206-447-0900
Main Fax: 206-447-0849
Contact:
George E. Greer
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
<PAGE>
-8-
APPENDIX A (continued)
PANEL COUNSEL
Baker & Botts, L.L.P.
2001 Ross Avenue
Dallas, TX 75201-2916
Main Telephone: 214-953-6500
Contact:
Ronald L. Palmer
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>
NATIONAL UNION
EMPLOYMENT PRACTICES LIABILITY PANEL COUNSEL
ALABAMA
Lloyd, Schreiber & Gray
Two Perimeter Park South, Suite 100
Birmingham, Alabama 35423
Contact: J. Allen Schreiber, Esq.
Phone (205) 967-8822
ALASKA
*Lane, Powell, Spears and Lubersky
250 Cushman Street, Suite 4-11
Fairbanks Alaska 99701
Contact: Ann Brown, Esq.
Phone (907) 457-8001
ARIZONA
Mitten, Goodwin & Raup
One Columbus Plaza Suite 1200
3636 North Central Avenue
Phoenix, Arizona
Contact: Martin Clare or
Roger Mitten, Esq.
Phone (602) 650-2000
ARKANSAS
Huckabay, Munson, Rowlett & Tilley
1900 West Capital Avenue Suite 1900
Little Pock, Arkansas 72201
Contact: Bruce Munson, Esq.
Phone: (501)-374-6535
CALIFORNIA
*Epstein, Becker & Green
Two Embarcadero Center 1650
San Francisco, CA 94111
Contact: William A. Helvestine, Esq.
Janet Morgan, Esq.
Phone (415) 399-6003
*Irell & Mannella L.L.P.
1800 Avenue of the Stars
Los Angeles, CA 90067-4276
Contact: James F. Elliot, Esq.
Phone: (310) 277-1010
<PAGE>
*Latham & Watkins
633 West Fifth Street Suite 4000
Los Angeles, CA 90071-2007
Contact: Joel Krischer, Esq.
Phone: (213) 891-1200
*Lewis, D'Amato, Brisbois & Bisgaard
221 North Figueroa Street
Los Angeles, California 90012-2601
Contact: Robert F. Lewis, Esq.
Phone: (213) 250-1800
*Morrison & Foester
555 West Fifth Street Suite 3500
Los Angeles, CA 90013-1024
Contact: B. Scott Silverman, Esq.
Phone: (213) 892-5401
*O'Melveny & Myers
610 Newport Center Drive
Newport Beach, CA 92660
Contact: Stephen P. Pepe, Esq.
Phone: (714) 760-9600
*Schachter, Kristoff, Orenstein and Berkowitz
505 Montgomery Street Suite 14th Floor
San Francisco, CA 94111-2528
Contact: Ronald J. Souza, Esq.
Phone: (415) 391-3333
*Seyfarth, Shaw, Fairweather & Geraldson
2029 Century Park East Suite 3300
Los Angeles, CA 90067
Contact: Stacey D. Shartin, Esq,
Phone: (310) 277-7200
*Latham & Watkins
505 Montgomery Street Suite 1900
San Francisco, CA 94111
Contact: Barbara A. Caulfield, Esq
Phone: (415) 391-0600
*Morrison & Foester
345 California Street
San Francisco, CA 94101-2675
Contact: Linda E. Shostak, Esq. &
Kirby Wilcox, Esq.
Phone: (415) 269-7000
*O'Melveny & Myers
400 South Hope Street 15th Floor
Los Angeles, CA 90071-2007
Contact: Gordon E. Krischer, Esq
Phone: (213) 669-6000
*Pillsbury, Madison & Sutro
235 Montgomery Street
San Francisco, CA 94104
Contact: R.D. (Kyle) Kirwan, Esq.
Phone: (415) 983-1000
*Seyfarth, Shaw, Fairweather & Geralds
101 California Street
San Francisco, CA 94111
Contact: Nick C. Geannacopulos,
Phone: (415) 397-2823
*Sonnenschein, Nath & Rosenthal
685 Market Street 10th Floor
San Francisco, CA 94105
Contact: H. Sinclair Kerr, Jr., Esq.
Phone: (415) 882-5048
COLORADO
*Arnold & Porter
1700 Lincoln Street
Denver, Colorado 80203-4540
Contact: James E. Scarboro, Esq.
Phone: (303) 863-1000
*Kennedy and Christopher
1600 Wynkoop Street Suite 900
Denver, Colorado 80202-3333
Contact: Elizabeth A. Starrs, Esq.
Phone: (303) 825-2700
*Freeborn & Peters, L.L.P.
950 Seventeenth Street 2600
Denver, Colorado 80202-2826
Contact: Margaret S. Garvey, Esq
Phone: (303) 628-4201
*Patton Boggs, L.L.P.
1660 Lincoln Street Suite 1975
Denver, Colorado 80264
Contact: Timothy 0. Knaus, Esq,
Phone: (303) 830-1776
<PAGE>
CONNECTICUT
*Epstein, Becker & Green
Six Landmark Square
Stamford, CT 06901-2704
Contact: Mary Gambardella, Esq.
Peter Stein, Esq.
Phone: (203) 348-3737
*Jackson, Lewis, Schnitzler & Krupman
55 Farmington Avenue
Hartford, Connecticut 06105
Contact: Susan K. Krell, Esq.
Phone: (860) 522-0404
DELAWARE
*Wolf, Block, Schorr & Solis-Cohen
One Rodney Square
10th & King Street
Wilmington, Delaware 19801
Contact: David J. Margules, Esq.
Phone: (302) 777-0300
DISTRICT OF COLUMBIA
*Arnold & Porter
555 Twelfth Street, NW
Washington, DC 20004-1202
Contact: Steven G. Reade, Esq.
Phone: (202) 942-5000
*Jenner & Block
601 Thirteenth St., NW, Suite 1200
Washington, DC 20005
Contact: Bruce J. Ennis, Esq.
Phone: (202) 639-6000
*Rosenman & Conlin
1300 19th Street, NW
Washington, DC 20036
Contact: Howard J. Braun, Esq.
Phone: (202) 463-4640
*Dechert, Price & Rhoads
1500 K Street NW
Washington, DC 20005-1208
Contact: Bettina M. Lawton, Esq.
Phone: (202) 626-3350
*Jones, Day, Reavis & Pogue
Metropolitan Square
1450 G. Street NW Suite 700
Washington, DC 20005-2088
Contact: Willis Goldsmith, Esq.
Phone: (202) 879-3939
*Sonnenschein, Nath & Rosenthal
1301 K Street NW Suite 600 East Tower
Washington, DC 20005
Contact: Kirk R. Ruthenberg, Esq
Amy L. Bess, Esq.
Phone: (202) 408-6410
<PAGE>
FLORIDA
*Fowler, White, Gillen, Boggs, Villareal & Banker
501 East Kennedy Blvd. Suite 1600
Tampa, Florida 33601
Contact: John W. Robinson, IV, Esq.
Phone 813-228-7411
*Jackson, Lewis, Schnitzler & Krupman
44 West Flagler Street
Courthouse Tower Suite 2250
Miami, Florida 33130
Contact: Patrick DeBlasio, Esq.
Phone: (305) 373-2299
*Katz, Barron, Squitero, Faust & Berma
2699 So. Bayshore Drive 7th Floor
Miami, Florida 33133-5408
Contact: Richard E. Berman, Esq.
Phone: (305) 856-2444
GEORGIA
*Alston & Bird
One Atlantic Center
1201 West Peachtree Street
Atlanta, Georgia 30309-3424
Contact: Peter Q. Bassett, Esq.
Phone: (404) 881-7000
*King & Spalding
191 Peachtree Street Suite 1763
Atlanta, Georgia 30303-1763
Contact: William A. Clineburg, Esq.
Phone: (404) 572-4600
*Seyfarth, Shaw, Fairweather & Geraldson
One Atlantic Center Suite 3260
1201 West Peachtree Street
Atlanta, Georgia 30309-3400
Contact: John F. Meyers, Esq.
Phone: (404) 892-6412
*Irvin, Stanford and Kessler
One Bulkhead Plaza
Peachtree Road Suite 1050
Atlanta, Georgia 30305
Contact: Gary R. Kessler, Esq.
Phone: (404) 237-1020
*Long, Aldridge & Norman
One Peachtree Center
303 Peachtree Street, Suite 5300
Atlanta, Georgia 30308
Contact: J. Allen Maines, Esq.
Phone: (404) 527-8340
IDAHO
Quane, Smith, Howard & Hull
US Bank Plaza Suite 1600
101 South Capital Blvd.
Boise, Idaho 83702
Contact: Chris H. Hansen, Esq.
Phone: (208) 345-0960
<PAGE>
ILLINOIS
*Clausen & Miller
10 South La Salle Street Suite 1600
Chicago, Illinois 60603-1098
Contact: James S. Barber, Esq.
James Nolan, Esq.
Phone: (312) 855-1010
*Jenner & Block
One IBM Plaza
Chicago, Illinois 60611
Contact: Catherine P. Wassberg, Esq.
Phone: (312) 222-9350
*Seyfarth, Shaw, Fairweather & Geraldson
55 East Monroe Street
Chicago, Illinois 60603
Contact: J. Stephen Poor, Esq.
Phone: (312) 346-8000
*Freeborn & Peters
311 South Wacker Drive Suite 3000
Chicago, Illinois 60606-6677
Contact: Steve Hartman, Esq
David H. Kistenbroker, E
Phone: (312) 360-6000
*Jones, Day Reavis & Pogue
77 West Wacker 35th Floor
Chicago, Illinois 60601-1692
Contact: Irene Savanis, Esq.
Phone: (312) 782-3939
*Sonnenschein Nath & Rosenthal
800 Sears Towers
Chicago, Illinois 60601-1692
Contact: Roger T. Brice, Esq.
Phone: (312) 876-3112
IOWA
Nyermaster, Goode, McLauglin, Voigts, West,
Hansell & O'Brien
1900 Hub Tower
699 Walnut Street
Des Moines, Iowa 50309
Contact: Hayward Draper, Esq.
Phone: (515) 283-3100
INDIANA
Knightlinger Gray
Market Square Center Suite 660
151 North Delaware
Indianapolis, Indiana 46204
Contact: Donald L. Dawson, Esq.
Phone: 317-638-4521
KENTUCKY
Boehl, Stopher & Graves
400 West Market Street Suite 2300
Louisville, Kentucky 40202
Contact: Ed Stopher, Esq.
Phone: (502) 589-5980
Harlin & Packer, P.S.C.
519 East Tenth Street
Post Office Box 390
Bowling Green, Kentucky 42102-0390
Contact: William J. Parker, Esq.
Phone: 502-842-5611
<PAGE>
LOUISIANA
Adams & Reese
4500 One Shell Square
New Orleans, LA 70139
Contact: Martin Stern, Esq.
Phone: 504-581-3234
*Locke, Purnell, Rain & Harrell
Pan American Life Center
601 Poydras Street Suite 2400
New Orleans, Louisiana 70130-6036
Contact: Amelia W. Koch, Esq.
Phone: 504-558-5106
*Deutsch, Kerrigan & Stiles
755 Magazine Street
New Orleans, LA 70130
Contact: Bob Kerrigan, Esq.
Phone: (504) 581-5141
*McGlinchey, Stafford & Lang, Deutsch
Kerrigan
643 Magazine Street
New Orleans, LA 70130
Contact: E. Frederick Preis, Jr., E
Phone: (504) 586-1200
MAINE
*Moon, Moss, McGill & Bachelder, PA
10 Free Street
Post Office Box 7250
Portland, Maine 04112-7250
Contact: Richard 0. Moon, Esq.
Phone: (207) 775-6001
MARYLAND
*Whiteford, Taylor & Peterson
7 St. Paul Street Floor 1400
Baltimore, Maryland 21202
Contact: William Ryan, Esq.
Phone: (410) 347-8700
MASSACHUSETTS
*Dechert, Price & Rhoads
Ten Post Office Square South
Boston, MA 02109-4603
Contact: Bernard J. Bonn III, Esq.
Phone: (617) 728-7143
*Hale & Dorr
60 State Street
Boston, MA 02109
Contact: Neil Jacobs, Esq.
Phone: (617) 526-6000
*Foley, Hoag & Eliot
One Post Office Square
Boston, MA 02109
Contact: David B. Ellis, Esq,
Peter Rosenblum, Esq.
Phone: (617) 832-1000
*Hutchins, Wheeler & Ditmar
101 Federal Street
Boston, MA 02110
Contact: James A. Kobe, Esq.
Phone: (617) 951-6600
<PAGE>
*Mintz, Levin, Cohn, Ferris Glovsky & Popeco P.C.
One Financial Center
Boston, MA 02111
Contact: Robert Gault, Esq.
Phone: (617) 542-6000
*Peabody & Arnold
50 Rowes Wharf, Seventh Floor
Boston, MA 02110
Contact: William A. Cotter, Esq.
Phone: (617) 951-2100
MICHIGAN
*Miller, Canfield, Paddock and Stone, PLC
1200 Campau Square Plaza
99 Monroe Avenue NW
Grand Rapids, Michigan 49503
Contact: Charles Mishkind, Esq.
Phone: (616) 454-8565
*Plunket, Cooney
243 West Congress Suite 800
Detroit Michigan 48226-3260
Contact: Theresa Smith Lloyd, Esq.
Phone: (313) 965-3900
MINNESOTA
*Faegre & Benson
2200 Northwest Center
90 South Seventh Street
Minneapolis, MN 55402-3901
Contact: Hubert V. Forcier, Esq.
Phone: (612) 336-3000
*Meager and Geer
4200 Multifoods Tower
Minneapolis, Minnesota 55402
Contact: James F. Roegee, Esq.
Phone: (612) 338-0661
MISSISSIPPI
Buttler, Snow, O'Mara, Stevens & Cannada
210 East Capitol
Deposit Guaranty Plaza, 17th Floor
Jackson, Mississippi 39201
Contact: Jeffrey Walker, Esq.
Phone: (601) 948-5711
Watkins & Eager
400 East Capitol Street, Suite 300
Jackson, Mississippi 39201
Contact: Kenneth E Milan, Esq.
Phone: (601) 948-6470
MISSOURI
*Armstrong, Teasdale, Schlafley & Davis
2345 Grand Blvd. Suite 2000
Kansas City, Missouri 64108
Contact: Lynn W. Hursh, Esq.
Phone: (816) 221-3420
Brown & James
705 0live Street Suite 1100
St. Louis, Missouri 63101-2270
Contact: Charles E. Regis, Esq.
Phone: (314) 421-3400
<PAGE>
*Gallop, Johnson & Neuman
Interco Corporate Tower
101 South Hanley
St. Louis, Missouri 63105
Contact: Kurtis B. Reeg, Esq,
Phone (314) 862-1200
MONTANA
Matovich, Addy & Keller
225 First Citizens Bank
2812 First Avenue N
Billings, Montana 59101
Contact: Carey E. Matovich, Esq.
Phone: (406) 252-5500
NEW HAMPSHIRE
Devine Millimet & Branch
Victory Park
111 Amherst Street
Manchester, NH 03105
Contact: Andrew Dunn, Esq.
Phone: (603) 669-1000
NEW JERSEY
*Dechert, Price & Rhoads
Princeton Pike Corporate Center
Post Office Box 5218
Princeton, New Jersey 08543-5218
Contact: Matthew V. DelDuca, Esq.
Phone: (609) 520-3202
*Jackson, Lewis, Schnitzler & Krupman
Courthouse Plaza
60 Washington Street
Morristown, New Jersey 07960
Contact: Vincent A. Cino, Esq.
Phone: (201) 538-6890
*Epstein, Becker & Green
One Riverfront Plaza
Newark, NJ 07102
Contact: Robert H. Bernstein, Esq
Phone: (201) 642-1900
*Wilson, Elser, Moskowitz, Edelman and
Dicker
Two Gateway Center 12th Floor
Newark, New Jersey 017102
Contact: Thomas F. Quinn, Esq.
Phone: (201) 624-0800
NEVADA
Barker, Brown, Busby & Sutherland
430 South Third Street
Los Vegas, Nevada 89101
Contact: Thomas Sutherland, Esq.
Phone: (702) 386-1086
<PAGE>
NEW MEXICO
Butt, Thornton & Baehr, PC
7000 City Place
2155 Louisiana Blvd. NE
Albuquerque, New Mexico 87110
Contact: James P. Lyle, Esq.
Phone: (505) 884-0777
NEW YORK
*Arnold & Porter
399 Park Avenue
New York, New York 10022-4690
Contact: Victor Zonana, Esq.
Phone: (212) 715-1000
*Epstein, Becker & Green
250 Park Avenue 12th Floor
New York, New York 10177-0077
Contact: Howard Pianko, Esq.
Phone: (212) 351-4500
Ohrenstein & Brown
230 Park Avenue 32nd Floor
New York, New York 10169
Contact: Michael D. Brown
Phone: (212) 682-4500
*Orrick, Herrington & Sutcliffe
666 Fifth Avenue
New York, New York 10004-2696
Contact: Michael Delikat, Esq.
Phone: (212) 506-5000
*Seyfarth, Shaw, Fairweather & Geraldson
900 Third Avenue
New York, New York 10022
Contact: David Ross, Esq.
Phone: (212) 715-9000
*D'Amato & Lynch
70 Pine Street
New York, New York 10270
Contact: Luke Lynch, Jr., Esq.
Phone: (212) 269-0927
*Jackson, Lewis, Schnitzler & Krupman
101 Park Avenue 37th Floor
New York, New York 10178
Contact: Gregory I. Raisin, Esq.
Phone: (212) 797-8200
Paul J. Siegel, Esq.
(516)364-0404
Steven D. Baderian
(914) 328-0404
*O'Melveny & Myers
Citicorp Center
153 East 53rd Street
New York, New York 10022
Contact: Michael A. Curley, Esq.
Phone: (212) 326-2000
*Rosenman & Colin L.L.P.
575 Madison Avenue
New York, New York 10022-2585
Contact: Lawrence T. Bandes, Esq
Phone: (212) 940-8824
*Stroock & Stroock & Lavan
Seven Hanover Square
New York, New York 10004-2696
Contact: Howard S. Lavan, Esq.
Phone: (212) 806-5400
<PAGE>
*Sullivan & Cromwell
125 Broad Street 29th Floor
New York, New York 10004
Contact: Philip Graham Jr., Esq.
Phone: (212) 558-4000
*Wilson, Elser, Moskowitz, Edelman & Dicker
150 East 42nd Street
New York, New York 10017-5639
Contact: Julianna Ryan, Esq.
Phone: (212) 490-3000
*Wilkie, Farr & Gallagher
One Citicorp Center
153 East 53rd Street
New York, New York 10022-4677
Contact: Steven Greiner, Esq.
Phone: (212) 821-8000
NORTH CAROLINA
*Cozen & O'Conner
One First Union Center
301 South College Street Suite 2100
Charlotte, North Carolina 28202
Contact: Michael L. Minsker, Esq.
Phone: (704) 348-3409
*Patton Boggs, L.L.P.
500 Nations Bank Building
101 West Friendly Avenue Suite 500
Greensboro, North Carolina 27402
Contact: C. Allen Foster, Esq.
Phone: (910) 273-1733
NORTH DAKOTA
Flick, Mather & Stritz
400 East Broadway Suite 600
Norwest Bank Building
Post Office Box 2798
Bismarck, North Dakota 58501
Contact: Robert J. Udland, Esq.
Phone: (701) 223-6585
OHIO
*Jones, Day, Reavis & Pogue
North Point
901 Lakeside Avenue
Cleveland, Ohio 44114
Contact: James A. Rydzell, Esq.
Phone: (216) 586-3939
*Jones, Day, Reavis & Pogue
1900 Huntington Center
41 South High Street
Columbus, Ohio 43215
Contact: G. Roger King, Esq.
Phone: (614) 469-3939
OKLAHOMA
Rhodes, Hieronymus, Jones, Tucker & Gable
Post Office Box 21100
Tulsa, Oklahoma 74121-1100
Contact: Chris L. Rhodes, III, Esq.
Phone: (918) 582-1173
<PAGE>
OREGON
Bullivant, Houser, Bailey, Pendergrass & Hoffman
300 Pioneer Tower
888 SW Fifth Avenue
Portland, Oregon 97204-2089
Contact: Chrys A. Martin, Esq.
Phone: (503) 228-6351
*Lane, Powell, Spears and Lubersky
520 South West Yarnhill, Suite 800
Portland, Oregon 97204-1383
Contact: David G. Hosenpud, Esq.
Phone; (503) 226-6151
Lindsay, Hart, Neil & Weigler
1300 West Fifth Avenue, Suite 3400
Portland, Oregon 97201-5696
Contact: Jerard S. Weigler, Esq.
Phone: (503) 226-7677
PENNSYLVANIA
*Cozen & O'Connor
The Atrium
1900 Market Street
Philadelphia, PA 19103
Contact: Joseph A. Gerber, Esq.
Phone: (215) 665-2000
*Pepper, Hamilton & Scheetz
3000 Two Logan Square
Eighteenth & Arch Street
Philadelphia, PA 19103-2799
Contact: Anthony B. Haller, Esq.
Phone: (215) 981-4000
*Dechert, Price & Rhoads
4000 Bell Atlantic Tower
1717 Arch Street
Philadelphia, PA 19103-2793
Contact: Seymour Kruland, Esq.
Phone: (215) 994-4000
*Wilson, Elser, Moskowitz, Edelman and
Dicker
Curtis Center
830 East Independence Square West
Philadelphia, Pennsylvania 19106
Contact: Bernd Heinze, Esq.
Phone: (215) 627-6900
RHODE ISLAND
*Ropes & Gray
30 Kennedy Plaza
Providence, RI 02903-2328
Contact: William S. Eggeling, Esq.
Phone: (401) 455-4400
<PAGE>
SOUTH CAROLINA
Gibbes, Gallivan, White & Boyd
330 East Coffee Street
Greenville, SC 29601
Contact: Daniel B. White, Esq.
Phone: (864) 271-9580
*Young, Clement, Rivers & Tisdale
Post Office 993
28 Board Street
Charleston, SC 29402
Contact: Shawn D. Wallace, Esq.
Phone: (864) 557-4000
*Jackson, Lewis, Schnitzler & Krupman
2100 Daniel Building
301 North Main Street
Greenville, SC 29601
Contact: Steven J. Warren, Esq,
Phone: (864) 232-7000
SOUTH DAKOTA
Costello, Porter, Hill, Heisterkamp, Bushnell
200 Security Building
Post Office Box 290
Rapid City, South Dakota 57709
Contact: Dennis H. Hill, Esq.
Phone: (605) 343-2410
Davenport, Evans, Hurwitz & Smith
Post Office Box 1030
513 South Main Avenue
Sioux Falls, South Dakota 57101-1030
Contact: Marie Hovland, Esq.
Phone: (605) 336-2880
TENNESSEE
Leitner, Williams, Dooley & Napolitan
Pioneer Building, 3rd Floor
Chattanooga, Tennessee 37402
Contact: Paul R. Leitner, Esq.
Phone: (423) 265-0214
*Weintraub, Stock, Bennett, Ettingoff &
Grisham
One Commerce Square, Suite 2560
Memphis, Tennessee 38103
Contact: James H. Stock, Esq.
Phone: (901) 526-0431
TEXAS
*Akin, Gump, Strauss, Hauer & Feld
1700 Pacific Avenue Suite 4100
Dallas, Texas 75201-4675
Contact: Michael Lowenberg, Esq.
Phone: (214) 969-2800
*Clark, West, Keller, Butler & Ellis
4800 Renaissance Tower
Dallas, Texas 75270
Contact: Mark Shank, Esq.
Phone: (214) 741 -1001
*Baker & Botts, L.L.P.
One Shell Plaza
910 Louisiana
Houston, Texas 77002-4995
Contact: Richard R. Brann, Esq.
Phone: (713) 229-1234
*Fulbright & Jaworski
1301 McKinney Suite 5100
Houston, Texas 77101-3095
Contact: A.J. Harpell, Esq.
Phone: (713) 651-5442
<PAGE>
*Fulbright & Jaworski
2200 Ross Avenue Suite 2800
Dallas,Texas 75201
Contact: Richard M. Kobdish, Esq.
Phone: (214) 855-8188
*Locke, Purnell, Rain & Harrell
220 Ross Avenue Suite 2200
Dallas, Texas 75201-6776
Contact: John H. McElhaney, Esq.
Phone: (214) 740-8458
*Seyfarth, Shaw, Fairweather & Geraldson
700 Louisiana Street #3900
Houston, Texas 77002-2731
Contact: Gloria Portelia
Phone: (713) 225-2300
*Jones, Day, Reavis & Pogue
2300 Trammell Crow Center
2001 Ross Avenue
Dallas,Texas 75201
Contact: Stanley Weiner, Esq.
Phone: (214) 220-3939
*Patton Boggs
2626 Cole Avenue Suite 700
Dallas,Texas 75204
Contact: D. Patrick Long, Esq.
Phone: (214) 871-2141
*Thompson & Knight
3300 First City Center
1700 Pacific Avenue
Dallas, Texas 75201-4693
Contact: Timothy R. McCormick, E
Phone: (214) 969-1700
UTAH
Christenson & Jensen
175 Southwest Temple Suite 510
Salt Lake City, Utah 84101
Contact: Phillip S. Ferguson, Esq.
Phone: (801) 355-3431
VERMONT
David Cleary Associates
110 Merchants Row
Post Office Box 6740
Rutland, Vermont 05702
Contact: David L. Cleary, Esq.
Phone: (802) 775-8800
VIRGINIA
*Gentry, Locke, Rakes & Moore
Post Office Box 40013
Roanoke, Virginia 24038-0013
Contact: W. David Paxton, Esq.
Phone: (540) 983-9300
*McGuire, Woods, Battle & Boothe
901 East Cary Street
Richmond, Virginia 23219
Contact: Stephen D. Busch, Esq.
Phone: (804) 775-1000
<PAGE>
WASHINGTON
*Cozen & O'Conner
1201 Third Avenue Suite 5200
Seattle, Washington 98101
Contact: John Erlick, Esq.
Phone: (206) 224-1253
*Lane, Powell, Spears & Lubersky
1420 Fifth Avenue Suite 4100
Seattle, Washington 98101-2338
Contact: James B. Stoetzer, Esq.
Phone: (206) 223-7019
WEST VIRGINIA
*Steptoe & Johnson
Bank One National Center East
Post Box 2190
Clarksburg, West Virginia 26302-2190
Contact: James Wilson, Esq.
Phone: (304) 624-8000
WISCONSIN
Melli, Walker, Pease & Ruhly
Insurance Building Suite 600
119 Martin Luther King Jr. Blvd.
Madison, Wisconsin 53703-1664
Contact: Jack Walker, Esq.
Phone: (608) 257-4812
Law Offices of Scott G. Thomas
411 East Wisconsin Centre 10th Floor
Milwaukee, Wisconsin 53202
Contact: Scott G. Thomas, Esq.
Phone: (414)291-7680
WYOMING
Hirst & Applegate
1720 Carey Avenue Suite 200
Cheyenne, Wyoming 82001
Contact, Thomas A. Nicholas, Esq.
Phone: (307) 632-0541
COPY
<PAGE>
ENDORSEMENT #1
This endorsement, effective 12:01 am May 5, 1998 forms a part of
policy number 856-27-73
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,
Cancelling 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.
-1-
<PAGE>
ENDORSEMENT #1 (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
- 2 -
<PAGE>
ENDORSEMENT #2
This endorsement, effective 12:01 am May 5, 1998 forms a part of
policy number 856-27-73
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 May 5, 1996
501(c) (3) of the Internal Revenue Code of 1986
(as amended).
ALL OTHER TERMS, CONDITIONS AND EXCLUSIONS REMAIN UNCHANGED.
/s/ Ty Sagalow
----------------------------------
AUTHORIZED REPRESENTATIVE
<PAGE>
ENDORSEMENT #3
This endorsement, effective 12:01 am May 5, 1998 forms a part of
Policy number 856-27-73
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.
- 1 -
<PAGE>
ENDORSEMENT #3 (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
-2-
<PAGE>
ENDORSEMENT #4
This endorsement, effective 12:01 am May 5, 1998 forms a part of
policy number 856-27-73
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
<PAGE>
ENDORSEMENT #5
This endorsement, effective 12:01 am May 5, 1998 forms a part of
policy number 856-27-73
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
<PAGE>
ENDORSEMENT #6
This endorsement, effective 12:01 am May 5, 1998 forms a part of
policy number 856-27-73
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
<PAGE>
ENDORSEMENT#7
This endorsement, effective 12:01 am May 5, 1998 forms a part of
policy number 856-27-73
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 and conditions will remain unchanged.
/s/ Ty Sagalow
----------------------------------
AUTHORIZED REPRESENTATIVE
<PAGE>
ENDORSEMENT #8
This endorsement, effective 12:01 am May 5, 1998 forms a part of
policy number 856-27-73
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 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:
I. DEFINITIONS
The following definitions apply for purposes of this endorsement:
1) "Termination of Coverage" means:
a) cancellation of the 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 the 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 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.
The right of the Authorized Insured to buy the 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.
-1-
<PAGE>
ENDORSEMENT# 8 (continued)
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/or premiums different from those of the expiring policy shall not
constitute a refusal to renew.
/s/ Ty Sagalow
----------------------------------
AUTHORIZED REPRESENTATIVE
-2-
<PAGE>
ENDORSEMENT #9
This endorsement, effective 12:01 am May 5, 1998 forms a part of
policy number 856-27-73
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
Claus 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 and 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 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 and Officers alleging , arising out
of, based upon or attributable to any pending or prior litigation as of MAY 5,
1994, or alleging or derived from the same facts alleged in such pending or
prior litigation.
/s/ Ty Sagalow
----------------------------------
AUTHORIZED REPRESENTATIVE
<PAGE>
ENDORSEMENT #10
This endorsement, effective 12:01 AM May 5, 1998 forms a part of
policy number 856-27-73
issued to STV GROUP, INC.
by National Union Fire Insurance Company of Pittsburgh, Pa.
General Partnership/Partnership Management/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 Insured(s) alleging, arising out of, based upon or
derived from an Insured's or the Company's acting as a general partner or any
limited partnership and/or partnership manager of any general partnership,
and/or joint venture manager of any joint venture.
All other terms, conditions and exclusions remain the same.
/s/ Ty Sagalow
----------------------------------
AUTHORIZED REPRESENTATIVE
<PAGE>
ENDORSEMENT #11
This endorsement, effective 12:01 AM May 5, 1998 forms a part of
policy number 856-27-73
issued to STV GROUP, INC.
by National Union Fire Insurance Company of Pittsburgh, PA.
CrisisFund(SM)
(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 1, 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
Insurer is 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.
<PAGE>
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:
1. 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:
(1) 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 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.
<PAGE>
(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
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
<PAGE>
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 FEBRUARY 11,1998;
(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;
(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
<PAGE>
Crisis Management Finn 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
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
<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
EMPLOYMENT AGREEMENT
BETWEEN
STV Group, Inc., Employer
AND
Dominick Servedio, Employee
Made on October 29, 1998
Effective October 1, 1998
<PAGE>
TABLE OF CONTENTS
BACKGROUND ................................................................1
1. Employment and Duties; Board of Directors . .......................2
1.1. Employment and Duties. ....................................2
1.2. Board of Directors ........................................3
2. Term ..............................................................3
3. Compensation ......................................................3
3.1. Salary ....................................................3
3.2. Annual Incentive ..........................................4
3.3. Long Term Incentives ......................................4
3.4. Welfare Benefits ..........................................4
3.5. Fringe Benefits and Business Expenses .....................5
3.5.1 Fringe Benefits ...................................5
3.5.2 Vacation ..........................................6
3.5.3 Reimbursement of Expenses .........................6
3.6. Retirement Benefits .......................................6
3.6.1 General............................................6
3.6.2 Medical Coverage ..................................7
3.6.3 Supplemental Retirement Benefits...................7
4. Termination .......................................................9
4.1. Notice of Termination ....................................10
4.2. Grounds for Termination ..................................10
4.2.1 Termination upon Death ...........................10
4.2.2 Termination upon Disability ......................10
4.2.3 Termination for Cause ............................11
4.2.4 Termination Other Than For Cause .................12
4.2.5 Termination For Good Reason ......................13
4.3. Compensation upon Termination for Good Reason ............13
4.4. Procedure Upon Termination ...............................14
5. Employee's Covenants .............................................14
5.1. Nondisclosure ............................................14
5.2. Noncompetition ...........................................15
5.3. Enforcement ..............................................16
5.4. Consideration ............................................17
5.5. Scope ....................................................17
i
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6. Miscellaneous .....................................................18
6.1. Notices....................................................18
6.2. Entire Understanding ......................................19
6.3. Modification ..............................................19
6.4. Prior Agreements ..........................................19
6.5. Termination of Prior Employment Agreements ................19
6.6. Parties in Interest .......................................20
6.7. Assignment ................................................20
6.8. Severability ..............................................21
6.9. Counterparts ..............................................21
6.10 Section Headings ..........................................21
6.11 References ................................................22
6.12 Controlling Law ...........................................22
EXHIBITS
Appendix: 23
A. Definition of Change of Control 23
ii
<PAGE>
EMPLOYMENT AGREEMENT
THIS AGREEMENT made on October 29, 1998, but effective as of October 1,
1998 by and between Dominick Servedio ("Employee") and STV Group, Inc., a
Pennsylvania corporation ("Employer").
BACKGROUND
WHEREAS, Employer is engaged in the business of providing consulting
engineering, architectural, interior design, planning, construction management
and management consulting services to its customers; and
WHEREAS, Employer and Employee acknowledge that Employer is engaged in a
highly competitive business and wishes to protect its competitive position in
its industry; and
WHEREAS, Employer and Employee are parties to an Employment Agreement, made
as of November 21, 1994, effective January 1, 1994, pursuant to which Employee
has been employed by Employer; and
WHEREAS, Employer desires to continue to retain the services of Employee
under specific terms and conditions of employment; and
WHEREAS, Employee desires to continue to work for Employer under the
specific terms and conditions of employment which include terms to protect
Employer's competitive position in the industry; and
WHEREAS, Employee and Employer have freely negotiated their respective
terms and conditions of employment, and have
1
<PAGE>
had the opportunity to consult with counsel of their choice, and have reached
agreement thereon;
NOW THEREFORE, in consideration of the promises, covenants and agreements
of the parties contained herein, and intending to be legally bound, the parties
hereby covenant and agree as follows:
1. Employment and Duties; Board of Directors.
1.1. Employment and Duties. Employer shall employ Employee as
Employer's President and Chief Operating Officer until December 31, 1998 and
from and after January 1, 1999 and thence throughout the term of employment set
forth in Section 2 hereof as President and Chief Executive Officer. Employee
shall have supervision and control over, and responsibility for, the management
of Employer, subject only to the direction of the Employer's Board of Directors.
Employee shall also have such other responsibilities and duties, consistent with
his positions and expertise, as may from time to time be prescribed by the
Employer's Board of Directors and agreed to by Employee. Employee shall devote
his full time, energy, skill and best efforts to the business and affairs of
Employer, but nothing in this Agreement shall preclude the Employee from
devoting reasonable periods required for (i) serving as a director or member of
a committee of any organization involving no conflict of interest with the
interest of the Employer; (ii) delivering lectures, fulfilling speaking
engagements, teaching at educational institutions; (iii) engaging in charitable
and
2
<PAGE>
community activities; and (iv) managing his personal investments; and provided
that such activities do not materially interfere with the regular performance of
his duties and responsibilities under this Agreement. Employee agrees to serve
without additional compensation, if elected or appointed thereto, as a director
of the Employer and any of its subsidiaries and in one or more executive offices
of any of the Employer's subsidiaries, provided that the Employee is indemnified
for serving in any and all such capacities on a basis no less favorable than is
currently provided in the Bylaws of the Employer.
1.2.1. Board of Directors.
As a condition of his employment, Employee shall be nominated by
Employer's Board of Directors to stand for re-election to the Board of Directors
during the term of employment set forth in Section 2 hereof and Employer will
take all steps necessary to ensure such nomination and subsequent election.
2. Term. The term of Employee's employment under this Agreement shall be a
period of five (5) years commencing on October 1, 1998, and ending on September
30, 2003, unless further extended or sooner terminated in accordance with the
other provisions hereof (the "Term").
3. Compensation.
3.1. Salary. Employer shall pay to Employee for services rendered
hereunder an annual base salary of $425,000.00 per year ("Salary"), payable in
accordance with
3
<PAGE>
Employer's normal payroll practices for employees. Employer shall deduct or
cause to be deducted from the Salary all taxes and amounts required by law to be
withheld. Employee's Salary shall be reviewed by the Compensation Committee of
the Board of Directors no less frequently than annually and may be increased,
but not decreased, as a result thereof.
3.2. Annual Incentive. During the Term, and subject to the other
provisions of this Agreement, Employee shall be entitled to participate in and
shall be included in Employer's Annual Incentive Plan established by the
Compensation Committee and ratified by the Board.
3.3. Long Term Incentives. During the Term, and subject to the other
provisions of this Agreement, Employee shall be entitled to participate in and
shall be included in all of Employer's long term incentive plans ("Long Term
Incentives") generally available to executive officers to the extent Employee is
eligible under the general provisions thereof, including, but not necessarily
limited to stock option plans, restricted stock plan, stock appreciation rights,
and performance units.
3.4. Welfare Benefits. During the Term, and subject to the other
provisions of this Agreement, Employee shall be entitled to participate and
shall be included in any welfare benefit plans of the Employer ("Welfare
Benefits") generally available to executive officers, to the extent Employee is
eligible under the general provisions thereof. Employee shall participate in
such Plans on the same terms and
4
<PAGE>
conditions as all other senior executive officers, except that, in addition,
Employer shall provide Employee with life insurance coverage in the amount of no
less than $1 million.
3.5 Fringe Benefits and Business Expenses.
3.5.1. Fringe Benefits. During the Term, and subject to the other
provisions of this Agreement, in addition to any entitlements heretofore earned
by Employee under the terms of any prior agreement between Employer and
Employee, Employer shall provide Employee with and Employee shall be entitled to
the following (sometimes hereinafter referred to as "Fringe Benefits"):
(i) An automobile of such type as is comparable to that
currently provided. Employer shall maintain and pay for liability, collision and
comprehensive insurance covering such automobile, in such amounts and on such
terms as Employer deems appropriate.
(ii) Club fees (initiation, dues and monthly charges) at
least comparable to those currently provided.
(iii) Personal financial planning and tax preparation
services, the annual cost of which shall not exceed $7,500.00.
(iv) The rental cost, a reasonable allowance for furniture
and furnishings of, and maid service for, a two bedroom apartment in the Borough
of Manhattan, City of New York, as selected by the Employee with the approval of
the Chairman of the Compensation Committee of
5
<PAGE>
the Board of Directors. Employee shall be entitled to the personal use of such
apartment during the term of this Agreement. In addition, Employer shall
promptly from time to time pay to Employee in cash amounts sufficient to cover
Employee's federal, state and local tax liability with respect to any taxable
income recognized by Employee as a consequence of Employer's payment for the
apartment rental and maid service cost under this section as well as Employee's
federal, state and local tax liability with respect to such cash payments.
(The above benefits are sometimes hereinafter referred to as "Fringe Benefits").
3.5.2. Vacation. Employee shall be entitled to unlimited vacation
during each year, subject to Employee's ability to perform his duties under this
Agreement.
3.5.3. Reimbursement of Expenses. Employee is authorized to incur
reasonable, ordinary, and necessary expenses in the course of Employer's
business. Employer shall reimburse Employee for such expenses ("Business
Expenses") advanced by Employee upon presentation by the Employee of an itemized
account of such expenditures in a manner prescribed by Employer.
3.6 Retirement Benefits.
3.6.1. General. Employee shall be entitled to continue to
participate and shall continue to be included in Employer's ESOP and 401(K)
plans on the same
6
<PAGE>
terms and conditions as other employees of Employer ("General Retirement
Benefits").
3.6.2. Medical Coverage. Employee shall be entitled to, and
Employer shall provide, retiree medical coverage at least comparable to that
currently in effect ("Medical Retirement Benefits").
3.6.3. Supplemental Retirement Benefits. Commencing on the first
day of the month following termination of Employee's employment with Employer,
Employee shall be entitled to receive annual benefits from Employer under a
Supplemental Executive Retirement Plan ("SERP"), as described in this section
("Supplemental Retirement Benefits") in the amount of Three Hundred and
Twenty-Five Thousand Dollars ($325,000.00) per annum. This SERP benefit is fully
vested and nonforfeitable. The foregoing SERP benefit shall be payable monthly
in equal installments for a total period of fifteen (15) years of the lives of
Employee and his spouse or of the survivor next following the termination of
Employee's employment with Employer. As of January 1 of each year following the
year in which payment of the SERP benefit commences, the amount of the SERP
benefit shall be increased by a cost-of-living factor based on the increase in
the Consumer Price Index-Urban Consumers for the immediately preceding calendar
year. Notwithstanding the foregoing, if a change in control (as defined in
Appendix A) shall occur before the SERP benefit has been fully paid, the
Employer shall i) within thirty (30) days following such
7
<PAGE>
change of control provide to the Employee and Employee's spouse, or the
survivor, security for the life of such benefit in the form of a fully funded
annuity payment or other guarantee administered by the Compensation Committee of
the Board of Directors of the Employer; or ii) the actuarial lump sum equivalent
of the remaining benefit shall be accelerated and paid to Employee or his
surviving spouse in a single lump sum in cash within forty-five (45) days
following such change of control. Any such annuity contract shall be issued by
an insurance company having an A.M. Best financial strength rating of at least
A+ and a Standard & Poor's claims paying ability rating of at least AA.
Actuarial equivalence shall be determined by the Compensation Committee of the
Board of Directors of the Employer in accordance with reasonable actuarial
assumptions. The Compensation Committee, with the consent and approval of the
Employee, which consent and approval shall not unreasonably be withheld, shall
retain an independent third party actuarial firm to determine the actuarial lump
sum equivalent. In the event that the Company shall elect to make payment of the
SERP by annuity as provided above, upon the death of Employee's surviving spouse
within the 15-year term of the SERP, the balance of any remaining SERP benefits
which would have become due and owing to Employee, or to Employee's surviving
spouse, shall be payable to such beneficiaries as may have been designated by
Employee or Employee's surviving spouse during their respective lifetimes. In
addition, in the event that, as a
8
<PAGE>
result of the Employer's election to make payment of the SERP by annuity as
provided above, any taxable income is recognized by Employee in advance of
receipt of payment of the SERP in whole or in part, Employer shall, promptly
upon its calculation, advance to Employee, in cash, an amount sufficient to
cover any of Employee's federal, state and local tax liability with respect to
any such taxable income recognized by Employee as a consequence of Employer's
election to make payment of the SERP by annuity, as well as Employee's federal,
state and local tax liability with respect to such cash payment, which advance
shall be repaid without interest by the employee pari pasu as Employee receives
payment of such SERP (Collectively, the General Retirement Benefits, Medical
Retirement Benefits and Supplemental Retirement Benefits are referred to as
"Retirement Benefits").
4. Termination.
4.1. Notice of Termination. Any termination by Employer or by
Employee, other than due to death of Employee, shall be communicated by written
Notice of Termination to the other party hereto. As used in this Agreement,
"Notice of Termination" means a notice specifying the termination provision in
this Agreement relied upon and setting forth in reasonable detail the facts and
circumstances claimed to provide a basis for termination of Employee's
employment under the provision specified. As used in this Agreement,
9
<PAGE>
"Date of Termination" shall mean the date specified in the Notice of
Termination.
4.2. Grounds for Termination.
4.2.1. Termination upon Death. Employee's employment with
Employer and all of Employee's rights to compensation and benefits hereunder
shall automatically terminate upon his death, except that Employee's heirs,
personal representatives or estate shall be entitled to (i) any unpaid portion
of his Compensation and Benefits accrued up to the Date of Termination and shall
also be entitled to reimbursement for any expenses incurred by Employee
hereunder and (ii) such rights as Employee's surviving spouse may have under
Employer's SERP.
4.2.2. Termination upon Disability. This Agreement shall
terminate immediately in the event that Employee becomes retired on account of
disability. Employee will be deemed to be retired on account of disability at
the end of any period of six consecutive months during which, by reason of
physical or mental injury or disease, Employee has been unable to perform
substantially the Executive's usual and customary duties under this Agreement.
In the event that by reason of physical or mental injury or disease, Employee
has been unable to perform substantially the Executive's usual and customary
duties under this Agreement until the date of retirement on account of
disability, Employee shall continue to receive his compensation and benefits in
10
<PAGE>
accordance with company policy with respect to disability benefits in effect at
the time of such disability.
4.2.3. Termination for Cause. At any time during the Term,
Employer may terminate Employee's employment hereunder for Cause (as defined
herein), effective immediately upon notice to Employee, if at a duly convened
meeting of the Board of Directors or the appropriate committee of the Board of
Directors of which Employee was given reasonable advance notice (30 days or
more) and at which Employee and his counsel had the opportunity to be heard, a
resolution was duly adopted by the affirmative vote of not less than two-thirds
of the Board present and entitled to vote on this matter finding that, in the
good faith judgment of the Board or such committee, (1) an event (which is
described in the resolution in reasonable detail) constituting Cause has
occurred, and (2) the Employee was given reasonable notice of the event and
either Employee had a reasonable opportunity to take remedial action but failed
or refused to do so, or an opportunity to take remedial action would not have
been meaningful or appropriate under the circumstances.
For purposes of this Agreement, Cause shall mean: (1) Employee is
grossly negligent in the performance of his duties under this Agreement
resulting in a material impairment of Employer's performance, and Employee
continues to be grossly negligent after demand for corrective action is
delivered by the Employer that specifically identifies the
11
<PAGE>
manner in which the employer believes the Employee has been grossly negligent
under this Agreement or (2) Employee is convicted of or pleads guilty or nolo
contendere to a felony. A termination of Employee's employment shall not be
deemed a termination for Cause if the notice of termination is delivered to
Employee more than thirty (30) days after the Board of Directors knows or should
know of the event or action alleged to constitute Cause.
On termination of this Agreement pursuant to this Section 4.2.3, with
the exception of any benefits under the SERP which survive such termination and
except that Employee shall be entitled to any unpaid portion of his Compensation
and Benefits earned prior to the date of termination, all rights to Compensation
and Benefits of Employee shall cease as of the Date of Termination.
4.2.4. Termination Other Than For Cause. In the event that
Employer terminates Employee's employment hereunder without cause, Employee
shall receive his Salary for the remainder of the term of the Agreement and
shall continue to receive all Welfare Benefits and Fringe Benefits under the
Agreement for the remaining term of the Agreement. In addition, Employee shall
be deemed to have earned the maximum Annual Incentive Opportunity for each
fiscal year of the Employer during the remaining term of this Agreement, to be
paid in a lump sum, and all Long-Term Incentives will fully and immediately vest
and Employee shall be deemed to be retired for purposes of the SERP.
12
<PAGE>
4.2.5. Termination For Good Reason. Employee may terminate his
employment hereunder for good reason. For purposes of this Agreement, "good
reason" means (1) a significant reduction in Employee's duties as such duties
are contemplated by Section 1 hereof; (2) any removal of Employee from or any
failure to re-elect Employee to any of the positions indicated in Section 1
hereof, except in connection with termination of Employee's employment for
Cause; (3) a reduction in Employee's base salary or a material reduction of
Employee's other compensation, benefits or perquisites; (4) a relocation of
Employee's principal place of business to a location which is more than fifty
(50) miles from its current location; (5) retirement.
4.3. Compensation upon Termination for Good Reason. If Employee's
employment shall be terminated for good reason other than for retirement,
Employee shall be entitled to all compensation and benefits as if such
Termination of Employment was by Employer other than for Cause as set forth in
Paragraph 4.2.4 hereunder. Upon Employee's retirement prior to the expiration of
the Term of this Agreement, Employee shall be entitled to all salary,
compensation and benefits up to the date of retirement and shall thereafter be
immediately entitled to all of Employee's retirement benefits as provided for
herein. If Employee terminates his employment, other than for good reason, all
rights to Compensation and Benefits hereunder shall automatically cease except
that Employee shall be entitled to any unpaid portion
13
<PAGE>
4.4. Procedure Upon Termination. On termination of employment
regardless of the reason, Employee shall promptly return to Employer all
documents (including copies) and other property of Employer, including without
limitation, customer lists, manuals, letters, materials, reports, and records in
his possession or control no matter from whom or in what manner acquired.
5. Employee's Covenants.
5.1. Nondisclosure. At all times during and after the Term, Employee
shall keep confidential and shall not, except with Employer's express prior
written consent, or except in the proper course of his employment with Employer,
directly or indirectly, communicate, disclose, divulge, publish, or otherwise
express, to any Person, or use for his own benefit or the benefit of any Person,
any trade secrets, confidential or proprietary knowledge or information, no
matter when or how acquired, concerning the conduct and details of Employer's
business, including without limitation names of customers and suppliers,
(including customer buying and credit information, customer requirements and
preferences and customer ratings), lists of or information pertaining to
prospective customers, pricing information, credit information, gross margin and
cost information, sales and marketing studies, reports, projections and
information, number schedule and methods of delivery of services, finances,
accounting methods, marketing methods, trade secrets, policies, prospects and
financial condition. For
14
<PAGE>
purposes of this Section 5.1, confidential information shall not include any
information which is now known by or readily available to the general public or
which becomes known by or readily available to the general public other than as
a result of any improper act or omission of Employee.
5.2. Noncompetition. During the Term hereof, and during any period in
which Employee is receiving a SERP benefit, Employee shall not, except with
Employer's express prior written consent, directly or indirectly, in any
capacity, for the benefit of any Person:
(1) Communicate with or solicit any Person who is or during such
period becomes a customer, supplier, employee, salesman, agent or representative
of Employer, in any manner which interferes or might interfere with such
Person's relationship with Employer, or in an effort to obtain such Person as a
customer, supplier, employee, salesman, agent, or representative of or on behalf
of any business in competition with Employer.
(2) Establish, engage, own, manage, operate, join or control, or
participate in the establishment, ownership, management, operation or control
of, or be a director, officer, employee, salesman, agent or representative of,
or be a consultant to, any Person in any business in competition with Employer,
at any location where Employer now conducts or during the Term hereof begins
conducting any material business, or act or conduct himself in any manner which
he would have reason to believe inimical
15
<PAGE>
or contrary to the best interests of Employer; provided, however, that this
provision shall not be construed to prohibit the ownership by Employee of any
interest in any business entity doing business with Employer or of not more than
2% of any class of securities of any corporation which is engaged in any of the
foregoing businesses that has a class of securities registered pursuant to the
Securities Exchange Act of 1934.
5.3. Enforcement. The parties acknowledge that Employer's business is
highly competitive and world-wide in scope and that any breach by either party
of any of the covenants and agreements of this Section 5 ("Covenants") will
result in irreparable injury to the injured party for which money damages could
not adequately compensate such party, and therefore, in the event of any
material breach of this agreement, the injured party shall be entitled, in
addition to all other rights and remedies which such party may have at law or in
equity, to have an injunction issued by any competent court enjoining and
restraining the party in breach and/or all other Persons involved therein from
continuing such breach. The existence of any claim or cause of action which
either party may have against the other shall not constitute a defense or bar to
the enforcement of any of the Covenants. If a party is obliged to resort to
litigation to enforce any of the Covenants which has a fixed term, then such
term shall be extended for a period of time equal to the period during which a
material breach of such Covenant was
16
<PAGE>
occurring, beginning on the date of a final court order (without further right
of appeal) holding that such a material breach occurred or, if later, the last
day of the original fixed term of such Covenant.
5.4. Consideration. The parties expressly acknowledge that the
Covenants are a result of arms length negotiations between the parties and are a
material part of the consideration bargained for by them and that without the
agreement of each to be bound by the Covenants, neither would have agreed to
enter into this Agreement.
5.5. Scope. If any portion of any Covenant or its application is
construed to be invalid, illegal or unenforceable, then the other portions and
their application shall not be affected thereby and shall be enforceable without
regard thereto. If any of the Covenants is determined to be unenforceable
because of its scope, duration, geographical area or similar factor, then the
court making such determination shall have the power to reduce or limit such
scope, duration, area or other factor, and such Covenant shall then be
enforceable in its reduced or limited form.
17
<PAGE>
6. Miscellaneous.
6.1. Notices. All notices, requests, demands, consents or other
communications required or permitted to be given under this Agreement shall be
in writing and shall be deemed to have been duly given if and when (1) delivered
personally, (2) mailed by first class certified mail, return receipt requested,
postage prepaid, or (3) sent by a nationally recognized express courier service,
postage or delivery charges prepaid, to the parties at their respective
addresses stated below or to such other addresses of which the parties may give
notice in accordance with this Section.
If to Employer, to:
STV Group, Inc.
205 Welsf Drive
Douglassville, PA 19103
ATT: Corporate Secretary
With a copy to:
Richard J. McMahon, Esquire
Blank, Rome, Comisky & McCauley
One Logan Square
Philadelphia, PA 19103
If to Employee, to:
Mr. Dominick Servedio
President and Chief Operating officer
STV Group, Inc.
225 Park Avenue
New York, New York 10003
With a copy to:
Andrew S. Fisher, Esquire
Fisher, Fisher & Berger
One Whitehall Street
21st Floor
New York, New York 10004
18
<PAGE>
6.2 Entire Understanding. This Agreement, together with all other
documents, instruments, certificates and agreements executed in connection
herewith, sets forth the entire understanding between the parties with respect
to the subject matter hereof and supersedes all prior and contemporaneous,
written, oral, expressed or implied, communications, agreements and
understandings with respect to the subject matter hereof.
6.3. Modification. This Agreement shall not be amended, modified,
supplemented or terminated except in writing signed by both parties. No action
taken by Employer hereunder, including without limitation any waiver, consent or
approval, shall be effective unless approved by a majority of the Board.
6.4. Prior Agreements. Employee represents to Employer (1) that there
are no restrictions, agreements or understandings whatsoever to which Employee
is a party which would prevent or make unlawful his execution of this Agreement
or his employment hereunder, (2) that his execution of this Agreement and his
employment hereunder shall not constitute a breach of any contract, agreement or
understanding, oral or written to which he is a party or by which he is bound
and (3) that he is free and able to execute this Agreement and to enter into
employment by Employer.
6.5. Termination of Prior Employment Agreements. All prior employment
agreements between Employee and Employer (and/or any of its affiliates) are
hereby
19
<PAGE>
terminated as of the effective date hereof as fully performed on both sides,
provided that the execution and delivery of this Agreement shall not be deemed
to reduce any compensation or benefits or eliminate any other entitlements or
rights of Employee that were earned, vested or existed prior to the effective
date hereof.
6.6 Parties in Interest. This Agreement and all rights of Employee
hereunder shall inure to the benefit of, bind and be enforceable by Employee and
his surviving spouse, and his heirs, personal representatives, estate and
beneficiaries, and Employer and its successors and assigns. This Agreement is a
personal employment contract of Employer, being for the personal services of
Employee, and shall not be assignable by Employee.
6.7 Assignment. Employer, upon written consent of Employee, may assign
its rights and duties hereunder provided that the assignee is the successor, by
operation of law or otherwise, to the business of Employer, and the nature of
Employee's duties hereunder do not change in any material respect. Employer will
require any successor (whether direct or indirect, by purchase, merger,
consolidation or otherwise) to all or substantially all of the business and/or
assets of Employer, by agreement, in form and substance satisfactory to
Employee, expressly to assume and agree to perform this Agreement in the same
manner and to the same extent that Employer would be required to perform it if
no such succession had taken place. Failure of Employer
20
<PAGE>
to obtain such agreement and Employee's consent to the assignment prior to the
effectiveness of any such succession shall be a breach of this Agreement and
shall entitle Employee to compensation from Employer in the same amount and on
the same terms as he would be entitled to hereunder if he terminated his
employment for Good Reason, except that for purposes of implementing the
foregoing, the date on which any such succession becomes effective shall be
deemed the date of the termination of this Agreement. As used in this Agreement,
"Employer" shall mean Employer as hereinabove defined and any successor to its
business and/or assets as aforesaid which executed and delivers the agreement
provided for in this Section or which otherwise becomes bound by all the terms
and provisions of this Agreement by operation of law.
6.8. Severability. If any provision of this Agreement is construed to
be invalid, illegal or unenforceable, then the remaining provisions hereof shall
not be affected thereby and shall be enforceable without regard thereto.
6.9. Counterparts. This Agreement may be executed in any number of
counterparts, each of which when so executed and delivered shall be an original
hereof, and it shall not be necessary in making proof of this Agreement to
produce or account for more than one counterpart hereof.
6.10. Section Headings. Section and subsection headings in this
Agreement are inserted for
21
<PAGE>
convenience of reference only, and shall neither constitute a part of this
Agreement nor affect its construction, interpretation, meaning or effect.
6.11. References. All words used in this Agreement shall be construed
to be of such number and gender as the context requires or permits.
6.12. Controlling Law. This Agreement is made under, and shall be
governed by, construed and enforced in accordance with, the substantive laws of
Pennsylvania applicable to agreements made and to be performed entirely therein.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement the day
and year first above mentioned, under Seal, intending to be legally bound
hereby.
Attest: /s/ Peter W. Knipe EMPLOYER: /s/ Harry Prystowsky, MD
Secretary By:
(Corporate Seal) (Authorized Officer)
EMPLOYEE: /s/ Dominick M. Servedio
<PAGE>
APPENDIX A
Definition of Change in Control
For purposes of this Agreement, "change of control" shall mean the
occurrence of one or more of the following: (A) The acquisition, other than from
Employer, by any individual, entity or group (within the meaning of Section
13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act")) of beneficial ownership (within the meaning of Rule 13d-3
promulgated under the Exchange Act) (a "Person") of 30% or more of either (i)
the then outstanding shares of Common Stock of Employer (the "Outstanding
Employer Common Stock") or (ii) the combined voting power of the then
outstanding voting securities of Employer entitled to vote generally in the
election of directors (the "Employer Voting Securities"), provided, however,
that any acquisition by (x) Employer or any of its subsidiaries, or any employee
benefit plan (or related trust) sponsored or maintained by Employer or any of
its subsidiaries or (y) any Person that is eligible, pursuant to Rule 13d-l(b)
under the Exchange Act, to file a statement on Schedule 13G with respect to its
beneficial ownership of Employer Voting Securities, whether or not such Person
shall have filed a statement on Schedule 13G, unless such Person shall have
filed a statement on Schedule 13D with respect to beneficial ownership of 30% or
more of Employer Voting Securities or (z) any corporation with respect to which,
following such acquisition, more than 60% of, respectively,
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<PAGE>
the then outstanding shares of common stock of such corporation and the combined
voting power of the then outstanding voting securities of such corporation
entitled to vote generally in the election of directors is then beneficially
owned, directly or indirectly, by all or substantially all of the individuals
and entities who were the beneficial owners, respectively, of the Outstanding
Employer Common Stock and Employer Voting Securities immediately prior to such
acquisition in substantially the same proportion as their ownership, immediately
prior to such acquisition, of the Outstanding Employer Common Stock and Employer
Voting Securities, as the case may be, shall not constitute a Change of Control;
or (B) Individuals who, as of the date hereof, constitute the Board of Directors
of Employer (the "Incumbent Board") cease for any reason to constitute at least
a majority of the Board, provided that any individual becoming a director
subsequent to the date hereof whose election or nomination for election by
Employer's shareholders, was approved by a vote of at least a majority of the
directors then comprising the Incumbent Board shall be considered as though such
individual were a member of the Incumbent Board, but excluding, for this
purpose, any such individual whose initial assumption of office is in connection
with an actual or threatened election contest relating to the election of the
Directors of Employer (as such terms are used in Rule 14a-11 of Regulation 14A
promulgated under the Exchange Act); or (C) Approval by the
24
<PAGE>
shareholders of Employer of a reorganization, merger or consolidation (a
"Business Combination"), in each case, with respect to which all or
substantially all of the individuals and entities who were the respective
beneficial owners of the Outstanding Employer Common Stock and Employer Voting
Securities immediately prior to such Business Combination do not, following such
Business Combination, beneficially own, directly or indirectly, more than 60%
of, respectively, the then outstanding shares of common stock and the combined
voting power of the then outstanding voting securities entitled to vote
generally in the election of directors, as the case may be, of Employer
resulting from Business Combination in substantially the same proportion as
their ownership immediately prior to such Business Combination of the
Outstanding Employer Common Stock and Employer Voting Securities, as the case
may be; or (D) (i) a complete liquidation or dissolution of Employer or of (ii)
sale or other disposition of all or substantially all of the assets of Employer
other than to a corporation with respect to which, following such sale or
disposition, more than 60% of, respectively, the then outstanding shares of
common stock and the combined voting power of the then outstanding voting
securities entitled to vote generally in the election of directors is then owned
beneficially, directly or indirectly, by all or substantially all of the
individuals and entities who were the beneficial owners, respectively, of the
Outstanding Employer Common Stock and Employer Voting
25
<PAGE>
Securities immediately prior to such sale or disposition in substantially the
same proportion as their ownership of the Outstanding Employer Common Stock and
Employer Voting Securities, as the case may be, immediately prior to such sale
or disposition.
26
EMPLOYMENT AGREEMENT
BETWEEN
STV Group, Inc., Employer
AND
Michael Haratunian, Employee
Made October 29, 1998
Effective on January 1, 1999
<PAGE>
TABLE OF CONTENTS
BACKGROUND ................................................................1
1. Employment and Duties; Board of Directors . .......................2
1.1. Employment and Duties. ....................................2
1.2. Board of Directors ........................................3
2. Term ..............................................................3
3. Compensation ......................................................4
3.1. Salary ....................................................4
3.2. Annual Incentive ..........................................4
3.3. Long Term Incentives ......................................4
3.4. Welfare Benefits ..........................................5
3.5. Fringe Benefits and Business Expenses .....................5
3.5.1 Fringe Benefits ...................................6
3.5.2 Vacation ..........................................6
3.5.3 Reimbursement of Expenses .........................6
3.6. Retirement Benefits .......................................6
3.6.1 General............................................6
3.6.2 Medical Coverage ..................................6
3.6.3 Supplemental Retirement Benefits...................7
4. Termination .......................................................9
4.1. Notice of Termination .....................................9
4.2. Grounds for Termination ..................................10
4.2.1 Termination upon Death ...........................10
4.2.2 Termination upon Disability ......................10
4.2.3 Termination for Cause ............................11
4.2.4 Termination Other Than For Cause .................12
4.2.5 Termination For Good Reason ......................12
4.3. Compensation upon Termination for Good Reason ............13
4.4. Procedure Upon Termination ...............................13
5. Employee's Covenants .............................................14
5.1. Nondisclosure ............................................14
5.2. Noncompetition ...........................................15
5.3. Enforcement ..............................................16
5.4. Consideration ............................................17
5.5. Scope ....................................................17
i
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6. Miscellaneous .....................................................17
6.1. Notices....................................................17
6.2. Entire Understanding ......................................18
6.3. Modification ..............................................18
6.4. Prior Agreements ..........................................19
6.5. Termination of Prior Employment Agreements ................19
6.6. Parties in Interest .......................................19
6.7. Assignment ................................................20
6.8. Severability ..............................................21
6.9. Counterparts ..............................................21
6.10 Section Headings ..........................................21
6.11 References ................................................21
6.12 Controlling Law ...........................................21
EXHIBITS
Appendix: 23
A. Definition of Change of Control 23
ii
<PAGE>
EMPLOYMENT AGREEMENT
THIS AGREEMENT is made on October 29, 1998 and effective on January 1, 1999
by and between Michael Haratunian ("Employee") and STV Group, Inc., a
Pennsylvania corporation ("Employer").
BACKGROUND
WHEREAS, Employer is engaged in the business of providing consulting
engineering, architectural, interior design, planning, construction management
and management consulting services to its customers; and
WHEREAS, Employer and Employee acknowledge that Employer is engaged in a
highly competitive business and wishes to protect its competitive position in
its industry; and
WHEREAS, Employer and Employee are parties to an Employment Agreement, made
as of November 21, 1994, effective January 1, 1994, pursuant to which Employee
has been employed by Employer; and
WHEREAS, Employer desires to continue to retain the services of Employee on
and after January 1, 1999 under specific terms and conditions of employment; and
WHEREAS, Employee desires to continue to work for Employer on and after
January 1, 1999 under the specific terms and conditions of employment which
include terms to protect Employer's competitive position in the industry; and
WHEREAS, Employee and Employer have freely negotiated their respective
terms and conditions of employment, and have
1
<PAGE>
had the opportunity to consult with counsel of their choice, and have reached
agreement thereon;
NOW THEREFORE, in consideration of the promises, covenants and agreements
of the parties contained herein, and intending to be legally bound, the parties
hereby covenant and agree as follows:
1. Employment and Duties; Board of Directors.
1.1. Employment and Duties.
Employer shall employ Employee as Employer's Chairman throughout the
term of employment set forth in Section 2 hereof. Employee shall carry out the
policies, programs, orders and resolutions adopted by the Board of Directors,
subject only to the direction of the Employer's Board of Directors. Employee
shall also have such other responsibilities and duties, consistent with his
position and expertise, as may from time to time be prescribed by the Board of
Directors of Employer and agreed to by Employee. it is understood that
Employee's work commitment to Employer will involve a portion, but not all, of
his business time, but that while engaged in the business and affairs of
Employer, Employee shall devote his best efforts to such business and affairs.
Nothing in this Agreement shall preclude the Employee from devoting reasonable
periods required for (i) personal business matters unrelated to Employer, (ii)
serving as a director or member of a committee of any organization involving no
conflict of interest with the interest of the Employer; (iii) delivering
2
<PAGE>
lectures, fulfilling speaking engagements, teaching at educational institutions;
(iv) engaging in charitable and community activities; and (v) managing his
personal investments; and provided that such activities do not materially
interfere with the regular performance of his duties and responsibilities under
this Agreement. Employee agrees to serve without additional compensation, if
elected or appointed thereto, as a director of the Employer and any of its
subsidiaries and in one or more executive offices of any of the Employer's
subsidiaries, provided that the Employee is indemnified for serving in any and
all such capacities on a basis no less favorable than is currently provided in
the Bylaws of the Employer.
1.2.1. Board of Directors.
As a condition of his employment, Employee shall be nominated by
Employer's Board of Directors to stand for re-election to the Board of Directors
during the term of employment set forth in Section 2 hereof and Employer will
take all steps necessary to ensure such nomination and subsequent election.
2. Term. The term of Employee's employment under this Agreement shall be a
period of five (5) years commencing on January 1, 1999, and ending on December
31, 2003, unless further extended or sooner terminated in accordance with the
other provisions hereof (the "Term").
3
<PAGE>
3. Compensation.
3.1. Salary. Employer shall pay to Employee for services rendered
hereunder, in accordance with Employer's normal payroll practices for employees,
an annual base salary of Two Hundred and Twelve Thousand Dollars ($212,000).
Employer shall deduct or cause to be deducted from the Salary all taxes and
amounts required by law to be withheld. Employee's Salary shall, at the minimum,
be increased annually by a cost-of-living factor based on the increase in the
Consumer Price Index - Urban Consumers for the immediately preceding calendar
year and be otherwise reviewed by the Compensation Committee of the Board of
Directors no less frequently than annually and may be increased, but not
decreased, as a result thereof.
3.2. Annual Incentive. During the Term, and subject to the other
provisions of this Agreement, Employee shall be entitled to participate in and
shall be included in Employer's Annual Incentive Plan established by the
Compensation Committee and ratified by the Board.
3.3. Long Term Incentives. During the Term, and subject to the other
provisions of this Agreement, Employee shall be entitled to participate in and
shall be included in all of Employer's long term incentive plans ("Long Term
Incentives") generally available to executive officers to the extent Employee is
eligible under the general provisions thereof, including, but not necessarily
limited to
4
<PAGE>
stock option plans, restricted stock plan, stock appreciation rights, and
performance units.
3.4. Welfare Benefits. During the Term, and subject to the other
provisions of this Agreement, Employee shall be entitled to participate and
shall be included in any welfare benefit plans of the Employer ("Welfare
Benefits"), including medical, generally available to executive officers, to the
extent Employee is eligible under the general provisions thereof. Employee shall
participate in such Plans on the same terms and conditions as all other senior
executive officers, except that, in addition, Employer shall provide Employee
with life insurance coverage in the amount of no less than $1 million.
3.5 Fringe Benefits and Business Expenses.
3.5.1. Fringe Benefits. During the Term, and subject to the other
provisions of this Agreement, in addition to any entitlements heretofore earned
by Employee under the terms of any prior agreement between Employer and
Employee, Employer shall provide Employee with and Employee shall be entitled to
the following (sometimes hereinafter referred to as "Fringe Benefits"):
(i) An automobile of such type as is comparable to that
currently provided. Employer shall maintain and pay for liability, collision and
comprehensive insurance covering such automobile, in such amounts and on such
terms as Employer deems appropriate.
5
<PAGE>
(ii) Club fees (initiation, dues and monthly charges) at
least comparable to those currently provided.
(iii) Personal financial planning and tax preparation
services, the annual cost of which shall not exceed $7,500.00.
(The above benefits are sometimes hereinafter referred to as "Fringe Benefits").
3.5.2. Vacation. Employee shall be entitled to unlimited vacation
during each year, subject to Employee's ability to perform his duties under this
Agreement.
3.5.3. Reimbursement of Expenses. Employee is authorized to incur
reasonable, ordinary, and necessary expenses in the course of Employer's
business. Employer shall reimburse Employee for such expenses ("Business
Expenses") advanced by Employee upon presentation by the Employee of an itemized
account of such expenditures in a manner prescribed by Employer.
3.6 Retirement Benefits.
3.6.1. General. Employee shall be entitled to continue to
participate and shall continue to be included in Employer's ESOP and 401(K)
plans on the same terms and conditions as other employees of Employer ("General
Retirement Benefits").
3.6.2. Medical Coverage. Employee shall be entitled to, and
Employer shall provide, retiree
6
<PAGE>
medical coverage at least comparable to that currently in effect ("Medical
Retirement Benefits").
3.6.3. Supplemental Retirement Benefits. Commencing on the first
day of the month following termination of Employee's employment with Employer,
Employee shall be entitled to receive annual benefits from Employer under a
Supplemental Executive Retirement Plan ("SERP"), as described in this section
("Supplemental Retirement Benefits") in an amount equal to Employee's salary in
the final year of Employee's employment, by Employer as adjusted during the term
of this Agreement. This SERP benefit is fully vested and nonforfeitable. The
foregoing SERP benefit shall be payable monthly in equal installments for a
total period of fifteen (15) years of the lives of Employee and his spouse or of
the survivor next following the termination of Employee's employment with
Employer. As of January 1 of each year following the year in which payment of
the SERP benefit commences, the amount of the SERP benefit shall be increased by
a cost-of-living factor based on the increase in the Consumer Price Index-Urban
Consumers for the immediately preceding calendar year. Notwithstanding the
foregoing, if a change in control (as defined in Appendix A) shall occur before
the SERP benefit has been fully paid, the Employer shall i) within thirty (30)
days following such change of control provide to the Employee and Employee's
spouse, or the survivor, security for the life of such benefit in the form of a
fully funded annuity payment or other guarantee
7
<PAGE>
administered by the Compensation Committee of the Board of Directors of the
Employer; or ii) the actuarial lump sum equivalent of the remaining benefit
shall be accelerated and paid to Employee or his surviving spouse in a single
lump sum in cash within forty-five (45) days following such change of control.
Any such annuity contract shall be issued by an insurance company having an A.M.
Best financial strength rating of at least A+ and a Standard & Poor's claims
paying ability rating of at least AA. Actuarial equivalence shall be determined
by the Compensation Committee of the Board of Directors of the Employer in
accordance with reasonable actuarial assumptions. The Compensation Committee,
with the consent and approval of the Employee, which consent and approval shall
not unreasonably be withheld, shall retain an independent third party actuarial
firm to determine the actuarial lump sum equivalent. In the event that the
Company shall elect to make payment of the SERP by annuity as provided above,
upon the death of Employee's surviving spouse within the 15-year term of the
SERP, the balance of any remaining SERP benefits which would have become due and
owing to Employee, or to Employee's surviving spouse, shall be payable to such
beneficiaries as may have been designated by Employee or Employee's surviving
spouse during their respective lifetimes. In addition, in the event that, as a
result of the Employer's election to make payment of the SERP by annuity as
provided above, any taxable income is recognized by Employee in advance of
receipt of payment of
8
<PAGE>
the SERP in whole or in part, Employer shall, promptly upon its calculation,
advance to Employee, in cash, an amount sufficient to cover any of Employee's
federal, state and local tax liability with respect to any such taxable income
recognized by Employee as a consequence of Employer's election to make payment
of the SERP by annuity, as well as Employee's federal, state and local tax
liability with respect to such cash payment, which advance shall be repaid
without interest by the employee pari pasu as Employee receives payment of such
SERP.
(Collectively, the General Retirement Benefits, Medical Retirement Benefits and
Supplemental Retirement Benefits are referred to as "Retirement Benefits").
4. Termination.
4.1. Notice of Termination. Any termination by Employer or by
Employee, other than due to death of Employee, shall be communicated by written
Notice of Termination to the other party hereto. As used in this Agreement,
"Notice of Termination" means a notice specifying the termination provision in
this Agreement relied upon and setting forth in reasonable detail the facts and
circumstances claimed to provide a basis for termination of Employee's
employment under the provision specified. As used in this Agreement, "Date of
Termination" shall mean the date specified in the Notice of Termination.
9
<PAGE>
4.2. Grounds for Termination.
4.2.1. Termination upon Death. Employee's employment with
Employer and all of Employee's rights to compensation and benefits hereunder
shall automatically terminate upon his death, except that Employee's surviving
spouse, heirs, personal representatives or estate shall be entitled to (i) any
unpaid portion of his Compensation and Benefits accrued up to the Date of
Termination and shall also be entitled to reimbursement for any expenses
incurred by Employee hereunder and (ii) such rights as Employee's surviving
spouse may have under Employer's SERP.
4.2.2. Termination upon Disability. This Agreement shall
terminate immediately in the event that Employee becomes retired on account of
disability. Employee will be deemed to be retired on account of disability at
the end of any period of six consecutive months during which, by reason of
physical or mental injury or disease, Employee has been unable to perform
substantially the Executive's usual and customary duties under this Agreement.
In the event that by reason of physical or mental injury or disease, Employee
has been unable to perform substantially the Executive's usual and customary
duties under this Agreement until the date of retirement on account of
disability, Employee shall continue to receive his compensation and benefits in
accordance with company policy with respect to disability benefits in effect at
the time of such disability.
10
<PAGE>
4.2.3. Termination for Cause. At any time during the Term,
Employer may terminate Employee's employment hereunder for Cause (as defined
herein), effective immediately upon notice to Employee, if at a duly convened
meeting of the Board of Directors or the appropriate committee of the Board of
Directors of which Employee was given reasonable advance notice (30 days or
more) and at which Employee and his counsel had the opportunity to be heard, a
resolution was duly adopted by the affirmative vote of not less than two-thirds
of the Board present and entitled to vote on this matter finding that, in the
good faith judgment of the Board or such committee, (1) an event (which is
described in the resolution in reasonable detail) constituting Cause has
occurred, and (2) the Employee was given reasonable notice of the event and
either Employee had a reasonable opportunity to take remedial action but failed
or refused to do so, or an opportunity to take remedial action would not have
been meaningful or appropriate under the circumstances.
For purposes of this Agreement, Cause shall mean: (1) Employee is
grossly negligent in the performance of his duties under this Agreement
resulting in a material impairment of Employer's performance, and Employee
continues to be grossly negligent after demand for corrective action is
delivered by the Employer that specifically identifies the manner in which the
employer believes the Employee has been
11
<PAGE>
grossly negligent under this Agreement or (2) Employee is convicted of or pleads
guilty or nolo contendere to a felony.
On termination of this Agreement pursuant to this Section 4.2.3, with
the exception of any benefits under the SERP which survive such termination and
except that Employee shall be entitled to any unpaid portion of his Compensation
and Benefits earned prior to the date of termination, all rights to Compensation
and Benefits of Employee shall cease as of the Date of Termination.
4.2.4. Termination Other Than For Cause. In the event that
Employer terminates Employee's employment hereunder without cause, Employee
shall receive his Salary for the remainder of the term of the Agreement and
shall continue to receive all Welfare Benefits and Fringe Benefits under the
Agreement for the remaining term of the Agreement. In addition, Employee shall
be deemed to have earned the maximum Annual Incentive Opportunity for each
fiscal year of the Employer during the remaining term of this Agreement, to be
paid in a lump sum, and all Long-Term Incentives will fully and immediately vest
and Employee shall be deemed to be retired for purposes of the SERP.
4.2.5. Termination For Good Reason. Employee may terminate his
employment hereunder for good reason. For purposes of this Agreement, "Good
Reason" means any of the following events which occur without the Employee's
prior written consent (1) a significant reduction in Employee's duties as such
duties are contemplated by
12
<PAGE>
Section 1 hereof; (2) any removal of Employee from or any failure to re-elect
Employee to any of the positions indicated in Section 1 hereof, except in
connection with termination of Employee's employment for Cause; (3) a reduction
in Employee's base salary or a material reduction of Employee's other
compensation, benefits or perquisites; (4) a relocation of Employee's principal
place of business to a location which is more than fifty (50) miles from its
current location; (5) retirement.
4.3. Compensation upon Termination for Good Reason. If Employee's
employment shall be terminated for good reason other than for retirement,
Employee shall be entitled to all compensation and benefits as if such
Termination of Employment was by Employer other than for Cause as set forth in
Paragraph 4.2.4 hereunder. Upon Employee's retirement prior to the expiration of
the Term of this Agreement, Employee shall be entitled to all salary,
compensation and benefits up to the date of retirement and shall thereafter be
immediately entitled to all of Employee's retirement benefits as provided for
herein. If Employee terminates his employment, other than for good reason, all
rights to Compensation and Benefits hereunder shall automatically cease except
that Employee shall be entitled to any unpaid portion of his Compensation and
Benefits earned to the date thereof and to the SERP provided herein.
4.4. Procedure Upon Termination. On termination of employment
regardless of the reason, Employee
13
<PAGE>
shall promptly return to Employer all documents (including copies) and other
property of Employer, including without limitation, customer lists, manuals,
letters, materials, reports, and records in his possession or control no matter
from whom or in what manner acquired.
5. Employee's Covenants.
5.1. Nondisclosure. At all times during and after the Term, Employee
shall keep confidential and shall not, except with Employer's express prior
written consent, or except in the proper course of his employment with Employer,
directly or indirectly, communicate, disclose, divulge, publish, or otherwise
express, to any Person, or use for his own benefit or the benefit of any Person,
any trade secrets, confidential or proprietary knowledge or information, no
matter when or how acquired, concerning the conduct and details of Employer's
business, including without limitation names of customers and suppliers,
(including customer buying and credit information, customer requirements and
preferences and customer ratings), lists of or information pertaining to
prospective customers, pricing information, credit information, gross margin and
cost information, sales and marketing studies, reports, projections and
information, number schedule and methods of delivery of services, finances,
accounting methods, marketing methods, trade secrets, policies, prospects and
financial condition. For purposes of this Section 5.1, confidential information
shall not include any information which is now known by or readily
14
<PAGE>
available to the general public or which becomes known by or readily available
to the general public other than as a result of any improper act or omission of
Employee.
5.2. Noncompetition. During the Term hereof, and during any period in
which Employee is receiving a SERP benefit, Employee shall not, except with
Employer's express prior written consent, directly or indirectly, in any
capacity, for the benefit of any Person:
(1) Communicate with or solicit any Person who is or during such
period becomes a customer, supplier, employee, salesman, agent or representative
of Employer, in any manner which interferes or might interfere with such
Person's relationship with Employer, or in an effort to obtain such Person as a
customer, supplier, employee, salesman, agent, or representative of or on behalf
of any business in competition with Employer.
(2) Establish, engage, own, manage, operate, join or control, or
participate in the establishment, ownership, management, operation or control
of, or be a director, officer, employee, salesman, agent or representative of,
or be a consultant to, any Person in any business in competition with Employer,
at any location where Employer now conducts or during the Term hereof begins
conducting any material business, or act or conduct himself in any manner which
he would have reason to believe inimical or contrary to the best interests of
Employer; provided, however, that this provision shall not be construed to
15
<PAGE>
prohibit the ownership by Employee of any interest in any business entity doing
business with Employer or of not more than 2% of any class of securities of any
corporation which is engaged in any of the foregoing businesses that has a class
of securities registered pursuant to the Securities Exchange Act of 1934.
5.3. Enforcement. The parties acknowledge that Employer's business is
highly competitive and world-wide in scope and that any breach of any of the
covenants and agreements of this Section 5 ("Covenants") will result in
irreparable injury to the injured party for which money damages could not
adequately compensate such party, and therefore, in the event of any material
breach of this agreement, the injured party shall be entitled, in addition to
all other rights and remedies which such party may have at law or in equity, to
have an injunction issued by any competent court enjoining and restraining the
party in breach and/or all other Persons involved therein from continuing such
breach. The existence of any claim or cause of action which either party may
have against the other shall not constitute a defense or bar to the enforcement
of any of the Covenants. If a party is obliged to resort to litigation to
enforce any of the Covenants which has a fixed term, then such term shall be
extended for a period of time equal to the period during which a material breach
of such Covenant was occurring, beginning on the date of a final court order
(without further right of appeal) holding that such a
16
<PAGE>
material breach occurred or, if later, the last day of the original fixed term
of such Covenant.
5.4. Consideration. The parties expressly acknowledge that the
Covenants are a result of arms length negotiations between the parties and are a
material part of the consideration bargained for by them and that without the
agreement of each to be bound by the Covenants, neither would not have agreed to
enter into this Agreement.
5.5. Scope. If any portion of any Covenant or its application is
construed to be invalid, illegal or unenforceable, then the other portions and
their application shall not be affected thereby and shall be enforceable without
regard thereto. If any of the Covenants is determined to be unenforceable
because of its scope, duration, geographical area or similar factor, then the
court making such determination shall have the power to reduce or limit such
scope, duration, area or other factor, and such Covenant shall then be
enforceable in its reduced or limited form.
6. Miscellaneous.
6.1. Notices. All notices, requests, demands, consents or other
communications required or permitted to be given under this Agreement shall be
in writing and shall be deemed to have been duly given if and when (1) delivered
personally, (2) mailed by first class certified mail, return receipt requested,
postage prepaid, or (3) sent by a nationally recognized express courier service,
postage or delivery charges prepaid, to the parties at their respective
17
<PAGE>
addresses stated below or to such other addresses of which the parties may give
notice in accordance with this Section.
If to Employer, to:
STV Group, Inc.
205 Welsh Drive
Douglassville, PA 19518
ATT: Corporate Secretary
With a copy to:
Richard J. McMahon, Esquire
Blank, Rome, Comisky & McCauley
One Logan Square
Philadelphia, PA 19103
If to Employee, to:
Mr. Michael Haratunian
Chairman and Chief Executive Officer
STV Group, Inc.
225 Park Avenue
New York, New York 10003
With a copy to:
Andrew S. Fisher, Esquire
Fisher, Fisher & Berger
One Whitehall Street
21st Floor
New York, New York 10004
6.2 Entire Understanding. This Agreement, together with all other
documents, instruments, certificates and agreements executed in connection
herewith, sets forth the entire understanding between the parties with respect
to the subject matter hereof and supersedes all prior and contemporaneous,
written, oral, expressed or implied, communications, agreements and
understandings with respect to the subject matter hereof.
6.3. Modification. This Agreement shall not be amended, modified,
supplemented or terminated except in writing signed by both parties. No action
taken by Employer hereunder, including without limitation any waiver, consent
18
<PAGE>
or approval, shall be effective unless approved by a majority of the Board.
6.4. Prior Agreements. Employee represents to Employer (1) that there
are no restrictions, agreements or understandings whatsoever to which Employee
is a party which would prevent or make unlawful his execution of this Agreement
or his employment hereunder, (2) that his execution of this Agreement and his
employment hereunder shall not constitute a breach of any contract, agreement or
understanding, oral or written to which he is a party or by which he is bound
and (3) that he is free and able to execute this Agreement and to enter into
employment by Employer.
6.5. Termination of Prior Employment Agreements. All prior employment
agreements between Employee and Employer (and/or any of its affiliates) are
hereby terminated as of the effective date hereof as fully performed on both
sides, provided that the execution and delivery of this Agreement shall not be
deemed to reduce any compensation or benefits or eliminate any other
entitlements or rights of Employee that were earned, vested or existed prior to
the effective date hereof.
6.6 Parties in Interest. This Agreement and all rights of Employee
hereunder shall inure to the benefit of, bind and be enforceable by Employee and
his surviving spouse, heirs, personal representatives, estate and beneficiaries,
and Employer and its successors and assigns. This Agreement is a personal
employment contract of Employer,
19
<PAGE>
being for the personal services of Employee, and shall not be assignable by
Employee.
6.7 Assignment. Employer, upon written consent of Employee, may assign
its rights and duties hereunder provided that the assignee is the successor, by
operation of law or otherwise, to the business of Employer, and the nature of
Employee's duties hereunder do not change in any material respect. Employer will
require any successor (whether direct or indirect, by purchase, merger,
consolidation or otherwise) to all or substantially all of the business and/or
assets of Employer, by agreement, in form and substance satisfactory to
Employee, expressly to assume and agree to perform this Agreement in the same
manner and to the same extent that Employer would be required to perform it if
no such succession had taken place. Failure of Employer to obtain such agreement
and Employee's consent to the assignment prior to the effectiveness of any such
succession shall be a breach of this Agreement and shall entitle Employee to
compensation from Employer in the same amount and on the same terms as he would
be entitled to hereunder if he terminated his employment for Good Reason, except
that for purposes of implementing the foregoing, the date on which any such
succession becomes effective shall be deemed the date of the termination of this
Agreement. As used in this Agreement, "Employer" shall mean Employer as
hereinabove defined and any successor to its business and/or assets as aforesaid
which executed and delivers the agreement provided
20
<PAGE>
for in this Section or which otherwise becomes bound by all the terms and
provisions of this Agreement by operation of law.
6.8. Severability. If any provision of this Agreement is construed to
be invalid, illegal or unenforceable, then the remaining provisions hereof shall
not be affected thereby and shall be enforceable without regard thereto.
6.9. Counterparts. This Agreement may be executed in any number of
counterparts, each of which when so executed and delivered shall be an original
hereof, and it shall not be necessary in making proof of this Agreement to
produce or account for more than one counterpart hereof.
6.10. Section Headings. Section and subsection headings in this
Agreement are inserted for convenience of reference only, and shall neither
constitute a part of this Agreement nor affect its construction, interpretation,
meaning or effect.
6.11. References. All words used in this Agreement shall be construed
to be of such number and gender as the context requires or permits.
6.12. Controlling Law. This Agreement is made under, and shall be
governed by, construed and enforced in accordance with, the substantive laws of
Pennsylvania applicable to agreements made and to be performed entirely therein.
21
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement the day
and year first above mentioned, under Seal, intending to be legally bound
hereby.
Attest: /s/ Peter W. Knipe EMPLOYER:
Secretary By: /s/ Harry Prystowsky, MD
(Corporate Seal) (Authorized Officer)
(SEAL) EMPLOYEE: /s/ Michael Haratunian
22
<PAGE>
APPENDIX A
Definition of Change in Control
For purposes of this Agreement, "change of control" shall mean the
occurrence of one or more of the following: (A) The acquisition, other than from
Employer, by any individual, entity or group (within the meaning of Section
13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act")) of beneficial ownership (within the meaning of Rule 13d-3
promulgated under the Exchange Act) (a "Person") of 30% or more of either (i)
the then outstanding shares of Common Stock of Employer (the "Outstanding
Employer Common Stock") or (ii) the combined voting power of the then
outstanding voting securities of Employer entitled to vote generally in the
election of directors (the "Employer Voting Securities"), provided, however,
that any acquisition by (x) Employer or any of its subsidiaries, or any employee
benefit plan (or related trust) sponsored or maintained by Employer or any of
its subsidiaries or (y) any Person that is eligible, pursuant to Rule 13d-l(b)
under the Exchange Act, to file a statement on Schedule 13G with respect to its
beneficial ownership of Employer Voting Securities, whether or not such Person
shall have filed a statement on Schedule 13G, unless such Person shall have
filed a statement on Schedule 13D with respect to beneficial ownership of 30% or
more of Employer Voting Securities or (z) any corporation with respect to which,
23
<PAGE>
following such acquisition, more than 60% of, respectively, the then outstanding
shares of common stock of such corporation and the combined voting power of the
then outstanding voting securities of such corporation entitled to vote
generally in the election of directors is then beneficially owned, directly or
indirectly, by all or substantially all of the individuals and entities who were
the beneficial owners, respectively, of the Outstanding Employer Common Stock
and Employer Voting Securities immediately prior to such acquisition in
substantially the same proportion as their ownership, immediately prior to such
acquisition, of the Outstanding Employer Common Stock and Employer Voting
Securities, as the case may be, shall not constitute a Change of Control; or (B)
Individuals who, as of the date hereof, constitute the Board of Directors of
Employer (the "Incumbent Board") cease for any reason to constitute at least a
majority of the Board, provided that any individual becoming a director
subsequent to the date hereof whose election or nomination for election by
Employer's shareholders, was approved by a vote of at least a majority of the
directors then comprising the Incumbent Board shall be considered as though such
individual were a member of the Incumbent Board, but excluding, for this
purpose, any such individual whose initial assumption of office is in connection
with an actual or threatened election contest relating to the election of the
Directors of Employer (as such terms are used in Rule 14a-11 of Regulation 14A
24
<PAGE>
promulgated under the Exchange Act); or (C) Approval by the shareholders of
Employer of a reorganization, merger or consolidation (a "Business
Combination"), in each case, with respect to which all or substantially all of
the individuals and entities who were the respective beneficial owners of the
Outstanding Employer Common Stock and Employer Voting Securities immediately
prior to such Business Combination do not, following such Business Combination,
beneficially own, directly or indirectly, more than 60% of, respectively, the
then outstanding shares of common stock and the combined voting power of the
then outstanding voting securities entitled to vote generally in the election of
directors, as the case may be, of Employer resulting from Business Combination
in substantially the same proportion as their ownership immediately prior to
such Business Combination of the Outstanding Employer Common Stock and Employer
Voting Securities, as the case may be; or (D) (i) a complete liquidation or
dissolution of Employer or of (ii) sale or other disposition of all or
substantially all of the assets of Employer other than to a corporation with
respect to which, following such sale or disposition, more than 60% of,
respectively, the then outstanding shares of common stock and the combined
voting power of the then outstanding voting securities entitled to vote
generally in the election of directors is then owned beneficially, directly or
indirectly, by all or substantially all of the individuals and entities who were
the beneficial owners, respectively, of the
25
<PAGE>
Outstanding Employer Common Stock and Employer Voting Securities immediately
prior to such sale or disposition in substantially the same proportion as their
ownership of the Outstanding Employer Common Stock and Employer Voting
Securities, as the case may be, immediately prior to such sale or disposition.
26
AMENDMENT TO LOAN DOCUMENTS
Amendment made as of June 30, 1998 by and among STV GROUP, INC., a
Pennsylvania corporation ("STV") and STV's consolidated subsidiaries (the
"Subsidiaries"), as follows: STV INCORPORATED, a New York corporation, STV
ARCHITECTS, INC., a Pennsylvania corporation, STV ENVIRONMENTAL, INC., a
Pennsylvania corporation, STV INTERNATIONAL, INC., a Pennsylvania corporation,
STV SURVEYING, INC., a Delaware corporation, and STV CONSTRUCTION SERVICES, a
Pennsylvania corporation (collectively referred to as the "Borrowers" and
individually as "Borrower"), and FIRST UNION NATIONAL BANK, successor by merger
to CORESTATES BANK, N.A., successor by merger to FIRST PENNSYLVANIA BANK N.A.
("Bank") to amend and modify the existing Loan Agreement ("Loan Agreement") and
the Security Agreement, each dated February 28, 1986 and each as heretofore
amended together with all related agreements issued pursuant thereto
(collectively, the "Loan Documents").
The Borrowers and the Bank have agreed to reduce the maximum available
amount of the Line of Credit from $16,500,000 to $15,500,000, to reduce the
interest rate on the Line of Credit to Prime Rate and to make certain other
changes to the Loan Documents.
NOW, THEREFORE, under the laws of the Commonwealth of Pennsylvania, the
Borrowers, jointly and severally, and the Bank, each intending to be legally
bound hereby and for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, agree as follows:
1. Definitions. This Amendment constitutes the Eighth Amendment to the Loan
Agreement and is intended to amend the Loan Documents as of the date hereof. All
terms used herein as defined terms, but not defined herein, shall have the
meanings ascribed to them in the Loan Documents.
2. Amendments to Line of Credit. The parties agree that:
(a) Section 1.1(a) of the Loan Agreement is hereby amended to read in
its entirety as follows:
"Subject to the terms and conditions hereof and in the
absence one or more unwaived events of default under this Agreement
and/or a pending demand by the Bank for payment under the Demand Note,
the Bank agrees to lend and relend to Borrowers from time to time such
sum or sums of money as may be requested by the Borrowers and as the
Bank, in it sole discretion, may approve, which shall not exceed in
aggregate principal amount at any one time outstanding Fifteen Million
Five Hundred Thousand Dollars ($15,500,000) (the "Line of Credit").
The Line of Credit shall be evidenced by the Eighth Amended and
Restated Demand Note (the "Eighth Amended and Restated Demand Note")
in the form attached hereto."
(b) All references in the Loan Documents to "Demand Note" shall
henceforth be deemed to refer to the Eighth Amended and Restated Demand Note,
the form of which is attached hereto as Exhibit "A".
<PAGE>
(c) The first sentence of Section 1.1(b) of the Loan Agreement is
hereby amended to read in its entirety as follows:
"Subject to the terms and conditions hereof and of a certain
Standby Letter of Credit and Security Agreement executed by all of the
Borrowers under even date herewith (the "L/C Agreement"), Bank hereby
agrees, in its sole option to issue standby letters of credit upon the
request of the Borrowers and for their account, provided that at no
time shall Bank issue letters of credit aggregating in face amount in
excess of $3,000,000 (the "L/C Sublimit"), and at no time may the
aggregate loans under the Eighth Amended and Restated Demand Note and
letters of credit under the L/C Sublimit exceed $15,500,000."
(d) The First sentence of Section 3 of the Loan Agreement is hereby
amended to read in its entirety as follows:
"Interest shall accrue on the unpaid principal balance from
time to time outstanding under the Eighth Amended and Restated Demand
Note at an interest rate per annum equal to the Bank's prime
commercial rate of interest (which is not necessarily the lowest rate
charged by the Bank) in effect from time to time, with changes in said
rate to be effective immediately ("Prime Rate"), based on a 360 day
year for the actual days elapsed.
3. Existing Security. Borrowers hereby agree and confirm that all
obligations of the Borrowers under the Loan Documents remain in full force and
effect and, together with this Amendment, are and continue to be secured by the
liens and security interests set forth in the Loan Documents. Without limiting
the generality of the foregoing, the Borrowers agree and confirm that the
security interests granted and set forth in Section 2.1 of the Loan Agreement
and in the Security Agreement apply with respect to each of the Borrowers
hereunder and remain in full force and effect and, in furtherance thereof, each
of the Borrowers hereby grants to the Bank a lien upon and security interest in
the property and assets of the Borrowers described in Section 2.1 of the Loan
Agreement and in the Security Agreement.
4. Representations and Warranties. STV and each of the other Borrowers
hereby represent and warrant to the Bank:
(a) that all representations and warranties made by each of them in
the Loan Documents remain true and correct on and of this date, as if newly made
on and as of this date, and no event of default, or event which with the lapse
of time or giving of notice, or both, would be an event of default has occurred
and is continuing under the Loan Documents;
(b) that no person or entity has any lien, security interest,
mortgage, pledge, charge or encumbrance on any of the assets, real or personal,
tangible or intangible, of STV or
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<PAGE>
any other Borrower, except for the liens heretofore granted to the Bank or
except as to those liens which have been agreed to by the Bank in writing;
(c) that the Subsidiaries identified in the first paragraph of this
Amendment are all of the subsidiaries of STV and that each of such Borrowers is
a corporation duly organized, validly existing and in good standing under the
laws of its state of incorporation (as set forth on Exhibit "B" attached
hereto), is duly qualified as a foreign corporation and is in good standing in
all other jurisdictions in which the failure to do so could have a material
adverse affect on its financial condition or business operations; each of the
Borrowers has the authority and legal right to take all actions required of it
hereunder, and all such corporate actions have been taken; and no such action
contravenes the provisions of the charter or by-laws of any of the Borrowers or
any note, indenture, contract or agreement to which it is a party or by which it
or any of its property is bound;
(d) that, except as set forth on Exhibit "C", all of the subsidiaries
of STV are Borrowers and are parties to this Amendment and the Eighth Amended
and Restated Demand Note and that such subsidiaries listed on Exhibit "C" are
inactive and do not own any assets in excess of $25,000 in the aggregate.
(e) the Loan Documents are and remain valid, binding, enforceable and
in full force and effect as of the date hereof, and none of the Borrowers (or
any other party to the Loan Documents) has any defense, setoff, counterclaim, or
challenge against the payment of any of the sums owing under the terms of the
Loan Documents or the enforcement or validity of any of the terms thereof.
5. Conditions. As conditions precedent to the effectiveness of this
Amendment:
(a) Each of the Borrowers shall have furnished the Bank with certified
copies of resolutions adopted by its Board of Directors authorizing the
execution and delivery of this Amendment and all reasonable and necessary
actions ancillary thereto.
(b) STV shall have paid or reimbursed the Bank for the Bank's costs
and expenses in connection with this Amendment.
6. Further Assurances. Each of the Borrowers hereby agrees to execute and
deliver to Bank such additional agreements and other documentation, including
such UCC-1 and UCC-3 financing statements (and to pay all costs and expenses of
the Bank in connection therewith), as Bank may request from time to time, to
assure the perfection, protection and enforcement of the Bank's rights under the
Loan Documents and hereunder.
7. Effect of Amendment; Continuing Validity. Except as expressly provided
in this Amendment, the Loan Documents shall remain in full force and effect in
accordance with their respective terms. Without limiting the generality of the
foregoing, nothing in this Amendment shall be construed to:
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<PAGE>
(a) impair the validity, perfection or priority of any lien or
security interest securing the Liabilities;
(b) waive, release or impair any rights, powers or remedies of the
Bank under the Loan Documents;
(c) require the Bank to further modify any provision of the Loan
Documents; or
(d) require the Bank to make any loans or other extensions of credit
to the Borrowers.
In the event of any inconsistency between the terms of this Amendment and the
Loan Documents, this Amendment shall govern. Except as expressly amended hereby,
all terms and conditions of the Loan Documents remain in full force and effect
as written and to that end all such provisions are deemed incorporated herein by
reference. Borrower acknowledges that it has consulted with counsel in
connection with the negotiation and delivery of this Amendment.
IN WITNESS WHEREOF, each of the undersigned has caused this Amendment to be
executed by its duly authorized officers as of the date first above written.
STV GROUP, INC. STV ENVIRONMENTAL, INC.
By: /s/ Peter W. Knipe By: /s/ Peter W. Knipe
---------------------- ----------------------------
STV ARCHITECTS, INC. STV INCORPORATED
By: /s/ Peter W. Knipe By: /s/ Peter W. Knipe
---------------------- ----------------------------
STV SURVEYING, INC. STV INTERNATIONAL, INC.
By: /s/ Peter W. Knipe By: /s/ Peter W. Knipe
---------------------- ----------------------------
STV CONSTRUCTION SERVICES
By: /s/ Peter W. Knipe
----------------------------
FIRST UNION NATIONAL BANK
By: /s/ Margaret A. Byrne
----------------------------
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<PAGE>
EXHIBIT A
EIGHTH AMENDED AND RESTATED DEMAND NOTE
$15,500,000 Philadelphia, PA
June __, 1998
FOR VALUE RECEIVED, STV GROUP, INC., a Pennsylvania corporation, STV
INCORPORATED, a New York corporation, STV ARCHITECTS, INC., a Pennsylvania
corporation and STV ENVIRONMENTAL, INC., a Pennsylvania corporation, STV
INTERNATIONAL, INC., a Pennsylvania corporation, STV SURVEYING, INC., a Delaware
corporation, STV CONSTRUCTION SERVICES, a Pennsylvania corporation (individually
a "Borrower" and collectively, "Borrowers"), jointly and severally promise to
pay ON DEMAND, without defalcation, to the order of FIRST UNION NATIONAL BANK
(the "Bank") FIFTEEN MILLION FIVE HUNDRED THOUSAND DOLLARS ($15,500,000) or such
lesser outstanding principal balance as may be outstanding from time to time
hereunder, and to pay interest on the unpaid principal balance from time to time
outstanding hereunder at a fluctuating rate per annum equal to the Prime Rate
(hereinafter defined). "Prime Rate" means that rate of interest periodically
established by the Bank and designated its Prime Rate (which is not necessarily
the lowest rate charged by the Bank), as such rate may change from time to time
with changes therein effective immediately. All interest accruing hereunder
shall be payable monthly in arrears upon the first business day of each calendar
month or upon demand; all such interest shall be computed on the basis of actual
days elapsed and a year of 360 days.
Any amount payable hereunder which is not paid when due shall bear interest
from the day when due until paid in full, at a fluctuating interest rate per
annum equal at all times to the Prime Rate plus three percent (3%); all such
interest shall be payable on demand. Notwithstanding any other provision of the
Loan Agreement, interest paid or becoming due hereunder shall in no event be in
an amount or computed at a rate which is prohibited by applicable statute. Both
principal and interest are payable in lawful money of the United States of
America in same day funds to the Bank at its principal office in Philadelphia,
Pennsylvania, or at such other place as the Bank may designate.
Payment of this Note shall not be subject to any counterclaim, set-off,
recoupment or defense of any kind by or in the right of the Borrowers, and the
Borrowers hereby expressly and irrevocably waive any right such Borrower may now
or at any time in the future have to bring or assert any such counterclaim
set-off, recoupment or defense. It is the intention of the Borrowers and the
holder thereof that this Note shall be paid absolutely according to its terms
and that the Borrowers shall pursue any claims such Borrowers may have by
independent action.
<PAGE>
The Borrowers agree to pay, and to hold the holder hereof harmless from and
against, all liabilities for expenses arising in connection with the enforcement
by the holder of its rights under this Note and the Loan Agreement.
This Eighth Amendment and Restated Demand Note is the Demand Note referred
to in, and is entitled to the benefits of, the Loan Agreement dated February 28,
1986, as amended thorough the date hereof by amendments no. 1 through no. 8 (as
so amended, the "Loan Agreement") by and among the Borrowers and the Bank, and
the Security Agreement dated February 28, 1986, as amended (as so amended, the
"Security Agreement") by and among the Borrowers and the Bank, and is entitled
to the benefits of the security interest granted to the Bank therein and the
guaranties thereunder.
This Eighth Amended and Restated Demand Note has been issued by the
Borrowers to amend and restate the prior amended and restated demand notes, and
all amounts outstanding or accrued under said prior notes shall be outstanding
and accrued under this Eighth Amended and Restated Demand Note, and this Eighth
Amended and Restated Demand Note is not a novation but shall be deemed to be one
and the same instrument as said prior notes except as expressly amended under
the Loan Agreement.
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<PAGE>
IN WITNESS WHEREOF, the undersigned have duly executed this Eighth Amended
and Restated Demand Note by their respective duly authorized officers.
STV GROUP, INC. STV INCORPORATED
By: /s/ Peter W. Knipe By: /s/ Peter W. Knipe
------------------------------ ----------------------------
Attest: /s/ Anna Marie Boore Attest: /s/ Anna Marie Boore
-------------------------- -------------------------
(Corporate Seal) (Corporate Seal)
STV ARCHITECTS, INC. STV ENVIRONMENTAL, INC.
By: /s/ Peter W. Knipe By: /s/ Peter W. Knipe
------------------------------ ----------------------------
Attest: /s/ Anna Marie Boore Attest: /s/ Anna Marie Boore
-------------------------- -------------------------
(Corporate Seal) (Corporate Seal)
STV SURVEYING, INC. STV INTERNATIONAL, INC.
By: /s/ Peter W. Knipe By: /s/ Peter W. Knipe
------------------------------ ----------------------------
Attest: /s/ Anna Marie Boore Attest: /s/ Anna Marie Boore
-------------------------- --------------------------
(Corporate Seal) (Corporate Seal)
STV CONSTRUCTION SERVICES
By: /s/ Peter W. Knipe
------------------------------
Attest: /s/ Anna Marie Boore
--------------------------
(Corporate Seal)
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<PAGE>
EXHIBIT B
BORROWERS AND STATES OF INCORPORATION
STV Group, Inc.......................................a Pennsylvania corporation
STV Incorporated.........................................a New York corporation
STV Architects, Inc..................................a Pennsylvania corporation
STV Environmental, Inc...............................a Pennsylvania corporation
STV International, Inc...............................a Pennsylvania corporation
STV Surveying, Inc.......................................a Delaware corporation
STV Construction Services............................a Pennsylvania corporation
<PAGE>
EXHIBIT C
SUBSIDIARIES NOT BORROWERS
STV Engineering, Inc..........................................a Ohio corporation
STV Construction, Inc.................................a Pennsylvania corporation
STV/WAI, Inc..........................................a Pennsylvania corporation
STV Michael Lynn Associates, Inc..........................a New York corporation
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
Shareholders of Record
There were 304 shareholders of record as of September 30, 1998.
Annual Meeting
The annual meeting of stockholders of STV Group, Inc., will be held at 10:00
a.m., Tuesday, March 30, 1999, at 225 Park Avenue South, New York, N.Y.
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.
1998 High Ask Low Bid
4th Quarter 7 9/16 3 5/8
3rd Quarter 13 1/4 7
2nd Quarter 11 1/2 7 1/2
1st Quarter 8 7/16 7 3/4
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
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
FINANCIAL HIGHLIGHTS FOR FISCAL YEARS ENDED SEPTEMBER 30
<TABLE>
<CAPTION>
1998 1997 1996 1995 1994
<S> <C> <C> <C> <C> <C>
Total Revenues $105,256,000 $ 94,712,000 $ 94,073,000 $ 89,232,000 $ 89,465,000
Operating Revenues 80,648,000 72,832,000 71,271,000 69,397,000 65,746,000
Net Income 2,194,000 860,000 595,000 394,000 563,000
Net Income Per Common Share* .55 .23 .16 .11 .16
Working Capital 12,341,000 10,099,000 8,721,000 8,220,000 7,184,000
Stockholders' Equity 13,472,000 11,202,000 10,342,000 9,872,000 9,078,000
Total Assets 46,488,000 41,825,000 39,995,000 41,626,000 43,960,000
Long-Term Obligations 3,061,000 2,612,000 1,795,000 2,021,000 1,939,000
Short-Term Bank Debt 0 10,228,000 9,448,000 13,251,000 13,617,000
</TABLE>
* Net income per common share for prior years has been adjusted to reflect the
2-for-1 stock split effective April 13, 1998.
[GRAPHICS OMITTED]
Financial Report
1998 Annual Report For STV Group And Subsidiaries
Subsidiaries:
STV Incorporated
STV Architects, Inc.
STV Construction Services, Inc.
STV Construction, Inc.
STV Environmental, Inc.
STV International, Inc.
STV Silver & Ziskind
STV Surveying
Exhibit 23.1 - Consent of Ernst & Young LLP
We consent to the incorporation by reference in the Registration Statement (Form
S-8 No. 333-48383) pertaining to the 1985 and 1995 Stock Option Plans of STV
Group, Incorporated, of our report dated November 12, 1998, with respect to the
consolidated financial statements of STV Group, Incorporated, included in the
Annual Report (Form 10-K) for the fiscal year ended September 30, 1998.
/s/ Ernst & Young LLP
Harrisburg, Pennsylvania
December 23, 1998
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
TRANSMITTING STV GROUP'S FISCAL 1998 FORM 10-K.
</LEGEND>
<CIK> 0000095045
<NAME> STV GROUP, INC
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> Sep-30-1998
<PERIOD-END> Sep-30-1998
<CASH> 4,444,000
<SECURITIES> 216,000
<RECEIVABLES> 23,485,000
<ALLOWANCES> 0
<INVENTORY> 13,218,000
<CURRENT-ASSETS> 42,296,000
<PP&E> 8,195,000
<DEPRECIATION> 6,642,000
<TOTAL-ASSETS> 46,488,000
<CURRENT-LIABILITIES> 29,955,000
<BONDS> 0
0
0
<COMMON> 2,025,000
<OTHER-SE> 11,447,000
<TOTAL-LIABILITY-AND-EQUITY> 46,488,000
<SALES> 105,256,000
<TOTAL-REVENUES> 105,256,000
<CGS> 69,580,000
<TOTAL-COSTS> 76,356,000
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 469,000
<INCOME-PRETAX> 4,292,000
<INCOME-TAX> 2,098,000
<INCOME-CONTINUING> 2,194,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,194,000
<EPS-PRIMARY> 0.59
<EPS-DILUTED> 0.55
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