SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10Q
QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR QUARTER ENDED JUNE 30, 1999 COMMISSION FILE NO. 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 Identification)
incorporation or organization)
205 West Welsh Drive, Douglassville, Pennsylvania 19518
(Address of principal executive offices) (Zip Code)
(610) 385-8200
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(g) of the Act:
Common Stock $.50 par value
(Title of class)
As of June 30, 1999, there were 3,823,818 shares of common stock of the
registrant outstanding.
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 twelve months, (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
YES X NO
<PAGE>
TABLE OF CONTENTS
Page
CAUTIONARY STATEMENT REGARDING FORWARD LOOKING STATEMENTS.....................1
Part I: FINANCIAL INFORMATION
Item 1. Financial Statements and Related Notes.......................2
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operation.........................................7
Item 3. Quantitative and Qualitative Disclosures about Market Risk..10
Part II: OTHER INFORMATION
Item 1. Legal Proceedings...........................................11
Item 2. Changes in Securities.......................................11
Item 3. Defaults Upon Senior Securities.............................11
Item 4. Submission of Matters to a Vote of Security Holders.........11
Item 5. Other Information...........................................11
Item 6. Exhibits and Reports on Form 8-K............................11
SIGNATURES...................................................................12
<PAGE>
CAUTIONARY STATEMENT REGARDING FORWARD LOOKING STATEMENTS
Certain oral statements made by management from time to time and certain
statements contained herein, including certain statements in "Management's
Discussion and Analysis of Financial Condition and Results of Operations" such
as statements regarding the Company's ability to meet its liquidity needs,
control costs, backlog and potential revenue growth, certain statements in Notes
to Condensed 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) and 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. The Company'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. In addition,
government contracts are subject to termination at the conveniences of the
government. Under certain circumstances, the government can also suspend or
debar individuals or firms from obtaining future contracts with the
government.
3. The level of competition in the Company's industry, including companies
with significantly larger operations and resources than the Company.
4. The Company's ability to identify and win suitable projects and to
consummate or complete any such projects.
5. The Company's ability to perform design/build projects which may include
the responsibility of ensuring the actual construction of a project for a
guaranteed price.
6. The Company's and its payors' and suppliers ability to implement a Year
2000 readiness program.
These and other factors have been discussed in more detail in the Company's
Annual Report on Form 10-K for the fiscal year ended September 30, 1998.
1
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PART I: FINANCIAL INFORMATION
Item 1. Financial Statements
STV GROUP, INCORPORATED AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
<TABLE>
<CAPTION>
June 30, 1999 September 30, 1998
<S> <C> <C>
ASSETS
Current Assets
Cash and Cash Equivalents $4,073,000 $4,444,000
Accounts Receivable 28,649,000 23,485,000
Costs and Estimated Profits of Uncompleted
Contracts in Excess of Related Billings 15,717,000 13,218,000
Prepaid Income Taxes 84,000 84,000
Other Current Assets 702,000 1,065,000
------- ---------
Total Current Assets 49,225,000 42,296,000
Property and Equipment 6,338,000 8,195,000
Less Accumulated Depreciation 4,636,000 6,642,000
--------- ---------
Net Property and Equipment 1,702,000 1,553,000
Deferred Income Taxes 1,882,000 1,882,000
Other Assets 797,000 757,000
------- -------
TOTAL $53,606,000 $46,488,000
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Accounts Payable $6,716,000 $6,382,000
Accrued Expenses 8,235,000 7,772,000
Billings on Uncompleted Contracts in Excess of
Related Costs 16,844,000 13,375,000
Current portion of long term debt 43,000 564,000
Deferred income taxes 1,862,000 1,862,000
--------- ---------
Total Current Liabilities 33,700,000 29,955,000
Long-Term Debt 2,630,000 2,134,000
Post-retirement Benefits 995,000 927,000
Stockholders' Equity
Common Stock 2,036,000 2,025,000
Capital in Excess of Par 3,414,000 3,350,000
Retained Earnings 11,602,000 8,868,000
---------- ---------
Total 17,052,000 14,243,000
Less: Treasury Stock 771,000 771,000
------- -------
Total Stockholders' Equity 16,281,000 13,472,000
TOTAL $53,606,000 $46,488,000
=========== ===========
See notes to condensed consolidated financial statements.
</TABLE>
2
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STV GROUP, INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
June 30 June 30
1999 1998 1999 1998
<S> <C> <C> <C> <C>
Revenues
Total Revenues $34,670,000 $25,550,000 $102,236,000 $75,682,000
Less Subcontract and Procurement Costs 9,813,000 5,510,000 30,762,000 16,688,000
--------- --------- ---------- ----------
Operating Revenue $24,857,000 $20,040,000 $71,474,000 $58,994,000
Costs and Expenses
Costs of Services and Sales 20,902,000 17,296,000 60,259,000 51,118,000
General and Administrative 2,228,000 1,535,000 6,091,000 4,557,000
Interest Expense 35,000 59,000 149,000 418,000
Interest Income (77,000) (31,000) (228,000) (64,000)
------- ------- -------- -------
Total Costs and Expenses 23,088,000 18,859,000 66,271,000 56,029,000
Income Before Income Taxes 1,769,000 1,181,000 5,203,000 2,965,000
Income Taxes 857,000 579,000 2,469,000 1,456,000
------- ------- --------- ---------
Net Income $912,000 $602,000 $2,734,000 $1,509,000
======== ======== ========== ==========
Basic earnings per share: $.24 $.16 $.72 $.41
Diluted earnings per share: $.22 $.15 $.65 $.38
See notes to condensed consolidated financial statements.
</TABLE>
3
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STV GROUP, INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
June 30
1999 1998
<S> <C> <C>
Operating Activities
Net Income $2,734,000 $1,509,000
Adjustments to reconcile net income to
net cash provided by operating activities
Depreciation and Amortization 632,000 512,000
Changes in Operating assets and liabilities
Accounts Receivable (5,164,000) (3,042,000)
Costs of uncompleted contracts in
excess of billings and other current assets (2,136,000) 1,302,000
Accounts Payable and accrued expenses 1,364,000 2,642,000
Billing in excess of related costs 3,469,000 6,666,000
Current Income Taxes (3,000) 1,051,000
------ ---------
Net Cash provided by operating activities $896,000 $10,640,000
Investing Activities
Purchase of Property and Equipment (653,000) (461,000)
Purchase of Software (272,000) (203,000)
Decrease in other assets 104,000 51,000
------- ------
Net Cash used in investing activities ($821,000) ($613,000)
Financing Activities
Proceeds from issuance of common stock 75,000 84,000
Proceeds from line of credit and long term
borrowings 0 55,261,000
Principal payments on line of credit and long
term borrowings (521,000) (65,303,000)
-------- -----------
Net Cash used in financing activities ($446,000) ($9,958,000)
(Decrease) increase in cash and cash equivalents (371,000) 69,000
Cash and cash equivalents at beginning of year 4,444,000 1,153,000
--------- ---------
Cash and cash equivalents at end of period $4,073,000 $1,222,000
========== ==========
See notes to condensed consolidated financial statements.
</TABLE>
4
<PAGE>
Notes to Condensed Consolidated Financial Statements (Unaudited)
June 30, 1999
1. BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q and Article 10 of
Regulation S-X. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements.
In the opinion of management, all adjustments (consisting of normal recurring
accruals) considered necessary for a fair presentation have been included.
Operating results for the three and nine month periods ended June 30, 1999 are
not necessarily indicative of the results that may be expected for the fiscal
year ending September 30, 1999.
2. USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles require 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.
3. EARNINGS PER SHARE
SFAS No. 128, "Earnings per Share," replaced 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.
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
June 30, 1999 June 30, 1998 June 30, 1999 June 30, 1998
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Basic earnings per share $0.24 $0.16 $0.72 $0.41
Shares outstanding 3,815,686 3,744,740 3,807,517 3,691,946
Diluted earnings per share $0.22 $0.15 $0.65 $0.38
Shares outstanding 4,231,841 4,102,795 4,175,114 3,943,723
Earnings per share and average common shares and equivalents for prior periods
were adjusted to reflect the 2-for-1 stock split effected April 13, 1998.
</TABLE>
5
<PAGE>
Notes to Condensed Consolidated Financial Statements (Unaudited) (Continued)
4. RECLASSIFICATIONS
Certain previously reported amounts have been reclassified to conform to their
1999 presentation.
5. NEW ACCOUNTING STANDARDS
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 (fiscal 1999 year end reporting for the Company). 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.
6
<PAGE>
Item 2. Management Discussion and Analysis of Financial Condition and Results
of Operation
Results of Operations
Total revenues for the quarter ended June 30, 1999 (third quarter fiscal 1999)
increased 35.7% as compared to the third quarter of fiscal 1998 and increased
4.0% as compared to the previous quarter. Operating revenues (total revenues
excluding pass-through costs) increased 24.0% as compared to the third quarter
of fiscal 1998 and increased 4.6% as compared to the previous quarter.
Pass-through costs, expressed as a percentage of total revenues, increased to
28.3% as compared to 21.6% in the third quarter of fiscal 1998 and decreased
from 28.8% in the previous quarter. Pass-through costs will vary depending on
the need for specialty subconsultants and governmental subcontract requirements.
Cost of services, expressed as a percentage of operating revenues, decreased to
84.1% for the third quarter of fiscal 1999 from 86.3% in the third quarter of
fiscal 1998 and increased from 84.0% in the previous quarter. The decrease in
the percentage from the third quarter of fiscal 1998 was due mainly to operating
revenues increasing faster than costs. The costs of services as a percentage of
revenues remained comparable to the previous quarter.
General and administrative expense, expressed as a percentage of operating
revenue, increased to 9.0% in the third quarter of fiscal 1999 from 7.7% in the
third quarter of fiscal 1998 and is comparable to 8.9% recorded in the previous
quarter. The increase from the third quarter of fiscal 1998 is due to increases
in labor, labor related expenses and legal costs.
Interest income, net of interest expense, expressed as a percentage of operating
revenues, is a positive .2% in the third quarter of fiscal 1999 compared to a
negative .1% in the third quarter of fiscal 1998 and comparable to a positive
.2% in the previous quarter. This improvement from last year is due to the
elimination of bank borrowings as a result of a continued improvement in cash
position and interest earned from invested cash.
7
<PAGE>
Income tax expense for the third quarter of fiscal 1999 was 48.4% of pre-tax
income compared to 47.3% in the second quarter of fiscal 1999 and 49.0% of
pre-tax income for the same period last year. The slightly higher rate from the
second quarter is due to a slightly higher effective tax rate.
Diluted earnings per common share for the third quarter of fiscal 1999 was $.22
cents versus $.15 cents for the third quarter of fiscal 1998. A 2-for-1 stock
split was effective April 13, 1998 for stockholders of record as of March 31,
1998. Prior period earnings per share and weighted average number of shares
outstanding have been adjusted to reflect this split.
Financial Condition and Liquidity
Working capital increased to $15,525,000 at June 30,1999 from $14,525,000 at
March 31, 1999. Capital resources available to the Company include an existing
line of credit for working capital. The current limit is a maximum of $15.5
million based on accounts receivable and work-in-progress of which approximately
$14.2 million is currently available. The Company believes that it and the
lender will maintain a line of credit adequate to meet the current and future
financial needs of the Company. The Company is planning to continue its program
of purchasing computer-assisted design and drafting equipment and has purchased
and converted to a new project management and accounting system.
The Company's backlog at June 30, 1999 is approximately $200 million, in
principal part, reflecting STV's award, in a joint venture, of the tunnel
engineering contract for the New York Metropolitan Transportation Authority's
East Side Access project. This $2.3 billion project extends Long Island Rail
Road service to Manhattan's East Side into Grand Central Terminal. The Company
expects that the magnitude of this project will provide the impetus for future
revenue growth.
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
8
<PAGE>
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.
STV has recently acquired and installed 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 requirements and to prevent interruptions to
STV operations. The Company has taken action to obtain certification from its
suppliers, including suppliers of IT and non-IT systems. These responses are
currently being analyzed and remedial action is currently being taken with those
suppliers who are deemed non-compliant. In addition, STV has notified its
clients of Year 2000 compliance actions and issues, and is now completing the
testing of the Company's in-house equipment and software under simulated Year
2000 conditions to further ensure that normal operation will continue beyond
2000. Finally, STV operations managers have informed all design personnel of Y2K
requirements to ensure that all STV design products meet Y2K standards. A
steering committee of senior managers meets monthly 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 Year
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. Ongoing testing of equipment and software
will considerably lessen the risk of failure, and the Company currently has a
contingency plan to
9
<PAGE>
immediately replace any defective computer or software system in the event of
problems. This plan is considered adequate because all STV systems are PC-based,
and STV has sufficient hardware, software and financial assets to make such
corrections on a near real-time basis.
Item 3. Quantitative and Qualitative Disclosures about Market Risk.
Not Applicable.
10
<PAGE>
PART II: OTHER INFORMATION
Item 1. Legal Proceedings
Not applicable.
Item 2. Changes in Securities
Not applicable.
Item 3. Defaults Upon Senior Securities
Not applicable.
Item 4. Submission of Matters to Vote of Security Holders
Not applicable.
Item 5. Other Information
Not applicable.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
The following are filed as exhibits to Part I of this Form 10Q:
Exhibit 10.40 - Employment Agreement for Peter W. Knipe
Exhibit 27 - Financial Data Schedule
(b) Reports on Form 8-K
The Company filed no reports on Form 8-K for the quarter ended
June 30, 1999.
11
<PAGE>
SIGNATURES
Pursuant to the requirements 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.
STV GROUP, INCORPORATED
(Registrant)
August 13, 1999 By: /s/ Dominick M. Servedio
- ------------------ -------------------------------------
Date Dominick M. Servedio
President and Chief Executive Officer
August 13, 1999 By: /s/ Peter W. Knipe
- ------------------ -------------------------------------
Date Peter W. Knipe
Secretary/Treasurer
12
EMPLOYMENT AGREEMENT
BETWEEN
STV GROUP, INC., Employer
AND
PETER W. KNIPE, Employee
Made on July 9, 1999
Effective on June 1, 1999
<PAGE>
TABLE OF CONTENTS
Employment and Duties..........................................................1
Employment and Duties.................................................1
Term and Termination of Term...................................................2
Term..................................................................2
Termination of Term...................................................2
Compensation...................................................................2
Salary................................................................2
Annual Incentive......................................................2
Long Term Incentives..................................................2
Benefits .............................................................2
Retirement Benefits...................................................2
Termination....................................................................3
Notice of Termination.................................................3
Grounds for Termination...............................................3
Termination upon Death.......................................3
Termination upon Disability..................................3
Termination for Cause........................................3
Termination Other Than For Cause.............................4
Termination For Good Reason Upon a Change of Control.........4
Termination Upon Retirement..................................4
Procedure Upon Termination............................................4
Employee's Covenants...........................................................5
Nondisclosure.........................................................5
Noncompetition........................................................5
Enforcement...........................................................5
Consideration.........................................................6
Scope.................................................................6
Miscellaneous..................................................................6
Notices...............................................................6
Entire Understanding..................................................7
Modification..........................................................7
Prior Agreements......................................................7
Termination of Prior Employment Agreements............................7
Parties in Interest...................................................7
Assignment............................................................8
Severability..........................................................8
Counterparts..........................................................8
Section Headings......................................................8
References............................................................8
Controlling Law.......................................................8
<PAGE>
EMPLOYMENT AGREEMENT
THIS AGREEMENT made on July 9, 1999, but effective as of June 1, 1999
by and between Peter W. Knipe ("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 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 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.
1.1. Employment and Duties. Employer shall employ Employee
throughout the term of employment set forth in Section 2 hereof as Senior Vice
President of Finance. 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 Chief Executive Officer. Employee shall devote his
full time, energy, skill and best efforts to the business and affairs of
Employer. Nothing in this Agreement shall preclude Employee from serving as a
director, trustee, officer of, or partner in, any other firm, trust, corporation
or partnership or from pursuing personal investments, as long as such activities
do not interfere with Employee's performance of his duties hereunder.
<PAGE>
2. Term and Termination of Term.
2.1. Term. The term of Employee's employment under this
Agreement shall be a period of two years commencing on June 1, 1999, and ending
on May 31, 2001, unless further extended or sooner terminated in accordance with
the other provisions hereof (the "Term"). Subject to Section 2.2, and if the
Term has not been terminated pursuant to Section 4, on June 1, 2000 and on each
June 1 thereafter (each such June 1, an "Extension Date") the Term shall be
extended for an additional period of one year.
2.2. Termination of Term. The Employee or the Employer may
elect to terminate the automatic extension of the Term set forth in Section 2.1
("Automatic Extension") by giving written notice of such election. Any notice
given hereunder must be given not less than 180 days prior to the applicable
Extension Date.
3. Compensation.
3.1. Salary. Employer shall pay to Employee for services
rendered hereunder an annual base salary of $140,000 per year ("Salary"),
payable in accordance with 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 Employer's Chief Executive Officer no less frequently than annually and may
be increased, but not deceased, 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 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. Benefits. During the Term, and subject to the other
provisions of this Agreement, Employee shall be entitled to participate and
shall be included in benefit plans of the Employer generally available to
officers.
3.5. Retirement Benefits. 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").
2
<PAGE>
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.
4.2. Grounds for Termination.
4.2.1. Termination upon Death. Employee's employment
with Employer and allof 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 any unpaid portion of
his Salary and benefits accrued up to the Date of Termination and shall also be
entitled to reimbursement for any expenses incurred by Employee hereunder.
4.2.2. Termination upon Disability. This Agreement
shall terminate immediately in the event that Employee becomes disabled.
Employee will be deemed to be disabled 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 Employee's usual
and customary duties under this Agreement. In the event of termination as a
result of disability, Employee shall receive compensation and benefits in
accordance with the Employer 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 the Employee
was given reasonable notice of the event constituting cause 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 negligent in the performance of his duties under this Agreement resulting in
a material impairment of Employer's performance, and Employee continues to be
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 grossly negligent under this Agreement (2) Employee is convicted of or
pleads guilty or nolo contendere to a felony or (3) Employee willfully refuses
or continues to fail, without proper cause and, other than by reason of illness,
to follow the lawful directions of the Chief Executive Officer.
3
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On termination of this Agreement pursuant to this Section
4.2.3, with the exception that Employee shall be entitled to any unpaid portion
of his Salary and benefits earned prior to the date of termination, all rights
to Salary 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 benefits under the Agreement for the remaining
term of the Agreement. In addition, all Long-Term Incentives will fully and
immediately vest.
4.2.5. Termination For Good Reason Upon a Change of
Control. Employee may terminate his employment hereunder for Good Reason (as
defined herein). 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 termination of Employee, except in connection with
termination of Employee's employment for Cause; (3) a reduction in Employee's
Salary or a material reduction of Employee's other compensation, benefits or
perquisites; or (4) a relocation of Employee's principal place of business to a
location which is more than fifty (50) miles from its current location.
If Employee's employment shall be terminated for Good
Reason after a Change of Control (as defined in Appendix A), Employee shall be
paid a lump-sum payment equal to the sum of (x) three times the Employee's then
current Salary plus (y) the amount of any cash bonus awarded to the Employee for
services in the three most recent fiscal years; and all stock options, stock
awards and similar equity rights, if any, shall vest and become exercisable
immediately prior to the termination of the Term and remain exercisable through
their original terms.
4.2.6 Termination Upon Retirement. Employee may
terminate this Agreement upon retirement in accordance with the Employer's
policies for retirement. Upon such retirement, Employee shall be entitled to all
of Employee's retirement benefits as provided for herein.
4.2.7 Termination Other Than for Good Reason or
Retirement. If Employee terminates his employment, other than for good reason or
retirement, all rights to Salary and benefits hereunder shall automatically
cease except that Employee shall be entitled to any unpaid portion.
4.3. 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.
4
<PAGE>
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 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 for a period
of one year thereafter (provided that Employee is receiving compensation for
such one year under Section 4.2.4 of this Agreement) 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
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
5
<PAGE>
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 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.
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 W. Welsh Drive
Douglassville, PA 19103
ATTN: Chief Executive Officer
6
<PAGE>
With a copy to:
Richard J. McMahon, Esquire
Blank Rome Comisky & McCauley LLP
One Logan Square
Philadelphia, PA 19103
If to Employee to:
Peter W. Knipe
1104-22 Briton Place Road
West Chester, PA 19380
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 or the Chief Executive Officer.
6.4. Prior Agreements. Employee represents to Employer (1)
that there are no restrictions, agreements or understanding 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 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
7
<PAGE>
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 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 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.
8
<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.
EMPLOYER: STV GROUP, INC.
By: /s/ Dominick M. Servedio
----------------------------
Dominick M. Servedio
(Authorized Officer)
EMPLOYEE: /s/ Peter W. Knipe
----------------------------
Peter W. Knipe
9
<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") or 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-1(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, 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 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
<PAGE>
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, all of the 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.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
TRANSMITTING STV GROUP'S FISCAL 1999 THIRD QUARTER FORM 10Q.
</LEGEND>
<CIK> 0000095045
<NAME> STV GROUP, INC
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> SEP-30-1999
<PERIOD-END> JUN-30-1999
<CASH> 4,073,000
<SECURITIES> 15,000
<RECEIVABLES> 29,309,000
<ALLOWANCES> 660,000
<INVENTORY> 15,717,000
<CURRENT-ASSETS> 49,225,000
<PP&E> 6,338,000
<DEPRECIATION> 4,636,000
<TOTAL-ASSETS> 53,606,000
<CURRENT-LIABILITIES> 33,700,000
<BONDS> 0
0
0
<COMMON> 2,036,000
<OTHER-SE> 14,245,000
<TOTAL-LIABILITY-AND-EQUITY> 16,281,000
<SALES> 102,236,000
<TOTAL-REVENUES> 102,236,000
<CGS> 60,259,000
<TOTAL-COSTS> 66,350,000
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 149,000
<INCOME-PRETAX> 5,203,000
<INCOME-TAX> 2,469,000
<INCOME-CONTINUING> 2,734,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,734,000
<EPS-BASIC> 0.72
<EPS-DILUTED> 0.65
</TABLE>
