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, 1999 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
Securities registered pursuant to Section 12(g) of the Act:
Title of each class
Common Shares ($.50 par)
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 29, 1999 is $24,196,064. (1)
The number of shares outstanding of the registrant's classes of common stock as
of November 29, 1999 is as follows:
Common Shares 3,832,818
DOCUMENTS INCORPORATED BY REFERENCE
Part II Part III
Annual Report Proxy Statement
to Shareholders for fiscal 1999
for fiscal 1999
<PAGE>
(1) Based on the last traded price on November 29, 1999. Excludes 808,310
shares held by executive officers, directors and shareholders owning in
excess of 10% of the Company's common stock (other than the 2,466,229
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.
<PAGE>
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.
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.
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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, 1999, the Company employed 1,143
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,
1999 1998 1997
Architectural Engineering 24% 27% 24%
Civil, Highway, Bridge, Airport
and Port Engineering 34 24 24
Defense Systems Engineering 1 3 4
Industrial Process Engineering 2 2 2
Transportation Engineering 31 39 39
Other Engineering Services and Design Build 8 5 7
___________________
* 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,
1999 1998 1997 (1)
U.S. Government Contracts.................... 9% 14 16%
State and Local Government Contracts......... 66 56 56
Foreign Government Contracts................. 0 0 1
Private Contracts............................ 25 30 27
__________
(1) 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.
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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 78% and 79% of total assets
as of September 30, 1999 and 1998, 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, 1999 and 1998 was
approximately $200,000,000 and $150,000,000, respectively. The Company's backlog
includes anticipated pass through costs 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 29.9% in 1999, 23.3% in 1998,
and 23.1% in 1997.
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, 1999, the Company had 1,143 employees, of whom 1,004
were engaged in engineering and architectural services, 101 were engaged in
administration and 38 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.
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 in the
United States at which it performs engineering and architectural consulting and
design services, including a facility of approximately 69,000 square feet in New
York, New York, pursuant to a 15 year lease which expires in May, 2014.
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.
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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 if the insurer is found liable. In connection with the lawsuit, a
declaratory judgment action (the "Skinner Litigation") 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 sought 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 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. Following an
appellate court decision affirming the Company's entitlement to recovery, the
litigation was settled in September, 1999 by the general liability insurer
paying the Company $2,600,000 and reimbursing the Company's professional
liability insurer $2,700,000.
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. This proceeding had been stayed
pending resolution of the Skinner Litigation. 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 litigation
is adverse to the Company and the Company is required to pay amounts in excess
of the policy limits of its insurance policy, 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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ITEM 4A. EXECUTIVE OFFICERS OF THE REGISTRANT.
<TABLE>
<CAPTION>
Position with STV Group, Inc. Business
Name Age Experience During the Past 5 Years
---- --- ---------------------------------------
<S> <C> <C>
Michael Haratunian (1) 66 Chairman of the Board of STV Group, Inc.
Dominick M. Servedio (2) 59 Director, President, Chief Executive Officer and Chief Operating Officer of
STV Group, Inc. and President, Chief Executive Officer and Chief
Operating Officer of STV Incorporated
W. A. Sanders II (3) 52 Senior Vice President of STV Incorporated
Peter W. Knipe (4) 50 Chief Financial Officer and Secretary/
Treasurer of STV Group, Inc.
<FN>
(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 served as Chief Executive
Officer from 1991 until 1998 and as Chairman of the Board since 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 and Chief Executive
Officer of STV Group, Inc. in 1999. 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, Secretary in 1993 and Chief Financial
Officer in 1999. In addition to his position with the Company, he serves
as a director and officer of certain subsidiaries of the Company.
</FN>
</TABLE>
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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, 1999, is incorporated herein by reference.
ITEM 6. SELECTED FINANCIAL DATA
The information contained under the caption "Financial Highlights for
Fiscal Years Ended September 30, 1995 through 1999" in the Company's Annual
Report to Shareholders for the fiscal year ended September 30, 1999 is
incorporated herein by reference.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
The information contained under the caption "Management's Discussion and
Analysis of Financial Condition and Results of Operations" from the Company's
Annual Report to Shareholders for the fiscal year ended September 30,1999 is
incorporated herein by reference.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
Market risk exposures to the Company are not material.
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, 1999, are included in Part IV, Item 14 of this Report.
ITEM 9. CHANGE IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None.
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PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information contained under the caption "Election of Directors" in the
Company's 1999 Proxy Statement is incorporated herein by reference.
ITEM 11. EXECUTIVE COMPENSATION.
The information contained under the caption "Executive Compensation" in the
Company's 1999 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 1999 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 1999 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, 1999 and 1998
Consolidated Statements of Income - Years ended September 30,
1999, 1998 and 1997
Consolidated Statements of Stockholders' Equity - Years ended
September 30, 1999, 1998 and 1997
Consolidated Statements of Cash Flows - Years ended September 30,
1999, 1998 and 1997
Notes to Consolidated Financial Statements - September 30, 1999
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(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, 1999.
(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.
* 4.1 Specimen Common Stock Certificate of the Company.
* 10.1 Loan Agreement, undated, between the Company and Richard L.
Holland, relating to the purchase of 48,779 shares of Common
Stock. +
*** 10.2 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.
* 10.3 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.
* 10.4 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.
* 10.5 Lease, dated November 22, 1983, accompanying Workletter,
dated October 12, 1983, and letters (2) dated November 22,
1983 between the Company and 225 Fourth Company, providing
for the renovation and use of office space at 225 Park
Avenue South, New York, New York.
* 10.6 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. +
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* 10.7 STV Revised Pension Plan. +
* 10.8 STV, Inc. Money Purchase Pension Plan. +
10.9 Officers' and Directors' Liability Policy. +
*** 10.10 Employment Agreement of Richard L. Holland. +
**** 10.11 Stipulation of Amendment to Employee Stock Ownership Plan
effective October 1, 1984. +
*** 10.12 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.
*** 10.13 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.
*** 10.14 STV Engineers, Inc. 1985 Stock Option Plan. +
*** 10.15 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.
*** 10.16 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.
*** 10.17 Amendment, dated November 12, 1987, increasing the line of
credit to $17,000,000.
***** 10.18 Amendment, dated June 1, 1990 between the Company and First
Pennsylvania Bank, NA increasing the interest rate for short
term borrowings.
****** 10.19 Amendment dated September 30, 1991, between the company and
CoreStates Bank, N.A., decreasing the maximum amount of the
line of credit and increasing the charge for issuing letters
of credit.
******* 10.20 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.
******* 10.21 Agreement effective January 1, 1992 relating to ACEC medical
and life insurance. +
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******* 10.22 Agreement dated August 29, 1991 relating to U. S. Healthcare
medical insurance. +
*********** 10.23 Employment Agreement of Dominick M. Servedio. +
*********** 10.24 Employment Agreement of Michael Haratunian. +
********* 10.25 Amendment to the STV Group Incorporated Employee Stock
Ownership Plan. +
********** 10.26 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.
********** 10.27 Agreement effective July 1, 1996 with Corporate Health
Insurance Company providing Group Health Insurance - Custom
Plan. +
********** 10.28 Agreement effective December 1, 1996 with U. S. Healthcare
providing medical insurance.
*********** 10.29 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.
*********** 10.30 STV Group, Incorporated 1995 Stock Option Plan.
10.31 First Amendment To Employment Agreement with Dominick M.
Servedio. +
10.32 First Amendment To Employment Agreement with Michael
Haratunian. +
10.33 Employment Agreement for Peter W. Knipe. +
10.34 Lease dated July 28, 1999 between the Company and 225 Fourth
LLC relating to the Company's executive and engineering
offices at 225 Park Avenue, South, New York, New York.
13.1 The 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.
27.0 Financial Data Schedule
+ Management contract or compensatory plan.
____________
-13-
<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.
*********** Incorporated by reference from Form 10-K and the Annual
Report for the year ended September 30, 1998.
************ Incorporated by reference from Proxy Statement for the year
ended September 30, 1995.
-14-
<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, 1999 STV GROUP, INCORPORATED
--------------------------------
(Registrant)
By: /s/ Dominick M. Servedio
----------------------------
DOMINICK M. SERVEDIO,
Chief Executive Officer, President,
Chief Operating 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, 1999
MICHAEL HARATUNIAN and Director (Principal
Executive Officer)
/s/ Dominick M. Servedio
- ------------------------- Chief Executive Officer, December 29, 1999
DOMINICK M. SERVEDIO President, Chief Operating
Officer and Director
/s/ Peter W. Knipe
- ------------------------- Chief Financial Officer, December 29, 1999
PETER W. KNIPE Secretary/Treasurer
(Principal Accounting
and Financial Officer)
/s/ Richard L. Holland Director December 29, 1999
- -------------------------
RICHARD L. HOLLAND
/s/ G. Michael Stakias Director December 29, 1999
- -------------------------
G. MICHAEL STAKIAS
/s/ Ray M. Monti Director December 29, 1999
- -------------------------
RAY M. MONTI
/s/ Maurice L. Meier Director December 29, 1999
- -------------------------
MAURICE L. MEIER
/s/ William J. Doyle Director December 29, 1999
- -------------------------
WILLIAM J. DOYLE
-15-
<PAGE>
FINANCIAL STATEMENTS
Index
Report of Independent Auditors 17
Consolidated Balance Sheets 18
Consolidated Statements of Income 19
Consolidated Statements of Stockholders' Equity 19
Consolidated Statements of Cash Flows 20
Notes to Consolidated Financial Statements 21
-16-
<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, 1999 and 1998, 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, 1999 and 1998, 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
October 29, 1999
-17-
<PAGE>
Consolidated Balance Sheets
STV Group and Subsidiaries
<TABLE>
<CAPTION>
September 30
1999 1998
<S> <C> <C>
Assets
Current Assets:
Cash and cash equivalents $ 7,248,000 $ 4,444,000
Accounts receivable 30,590,000 23,485,000
Costs and estimated profits of uncompleted contracts in
excess of related billings 17,029,000 13,218,000
Prepaid income taxes 0 84,000
Prepaid expenses and other current assets 829,000 1,065,000
----------- -----------
Total Current Assets 55,696,000 42,296,000
Property and equipment, net 1,813,000 1,553,000
Deferred income taxes 2,443,000 1,882,000
Other assets 782,000 757,000
----------- -----------
Total Assets $60,734,000 $46,488,000
Liabilities and Stockholders' Equity
Current Liabilities:
Current maturity of long-term debt $ 110,000 $ 564,000
Accounts payable 7,675,000 6,382,000
Billings on uncompleted contracts in excess of related
costs and estimated profits 17,094,000 13,375,000
Accrued payroll and related expenses 8,174,000 5,812,000
Accrued expenses 2,037,000 1,864,000
Deferred income taxes 2,137,000 1,862,000
Income tax payable 876,000 96,000
----------- -----------
Total Current Liabilities 38,103,000 29,955,000
Long-term debt 2,794,000 2,134,000
Post-retirement benefits 1,070,000 927,000
----------- -----------
Total Liabilities 41,967,000 33,016,000
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 2,041,000 2,025,000
Capital in excess of par 3,445,000 3,350,000
Retained earnings 14,052,000 8,868,000
----------- -----------
19,538,000 14,243,000
Less: Treasury stock 771,000 771,000
----------- -----------
Total Stockholders' Equity 18,767,000 13,472,000
----------- -----------
Total Liabilities and Stockholders' Equity $60,734,000 $46,488,000
</TABLE>
See notes to consolidated financial statements.
-18-
<PAGE>
Consolidated Statements of Income
STV Group and Subsidiaries
<TABLE>
<CAPTION>
For the Fiscal Year Ended September 30
1999 1998 1997
<S> <C> <C> <C>
Total revenues $ 138,940,000 $ 105,178,000 $ 94,676,000
Subcontract and procurement costs 41,502,000 24,530,000 21,844,000
------------- ------------- -------------
Operating revenue 97,438,000 80,648,000 72,832,000
Costs and expenses:
Costs of services 82,185,000 69,658,000 64,398,000
General and administrative 8,438,000 6,307,000 5,322,000
------------- ------------- -------------
Total costs and expenses 90,623,000 75,965,000 69,720,000
Insurance settlement 2,600,000 0 0
Interest expense (195,000) (469,000)
(1,380,000)
Interest income 350,000 78,000 36,000
------------- ------------- -------------
Other income (expense) 2,755,000 (391,000) (1,344,000)
Income before income taxes 9,570,000 4,292,000 1,768,000
Income tax expense 4,386,000 2,098,000 908,000
------------- ------------- -------------
Net income $ 5,184,000 $ 2,194,000 $ 860,000
Basic earnings per share $ 1.36 $ .59 $ .24
Diluted earnings per share $ 1.24 $ .55 $ .23
</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, 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
Exercise of options 32,500 16,000 95,000
Net income for the year 5,184,000
Balance, September 30, 1999 4,081,654 $ 2,041,000 $ 3,445,000 $14,052,000 248,836 $ 771,000
</TABLE>
See notes to consolidated financial statements.
-19-
<PAGE>
Consolidated Statements of Cash Flows
STV Group and Subsidiaries
<TABLE>
<CAPTION>
For the Fiscal Year Ended September 30
1999 1998 1997
<S> <C> <C> <C>
Operating Activities
Net income $ 5,184,000 $ 2,194,000 $ 860,000
Adjustments to reconcile net income to net cash provided
by operating activities
Depreciation 887,000 741,000 795,000
Deferred income taxes (286,000) 944,000 585,000
Changes in operating assets and liabilities
Accounts receivable (7,105,000) (3,331,000) 350,000
Costs and estimated profits of uncompleted
contracts in excess of related billings and other
current assets (3,575,000) 2,017,000 (487,000)
Accounts payable and other liabilities 4,703,000 2,440,000 204,000
Billings on uncompleted contracts in excess of
related costs and estimated profits 3,719,000 8,989,000 68,000
Current income taxes 864,000 515,000 (641,000)
------------ ------------ ------------
Net cash provided by operating activities $ 4,391,000 $ 14,509,000 $ 1,734,000
Investing Activities
Purchase of property and equipment $ (961,000) $ (843,000) $ (724,000)
Purchase of software (348,000) (254,000) (107,000)
Decrease in other assets 137,000 68,000 28,000
Purchase of treasury stock 0 (342,000) 0
------------ ------------ ------------
Net cash used in investing activities $ (1,172,000) $ (1,371,000) $ (803,000)
Financing Activities
Proceeds from issuance of common stock $ 111,000 $ 451,000 $ 0
Proceeds from line of credit and long term borrowings 0 55,073,000 92,435,000
Principal payments on line of credit and long term
borrowings (526,000) (65,371,000) (92,241,000)
------------ ------------ ------------
Net cash (used in) provided by financing
activities $ (415,000) $ (9,847,000) $ 194,000
Increase in cash 2,804,000 3,291,000 1,125,000
Cash and cash equivalents at beginning of year 4,444,000 1,153,000 28,000
Cash and cash equivalents at end of year $ 7,248,000 $ 4,444,000 $ 1,153,000
</TABLE>
See notes to consolidated financial statements.
-20-
<PAGE>
Notes to Consolidated Financial Statements
STV Group and Subsidiaries
1. Significant Accounting Policies
Basis of Presentation
STV 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 STV 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
STV 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
STV'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 values 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
$741,000.
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
1999 presentation.
Long-lived Assets
The carrying amount of the long-lived assets is 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 STV adopted in 1998. All disclosures as
required by SFAS 128 are included in Note 6 to the financial statements.
-21-
<PAGE>
Notes to Consolidated Financial Statements (continued)
STV Group and Subsidiaries
2. Costs and Estimated Profits of Uncompleted Contracts in Excess of Related
Billings
Costs and estimated profits of uncompleted contracts at September 30, 1999 and
1998, respectively, are as follows:
1999 1998
Costs and estimated earn-
ings on uncompleted
contracts $ 462,774,000 $ 350,044,000
Less billings to date 462,839,000 350,201,000
-------------- --------------
$ (65,000) $ (157,000)
Costs and estimated profits of uncompleted contracts are included in the
accompanying balance sheets under the following captions:
1999 1998
Costs and estimated
profits of uncompleted
contracts in excess of
related billings $ 17,029,000 $ 13,218,000
Billings on uncompleted
contracts in excess of
related costs and
estimated profits 17,094,000 13,375,000
------------ -------------
$ (65,000) $ (157,000)
Included in accounts receivable are retainages related to uncompleted contracts
in the amounts of $7,683,000 in 1999 and $7,225,000 in 1998. The collection of
retainages generally coincides with final project acceptance.
3. Property and Equipment
Property and equipment, at cost, are as follows:
1999 1998
Land $ 54,000 $ 54,000
Equipment 2,934,000 4,572,000
Furniture and fixtures 1,903,000 1,825,000
Leasehold
improvements 1,754,000 1,744,000
------------ -------------
$ 6,645,000 $ 8,195,000
Less:
Accumulated
depreciation and
amortization 4,832,000 6,642,000
------------ -------------
$ 1,813,000 $ 1,553,000
4. Note Payable
STV's current credit facility, as amended, includes a note payable on demand (no
borrowings outstanding during the year ended September 30, 1999) which bears
interest at the bank's base rate (9.5 percent at September 30, 1999) and is
secured by substantially all assets. The weighted average interest rate was 9.7
percent in fiscal 1998. The bank also provides letters of credit which incur a
charge of 1.5 percent of the face value. Currently, $1,982,000 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 covenants regarding additional debt and
stockholders' equity. The covenants include maintaining a minimum tangible net
worth, a maximum total debt to tangible net worth ratio, and a minimum working
capital amount.
5. Income Taxes
STV uses the liability method of accounting for income taxes required by
Statement of Financial Accounting Standards (SFAS) No. 109, "Accounting for
Income Taxes."
-22-
<PAGE>
Notes to Consolidated Financial Statements (continued)
STV Group and Subsidiaries
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. Significant components of
the Company's deferred tax assets and liabilities as of September 30, 1999 and
1998, are as follows:
1999 1998
Deferred tax assets:
Vacation accruals $ 827,000 $ 694,000
Depreciation 15,000 50,000
Deferred compensation 1,245,000 920,000
Litigation 613,000 479,000
International asset sale 34,000 107,000
Postemployment benefits 0 5,000
State taxes 178,000 0
Postretirement
medical benefits 507,000 427,000
---------- ----------
Total deferred
tax assets $3,419,000 $2,682,000
Deferred tax liabilities:
Retainage 3,113,000 2,662,000
---------- ----------
Total deferred tax
liabilities $3,113,000 $2,662,000
Net deferred
tax assets $ 306,000 $ 20,000
Significant components of the provision (benefit) for income taxes are as
follows:
1999 1998 1997
Current:
Federal 3,191,000 $ 798,000 $ 208,000
State 1,481,000 356,000 86,000
----------- ----------- -----------
Total current $ 4,672,000 $ 1,154,000 $ 294,000
Deferred:
Federal $ (242,000) $ 592,000 $ 427,000
State (44,000) 352,000 187,000
----------- ----------- -----------
Total deferred $ (286,000) $ 944,000 $ 614,000
Income tax
expense $ 4,386,000 $ 2,098,000 $ 908,000
A reconciliation of federal income taxes at the statutory rate to the Company's
income tax provision follows:
1999 1998 1997
Federal income tax rate 34.0% 34.0% 34.0%
Non-deductible expenses
and other 2.1 4.3 7.0
State taxes, net of federal
tax effect 9.9 10.7 10.0
------ ------ ------
46.0% 49.0% 51.0%
STV made income tax payments of $3,808,000, $639,000, and $971,000 in 1999, 1998
and 1997, respectively. The Company received $58,000 in income tax refunds in
1999 and $7,000 in 1997.
6. Earnings per Share
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
1999 1998 1997
Net income $5,184,000 $2,194,000 $ 860,000
Weighted average
shares for basic
earnings per share 3,813,000 3,719,000 3,642,000
Weighted average
shares for diluted
earnings per share 4,186,000 3,959,000 3,803,000
Basic earnings
per share 1.36 .59 .24
Diluted earnings
per share 1.24 .55 .23
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 adopting SFAS No. 128, "Earnings
Per Share," in 1998 are reflected in the earnings per share and weighted average
number of shares outstanding calculations above for all periods presented.
-23-
<PAGE>
Notes to Consolidated Financial Statements (continued)
STV Group and Subsidiaries
7. Commitments and Contingencies
STV 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 STV's financial
statements.
During 1992, STV 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
STV'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 (the "Skinner Litigation") was filed on or about February 1991 by the
general liability insurer in the Supreme Court. Pursuant to this, the general
liability insurer is seeking a judgment that the professional liability insurer
and STV are obligated to reimburse the general liability insurer for the
payments which it made, plus expenses. STV 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. Following an appellate court decision affirming the
Company's entitlement to recover, the litigation was settled in September 1999
by the general liability company paying the Company $2,600,000 and reimbursing
the Company's professional liability insurer $2,700,000. Diluted earnings per
share increased by approximately $ .37 per share in 1999 related to this
settlement.
In addition, in 1992, STV'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 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 STV's professional liability insurer. The Company intervened in the
garnishment proceeding. This proceeding had been stayed pending resolution of
the Skinner Litigation. The litigation is now moving forward.
If the outcome of this litigation is adverse to STV, and the Company is required
to pay amounts in addition to the policy limits of the insurance policy, it
could have a material adverse effect on STV's earnings and financial condition
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.
STV sold its International Region as of March 13, 1997. A gain of $170,000 was
recorded by the Company. 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.
STV 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
2000 $ 5,328,000
2001 4,607,000
2002 3,449,000
2003 3,051,000
2004 3,013,000
Thereafter 32,379,000
Total minimum
lease payments $51,827,000
Rental expense under operating leases amounted to $4,380,000, $4,314,000 and
$3,783,000 in 1999, 1998 and 1997, respectively.
8. Stock Plans
On October 1, 1981, STV 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
1999, 1998 and 1997 was $1,157,000, $1,144,000, and $1,087,000, 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
-24-
<PAGE>
Notes to Consolidated Financial Statements (continued)
STV Group and Subsidiaries
payment for future stock purchases. The Company will fund the 1999 contribution
with cash payments throughout 1999 and 2000. At September 30, 1999, 2,466,229
shares of STV 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. No additional grants are available under this
plan.
STV 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 1999 and 1998: risk-free interest rates of 5 percent,
dividend yield of 0 percent, expected volatility of the market price of STV's
common stock of 44 and 18 percent, respectively, 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.
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. STV's pro forma information is as follows:
1999 1998
Pro forma net income $ 4,145,000 $ 1,849,000
Pro forma basic earnings per share $ 1.09 $ .50
Pro forma diluted earnings per share $ .99 $ .47
Outstanding options to purchase shares of common stock have been granted to
officers and employees at prices ranging from $2.06 to $7.79 per share. The
weighted-average remaining contractual life of those options is 8.01 years. A
summary of the option transactions is as follows:
Year ended September 30
1999 1998 1997
Options outstanding,
beginning of period 617,000 245,000 190,000
Granted 550,000 172,000 55,000
Effect of split -- 344,000 --
Exercised (32,500) (139,000) --
Canceled (4,000) (5,000) --
Options outstanding,
end of period 1,130,500 617,000 245,000
Options exercisable 582,000 273,000 190,000
Shares available for
future option grants 0 546,000 445,000
The weighted average fair value of options granted during fiscal 1999 and 1998
was $2.98 and $1.16 per share, respectively. The weighted average exercise price
of options granted during fiscal 1999 and 1998 was $6.49 and $4.22,
respectively. The weighted average exercise price of options exercised in 1999
and 1998 was $3.44 and $3.25, respectively. The weighted average exercise price
of options outstanding at September 30, 1999 and 1998, was $5.06 and $3.69,
respectively, while the weighted average exercise price of exercisable options
at September 30, 1999, was $3.70.
On October 20, 1995, certain STV officers borrowed $125,000 from the Company to
purchase 25,000 shares of common stock from an outside STV director. 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.
-25-
<PAGE>
Notes to Consolidated Financial Statements (continued)
STV Group and Subsidiaries
9. Postretirement Benefit and Pension Plans
STV sponsors a defined benefit health care plan that provides postretirement
medical benefits to all current and retired officers and their spouses upon
attaining age 65, or age 55 with 10 years of service. The plan is contributory,
with retiree contributions adjusted annually, and contains other cost-sharing
features such as deductibles and coinsurance. The accounting for the plan
anticipates future cost-sharing changes to the written plan that are consistent
with the Company's expressed intent to increase the retiree contribution rate
annually for the expected general inflation rate for that year.
The following table presents the plan's status reconciled with amounts
recognized in the Company's balance sheet (current and long-term):
1999 1998
Changes in plan assets:
Fair value of plan assets
at beginning of year 0 0
Employer contributions 70,000 73,000
Benefits paid (70,000) 73,000
----------- -----------
Fair value of plan assets
at year end 0 0
Accumulated
postretirement
benefit obligation $(1,612,000) $(1,684,000)
Unrecognized
net gain (356,000) (222,000)
Unrecognized prior
service costs 0 41,000
Unrecognized
transition obligation 783,000 839,000
----------- -----------
Accrued postretirement
benefit cost $(1,185,000) $(1,026,000)
Net periodic postretirement benefit costs include the following components:
1999 1998 1997
Service cost $ 32,000 $ 32,000 $ 36,000
Interest cost 112,000 114,000 101,000
Amortization of transition
obligation over 20 years 56,000 56,000 56,000
Amortization of unrecognized
prior service cost 41,000 41,000 41,000
Amortization of unrecognized
gain (12,000) (24,000) (44,000)
--------- --------- ---------
Net periodic postretirement
benefit cost $ 229,000 $ 219,000 $ 190,000
The weighted-average annual assumed rate of increase in the per capita cost of
covered benefits (i.e., health care cost trend rate) is 10.0 percent for 1999
(10.5 percent for 1998 and 11 percent in 1997) 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, 1999, by $180,000, and the aggregate of
the service and interest cost components of net periodic postretirement benefit
cost for 1999, 1998 and 1997 by $18,000, $17,000, and $16,000, respectively.
The weighted-average discount rate used in determining the accumulated
postretirement benefit obligation was 8.0 percent at September 30, 1999, and 7.0
percent at September 30, 1998.
STV has a defined contribution savings and investment plan covering
substantially all employees. Employees may contribute up to 15 percent of base
salary to the plan, excluding highly compensated employees, which are limited to
8 percent. The plan was amended to include a discretionary company match in
1999. Plan provisions have established a company match of $ .25 for each $1
contributed on the first 4 percent of employee contributions, with an additional
match at the discretion of the Board of Directors. In 1999, the Company's Board
of Directors elected to increase the match by 50 percent. The Company's cost for
this plan was $468,000 in 1999.
10. Major Customers
The percentage of total revenues derived from contracts with the United States
government for fiscal years 1999, 1998 and 1997 was 9 percent, 14 percent and 16
percent, respectively.
-26-
<PAGE>
Notes to Consolidated Financial Statements (continued)
STV Group and Subsidiaries
11. Long-Term Debt
Long-term debt consists of the following:
<TABLE>
<CAPTION>
1999 1998
<S> <C> <C>
Deferred compensation liability payable in fixed monthly installments of
$11,542 through September 2006 with interest imputed at 16 percent $ 581,000 $ 623,000
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 490,000 699,000
Supplemental executive retirement agreements for two current executives payable
in monthly installments upon retirement with interest imputed
at 7 percent. (1) 1,833,000 850,000
Other, including capital leases in 1998 0 526,000
---------- ----------
2,904,000 2,698,000
Less: Current portion 110,000 564,000
---------- ----------
$2,794,000 $2,134,000
</TABLE>
Interest paid during 1999, 1998 and 1997 amounted to $147,000, $505,000 and
$1,310,000, respectively.
Annual maturities of long-term debt are as follows:
Year ending September 30
2000 $ 110,000
2001 57,000
2002 67,000
2003 79,000
2004 93,000
Thereafter 2,498,000
(1) These agreements for two current executives provide for annual future cash
payments at retirement commencing October 2003 and January 2004, respectively.
These agreements provide for cash payments of $325,000 and $234,000 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.
-27-
<PAGE>
Notes to Consolidated Financial Statements (continued)
STV Group and Subsidiaries
12. Quarterly Results (unaudited)
(All dollar amounts omit 000 except per share data.)
<TABLE>
<CAPTION>
Quarter Year
First Second Third Fourth
<S> <C> <C> <C> <C> <C>
Revenue from services:
1999 $ 34,221 $ 33,345 $ 34,670 $ 36,704 $ 138,940
1998 $ 24,127 $ 25,986 $ 25,525 $ 29,540 $ 105,178
Operating revenue:
1999 $ 22,859 $ 23,758 $ 24,857 $ 25,964 $ 97,438
1998 $ 19,158 $ 19,796 $ 20,040 $ 21,654 $ 80,648
Gross profit:
1999 $ 3,457 $ 3,803 $ 3,955 $ 4,038 $ 15,253
1998 $ 2,575 $ 2,571 $ 2,750 $ 3,094 $ 10,990
Net income:
1999 $ 912 $ 910 $ 912 $ 2,450 $ 5,184
1998 $ 412 $ 495 $ 602 $ 685 $ 2,194
Basic earnings per share:
1999 $ .24 $ .24 $ .24 $ .64 $ 1.36
1998 $ .11 $ .14 $ .16 $ .18 $ .59
Diluted earnings per share:
1999 $ .22 $ .22 $ .22 $ .58 $ 1.24
1998 $ .11 $ .13 $ .15 $ .17 $ .55
</TABLE>
In the fourth quarter of 1999, STV was paid $2,600,000 as settlement of a
litigation claim. This settlement increased net income by approximately
$1,500,000, or $ .37 per diluted share.
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.
-28-
<PAGE>
EXHIBITS
Index
Exhibit 10.9 - Officers' and Directors' Liability Policy
Exhibit 10.31 - First Amendment To Employment Agreement with Dominick M.
Servedio.
Exhibit 10.32 - First Amendment To Employment Agreement with Michael
Haratunian.
Exhibit 10.33 - Employment Agreement for Peter W. Knipe.
Exhibit 10.34 - Lease dated July 28, 1999 between the Company and
225 Fourth LLC relating to the Company's executive and
engineering offices at 225 Park Avenue, South, New York,
New York.
Exhibit 13.1 - The 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
Exhibit 27.0 - Financial Data Schedule
POLICY NUMBER:
858-56-36
RENEWAL OF:
856-27-73
(LOGO) AMERICAN INTERNATIONAL COMPANIES
/_/ AIU Insurance Company /_/ Granite State Insurance Company
/_/ American Home Assurance Company /_/ Illinois National Insurance Company
/_/ American International Pacific
Insurance Company /X/ National Union Fire Insurance
Company of Pitts., Pa.
/_/ American International South
Insurance Company /_/ National Union Fire Insurance
Company of Louisiana
/_/ Birmingham Fire Insurance Company
of Penns. /_/ New Hampshire Insurance Company
(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, INCORPORATED
MAILING ADDRESS: 205 WEST WELSH DRIVE
DOUGLASSVILLE, PA 19518
STATE OF INCORPORATION OF THE NAMED CORPORATION:
Pennsylvania
ITEM 2. SUBSIDIARY COVERAGE: any past, present or future Subsidiary of the
Named Corporation
ITEM 3. POLICY PERIOD: From: May 5, 1999 To: May 5, 2000
(12:01 A.M. at the address stated in Item 1.)
ITEM 4. LIMIT OF LIABILITY: $6,000,000 aggregate for Coverages A,
B and C combined (including
Defense Costs)
<PAGE>
<TABLE>
<S> <C>
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:
DEFENSE COSTS
(A) Pre-trial: 25 %
(B) Trial and appeal 100%
SETTLEMENTS AND JUDGMENTS
(C) Joint Settlements and Judgments (except in (D) below) 10 %
(D) Joint Judgments (Company insolvency) 100%
<PAGE>
ITEM 7. CONTINUITY DATES:
A. All Coverages (other than Outside Entity Coverage) October 26, 1983
B. Outside Entity Coverage (Per Outside Entity)
See Endorsement #2
ITEM 8. PREMIUM: $66,475
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
</TABLE>
<PAGE>
IN WITNESS WHEREOF, the Insurer has caused this policy to be signed on the
Declarations Page by its President, a Secretary and a duly authorized
representative of the Insurer.
/s/ Elizabeth M. Tuck /s/ John P. Cavoores
- --------------------- --------------------
SECRETARY PRESIDENT
/s/ Ty Sagalow
-------------------------
AUTHORIZED REPRESENTATIVE
_____________________ ________________
COUNTERSIGNATURE DATE COUNTERSIGNED AT
ROEHRS & COMPANY INC
PO BOX 100
EXTON, PA 19341
<PAGE>
American International Companies
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 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, but, in the case of (ii) above, only during the
time that the Claim was also made against a Directors or Officers, 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 CRISISFUND(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 Crisisfund(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, or administrative, regulatory or arbitration
proceeding for monetary or non-monetary relief which is commenced
by:
(i) service of a complaint or similar pleading; or
(ii) return of an indictment, 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, or administrative, 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 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 1 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").
(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
2
<PAGE>
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 of 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.
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.
3
<PAGE>
(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 postjudgment 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 judgement) 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.
(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.
(l) "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.
4
<PAGE>
(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 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 now 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)
5
<PAGE>
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
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 (1) 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 of 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;
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(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, consolation or supervision of any of the foregoing
activities or any failure relating thereto.
(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 Claim 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
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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.
(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
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.
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(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 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 security 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;
(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 a Director or Officer;
(k) for bodily injury, sickness, disease, death of any person, or damage
to or destruction of any tangible property, including the loss of use
thereof;
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(l) alleging, arising out of, based upon, attributable to, or in any way
involving, directly or indirectly:
(1) the actual, alleged or threatened discharge, dispersal, release
or escape of pollutants; or
(2) any direction or request to test for, monitor, clean up, remove,
contain, treat, detoxify or neutralize pollutants,
including but not limited to a Claim alleging damage to the Company or
its securities holders; 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 are not limited to) any solid, liquid, gaseous
or thermal irritant or contaminant, including smoke, vapor, soot,
fumes, acids, alkalis, chemicals and waste. Waste includes (but is not
limited to) materials to be recycled, reconditioned or reclaimed;
(m) for violation(s) of any of the responsibilities, obligations or duties
imposed upon fiduciaries by the Employee Retirement Income Security
Act of 1974, or amendments thereto or any similar provisions of state
statutory law or common law.
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 Coverage 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);
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(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 (c) 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 percent set forth in (c) 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 Coverage 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.
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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 and 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 any 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 the 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.
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
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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 advanced payments by the Insurer shall be repaid to
the Insurer by the Insureds or the Company, severally according to their
respective interests, in the event and to the extent that the Insureds or
the Company shall not be entitled under the terms and conditions of this
policy to payment of such Loss.
The Insurer does not, however, under this policy, assume any duty to
defend. The Insureds shall defend and contest any Claim made against them.
The Insureds shall not admit or assume any liability, enter into any
settlement agreement, stipulate to any judgment, or incur any Defense Costs
without the prior written consent of the Insurer. Only those settlements,
stipulated judgments and Defense Costs which have been consented to by the
Insurer shall be recoverable as Loss under the terms of this policy. The
Insurer's consent shall not be unreasonably withheld, provided that the
Insurer shall be entitled to effectively associate in the defense, 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 Persons 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 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 the claimant except as respects a
covered Securities Claims or Year 2000 Third Party Claim against the
Company.
With respect to (1) 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
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Insureds and the Insurer taking into account the relative legal and
financial exposures of 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 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 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 geographical 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.
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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.
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 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 1 of the
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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 proportion of the premium herein.
If this policy shall be canceled by the Insurer, the Insurer shall retain
the pro rate 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 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
16
<PAGE>
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, 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 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 Insureds 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 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
17
<PAGE>
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 1 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.
18
<PAGE>
SUMMARY OF SUBSTANTIVE CHANGES
(Non-exclusive, for discussion purposes only)
1. Revert to 5/95 "in fact" exclusions (but added "by the insured" to the
criminal acts exclusion).
2. Eliminate imputation between company and individuals but keep imputation
between top five officers and company.
3. Eliminate preset 10/25% allocation for Third Party Y2k Claims; place blanks
on Dec. Page.
4. Revert to 5/95 formulas for interrelated acts.
5. Added "information" (or other similar document) to criminal claim trigger
(from only indictment)
6. Added employees as Insureds for Third Party Y2k Claims (co-defendant basis)
7. Broaden retention waiver to non-securities Y2k claims from only securities
claims (all types).
8. Push back definition of claim for sec investigations from target letter to
subpoena date
9. Enhanced (maybe clarified in a positive way) coverage for
enity/non-indemnifiable combo claims
10. I v I does not exclude shareholder actions assisted by an non-officer
employee Insured.
11. Advancement of defense costs must be done every 90 days. (Only covered
amounts are advanced and advancement is excess of retention amount.)
12. Excluded cost of appeal bonds for non-covered judgments
13. Added non-pryamiding provision for Y2k Third Party Claims and Y2k Crises.
SUMMARY OF NON-SUBSTANTIVE CHANGES
(Non-exclusive, for discussion purposes only)
1. Put co-defendant requirement in insuring agreements
2. Deleted "solely" in a couple of places
3. Separated Insured in D&O and the Company (two definitions instead of one)
4. Eliminated phrase "(including Y2k Claims in the form of Securities Claims")
and opted for better definition of Y2k Securities Claims and Y2k Third
Party Claims
5. Added foreign equivalent DIPs
6. Made clear Y2k Third Party allocation coverage provisions
7. Corrected "criminal proceedings by the SEC" error in definition of
Securities Claim
8. Clarified derivative actions as covered Securities Claims
9. Added "deliberate" twice in criminal acts exclusion rather than moving the
adjective
10. Simplified reporting of Y2k Crisis by eliminating need to report
"anticipated" Crises
11. Clarified that Y2k application is being treated as a questionnaire and used
for underwriting purposes.
19
<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 Tel: 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 Tel: 206-583-8888
Main Fax: 206-583-8500
Contact:
Ronald L. Berenstein
Harry H. Schneider
Texas
Akin, Gump, Statauss, Haurer & Feld, L.L.P.
1700 Pacific Avenue
Suite 4100
Dallas, TX 75201-4618
Main Tel: 214-969-2800
Contact:
Lou Bickel
Mike Lowenberg
Akin, Gump, Strauss, Hauer & Feld, L.L.P.
Pennzoil Place - South Tower
711 Louisianna Street
Suite 1900
Houston, TX 77002
Main Tel: 713-220-5800
Contact:
Charlie Moore
Paula Hinton
Baker & Botts, L.L.P.
910 Louisianna
Houston, TX 77002-4995
Main Tel: 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
Contact:
Ronald L. Palmer 214-953-6500
Fulbright & Jaworski, L.L.P.
1301 McKinney
Suite 5100
Houston, TX 77010
Main Tel: 713-651-5151
Contact:
Frank G. Jones
Richard N. Carrell
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>
ADDENDUM TO THE DECLARATIONS - COMPANY ADDRESSES
AIU INSURANCE COMPANY
70 Pine Street
New York, New York 10270
AMERICAN HOME ASSURANCE COMPANY
70 Pine Street
New York, New York 10270
AMERICAN INTERNATIONAL SOUTH INSURANCE COMPANY
2005 Market Street
Philadelphia, Pennsylvania 19103
BIRMINGHAM FIRE INSURANCE COMPANY OF THE STATE OF PENNSYLVANIA
1750 CNG Tower
Pittsburgh, Pennsylvania 15222
GRANITE STATE INSURANCE COMPANY
2005 Market Street
Philadelphia, Pennsylvania 19103
ILLINOIS NATIONAL INSURANCE COMPANY
500 West Madison Street
Chicago, Illinois 60606
NATIONAL UNION FIRE INSURANCE COMPANY OF PITTSBURGH, PA.
1750 CNG Tower
Pittsburgh, Pennsylvania 15222
NEW HAMPSHIRE INSURANCE COMPANY
2005 Market Street
Philadelphia, Pennsylvania 19103
<PAGE>
ENDORSEMENT# 2
This endorsement, effective 12:01 a.m. May 5, 1999 forms a part of
policy number 858-56-36
issued to STV GROUP, INCORPORATED
by National Union Fire Insurance Company of Pittsburgh, Pa.
OUTSIDE ENTITY ENDORSEMENT
In consideration of the premium charged, it is hereby understood and agreed that
the following entities shall be deemed an "Outside Entity" with respect to its
corresponding Continuity Date below:
OUTSIDE ENTITY CONTINUITY DATE
1) any not-for-profit organization; May 3, 1996
ALL OTHER TERMS, CONDITIONS AND EXCLUSIONS REMAIN UNCHANGED.
/s/ Ty Sagalow
----------------------------------
AUTHORIZED REPRESENTATIVE
<PAGE>
ENDORSEMENT# 3
This endorsement, effective 12:01 a.m. May 5, 1999 forms a part of
policy number 858-56-36
issued to STV GROUP, INCORPORATED
by National Union Fire Insurance Company of Pittsburgh, Pa.
PA 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 e forwarded directly
to the named insured at least fifteen (15) days in advance of the
effective date of termination.
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 date 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.
<PAGE>
ENDORSEMENT# 3 (continued)
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 or
occurrence, amount of payment, if any, and amount or reserves, if any;
3) Information on notices of occurrence, including date and description
of occurrence and amount of 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
mail 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
<PAGE>
ENDORSEMENT# 4
This endorsement, effective 12:01 a.m. May 5, 1999 forms a part of
policy number 858-56-36
issued to STV GROUP, INCORPORATED
by National Union Fire Insurance Company of Pittsburgh, Pa.
PENNSYLVANIA AMENDATORY ENDORSEMENT
Directors, Officers and Corporate Liability Insurance Policy
The policy is hereby amended as follows:
I. Section (a)., of Clause 7., NOTICE/CLAIM REPORTING PROVISIONS, is deleted
in entirety and replaced with the following:
(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 Company's risk manager or general counsel first becomes
aware of the Claim and either:
(1) anytime during the Policy Period or during the Discovery Period
(if applicable); or
(2) within 60 days after the end of the Policy Period or the
Discovery Period (if applicable), as long as such Claim or Crisis
is reported no later than 60 days after the date such Claim was
first made against an Insured or such Crisis.
II. The last paragraph of Clause 10., DISCOVERY CLAUSE, is deleted in entirety
and replaced with the following:
The additional premium for the Discovery Period shall be fully earned at
the inception of the Discovery Period. The Discovery Period is not
cancelable.
In the event of cancellation or nonrenewal by the Insured for nonpayment of
premium or other monies due to the Company, the right to a Discovery Period
under this Clause 10., is available to any Insured upon payment of an
amount equal to (a) the premium due for the Discovery Period plus (b) any
earned premium for the Policy Period which has not yet been paid.
ALL OTHER TERMS, CONDITIONS AND EXCLUSIONS REMAIN THE SAME.
/s/ Ty Sagalow
----------------------------------
AUTHORIZED REPRESENTATIVE
<PAGE>
ENDORSEMENT# 5
This endorsement, effective 12:01 a.m. May 5, 1999 forms a part of
policy number 858-56-36
issued to STV GROUP, INCORPORATED
by National Union Fire Insurance Company of Pittsburgh, Pa.
NUCLEAR ENERGY LIABILITY EXCLUSION 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(s) 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.
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 law
amendatory thereof;
<PAGE>
ENDORSEMENT# 5 (continued)
"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 promises 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
<PAGE>
ENDORSEMENT# 6
This endorsement, effective 12:01 a.m. May 5, 1999 forms a part of
policy number 858-56-36
issued to STV GROUP, INCORPORATED
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(s) made against any Insured(s) alleging, arising out of, based upon,
or 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 officers, directors, agents,
owners, partners, representatives, principal shareholders or employees
of such affiliates) 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# 7
This endorsement, effective 12:01 a.m. May 5, 1999 forms a part of
policy number 858-56-36
issued to STV GROUP, INCORPORATED
by National Union Fire Insurance Company of Pittsburgh, Pa.
SECURITIES CLAIMS EXCLUSION -
EFFECTIVE UPON A SECONDARY PUBLIC OFFERING 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(s) made against any Insured(s) (including but not limited to any Claim(s)
brought by any governmental or regulatory entity/ies or any security holder(s),
whether directly, derivatively or by class action, or by any other claimant(s))
whether under federal, state or foreign, statutory, regulatory or common law, if
such Claim(s) either:
(i) allege, arise out of, are based upon or are attributable to the
purchase or sale, or offer, or solicitation of an offer to purchase or
sell, any securities of the Company (whether purchased or sold from or
by the Company or in the after market); or
(ii) allege, arise out of, are based upon or are 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(s) which
allege, arise out of, are based upon or are attributable to any Claim(s) arising
out of any alleged misrepresentation(s) or non-disclosure(s) in any written or
oral statement(s), including but not limited to any Registration Statement,
prospectus, offering circular, 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 endorsement shall not apply:
(1) to any Claim(s) brought by an equity security holder of the Company
with regard to securities purchased or held by such security holder
prior to the effective time of the OFFERING OF SECURITIES; or
(2) in the event that within thirty days prior to the effective time of an
OFFERING OF SECURITIES other than an OFFERING OF SECURITIES described
in (2) above:
(i) the Insured(s) give written notice thereof, together with all the
particulars and underwriting information relating thereto, to the
Insurer;
(ii) the Insurer agrees, in its discretion, to grant coverage subject
to such terms, conditions and additional premium as it may
require;
<PAGE>
ENDORSEMENT# 7 (continued)
(iii) the Insurer accepts such terms, conditions and additional
premium as the Insurer may so require; and
(iv) the Insured(s) pay, when due, any such additional premium.
ALL OTHER TERMS, CONDITIONS, AND EXCLUSIONS REMAIN UNCHANGED.
/s/ Ty Sagalow
----------------------------------
AUTHORIZED REPRESENTATIVE
<PAGE>
ENDORSEMENT# 8
This endorsement, effective 12:01 a.m. May 5, 1999 forms a part of
policy number 858-56-36
issued to STV GROUP, INCORPORATED
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(s) made against any 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# 9
This endorsement, effective 12:01 a.m. May 5, 1999 forms a part of
policy number 858-56-36
issued to STV GROUP, INCORPORATED
by National Union fire Insurance Company of Pittsburgh, Pa.
CAPTIVE INSURANCE COMPANY EXCLUSION
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(s) 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
any Claim(s) alleging the insolvency or bankruptcy of the Named Corporation as a
result of such ownership, operation, management and control.
ALL OTHER TERMS, CONDITIONS AND EXCLUSIONS REMAIN UNCHANGED.
/s/ Ty Sagalow
----------------------------------
AUTHORIZED REPRESENTATIVE
<PAGE>
ENDORSEMENT# 10
This endorsement, effective 12:01 a.m. May 5, 1999 forms a part of
policy number 858-56-36
issued to STV GROUP, INCORPORATED
by National Union Fire Insurance Company of Pittsburgh Pa.
P&P Dates for Excess Limits
In consideration of the premium charged, it is hereby understood and agreed that
Clause 4, EXCLUSION (e) of the form 70320 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 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
$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 05,
1994 or alleging or derived from the same or essentially the same facts as
alleged in such pending or prior litigation.
ALL OTHER TERMS, CONDITIONS AND EXCLUSIONS REMAIN UNCHANGED
/s/ Ty Sagalow
----------------------------------
AUTHORIZED REPRESENTATIVE
<PAGE>
ENDORSEMENT# 11
This endorsement, effective 12:01 a.m. May 5, 1999 forms a part of
policy number 858-56-36
issued to STV GROUP, INCORPORATED
by National Union Fire Insurance Company of Pittsburgh, Pa.
GENERAL PARTNER - PARTNERSHIP MANAGER -
JOINT VENTURE MANAGER EXCLUSION
In consideration of the premium charged, it is hereby understood and agreed that
the Insurer shall not be liable to make any payment for Loss in connection with
any Claim(s) made against any Insured(s) alleging, arising out of, based upon or
derived from any Insured(s) acting as a general partner of any limited
partnership(s), and/or a partnership manager of any general partnership(s),
and/or joint venture manager of any joint venture(s).
ALL OTHER TERMS, CONDITIONS AND EXCLUSIONS REMAIN UNCHANGED.
/s/ Ty Sagalow
----------------------------------
AUTHORIZED REPRESENTATIVE
<PAGE>
ENDORSEMENT# 12
This endorsement, effective 12:01 a.m. May 5, 1999 forms a part of
policy number 858-56-36
issued to STV GROUP, INCORPORATED
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
this policy is amended to provide Crisis Management Coverage pursuant to the
terms and conditions set forth below:
1) The Clause of the policy entitled 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) The Section of the policy entitled EXCLUSIONS shall not be applicable to
Crisis Management Loss.
3) The Section of the policy entitled 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 the Item of the
Declarations' page entitled LIMIT OF LIABILITY, 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 as soon as practicable but in no event later than thirty (30) days
after the Company first incurs Crisis Management Loss for which coverage
will be requested under this endorsement.
6) The Section of the policy entitled DEFENSE COSTS, SETTLEMENTS, JUDGMENTS
(INCLUDING THE ADVANCEMENT OF DEFENSE COSTS) 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.
<PAGE>
ENDORSEMENT# 12 (continued)
Definitions
For the purposes of this endorsement, the following definitions shall apply:
A) "Material Effect on the Company's Common Stock Price" shall mean, within a
period of 24 hours, that the price per share of the Company's common stock
shall decrease by the greater of $5 per share or 10% net of the change in
the Standard & Poor's Composite Index.
B) "Crisis Management Event" shall mean:
I. One of the following events which, in the good faith opinion of the
Chief Financial Officer of the Company, did cause or is reasonably
likely to cause, a Material Effect on the Company's Common Stock
Price:
(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) (2) Loss of a patent, trademark 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, trademark 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.
(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.
<PAGE>
ENDORSEMENT# 12 (continued)
(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 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(s) which have been reported, or any circumstances of which
notice has been given, under any policy of which this policy is a
renewal or replacement or which it may succeed in time;
(2) any pending or prior litigation as of May 5, 1998
<PAGE>
ENDORSEMENT# 12 (continued)
(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(s) arising
from the ownership of, operation of, construction of, management of,
planning of, maintenance of or investment in any nuclear facility.
The descriptions in the headings of the Crisis Management Events are solely for
convenience and form no part of the terms and conditions of coverage.
For the purposes of this endorsement, a Crisis Management Event shall first
commence when the Company or any of its directors or executive officers shall
first become aware of the event and shall conclude at the earliest of the time
when the Crisis Management Firm advises the Company that the crisis no longer
exists or when the Crisis Management Fund has been exhausted.
C) "Crisis Management Firm" shall mean any public relations firm, crisis
management firm or law firm hired by the Company or its directors, officers
or employees to perform Crisis Management Services in connection with the
Crisis Management Event which has been consented to by the Insurer, the
consent for which shall not be unreasonably withheld. Attached to this
endorsement is a list of firms which have been pre-approved by the Insurer
and may be hired by the Company without further approval by the Insurer:
D) "Crisis Management Fund" shall mean Fifty Thousand Dollars ($50,000).
E) "Crisis Management Loss" shall mean the following amounts incurred during
the pendency of or within 90 days prior to and in anticipation of, the
Crisis Management Event, regardless of whether a Claim is ever made against
an Insured arising from the Crisis Management Event and, in the case where
a Claim is made, regardless of whether the amount is incurred prior to or
subsequent to the making of the Claim:
(1) Amounts for which the Company is legally liable for the reasonable and
necessary fees and expenses incurred by a Crisis Management Firm in
the performance of Crisis Management Services for the Company arising
from a Crisis Management Event(s); 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(s).
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 REMA
/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
FIRST AMENDMENT TO EMPLOYMENT AGREEMENT
THIS FIRST AMENDMENT TO EMPLOYMENT AGREEMENT ("Agreement") made on December
31, 1998, but effective as of October 1, 1998 by and between Dominick Servedio
("Employee") and STV Group, Inc., a Pennsylvania corporation ("Employer").
WHEREAS, Employer and Employee are parties to an Employment Agreement, made
as of October 29, 1998, effective October 1, 1998 (the "Employment Agreement"),
pursuant to which Employee has been re-employed by Employer; and
WHEREAS, the Employer and the Employee desire to amend the Employment
Agreement solely to the extent set forth herein and otherwise desire to, and
hereby do, ratify and affirm the Employment Agreement;
NOW THEREFORE, in consideration of the promises, covenants and agreements
of the parties contained herein and in the Employment Agreement, and intending
to be legally bound, the parties hereby covenant and agree as follows:
1. Supplemental Retirement Benefits. Paragraph 3.6.3 of the Employment
Agreement, entitled "Supplemental Retirement Benefits" is hereby deleted from
the Employment Agreement and the following paragraph enumerated as 3.6.3 and
entitled "Supplemental Retirement Benefits" is deemed substituted and
incorporated into the Employment Agreement as if originally and fully set forth
in its place and stead:
3.6.3(a) 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 ("Supplemental
Retirement Benefits") from Employer under a Supplemental Executive
Retirement Plan ("SERP"), as described in this section in the amount of
Three Hundred and Twenty-five Thousand Dollars ($325,000.00) per annum. The
foregoing Supplemental Retirement Benefits shall be payable monthly in
equal installments for a total period of fifteen (15) years of the lives
<PAGE>
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 Supplemental Retirement Benefits 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. The
Supplemental Retirement Benefits shall be fully vested and non-forfeitable
in the event that Employee's employment with Employer terminates after
September 30, 2003 for any reason or if such employment terminates prior to
October 1, 2003 by reason of death, disability (as described in Paragraph
4.2.2 of the Employment Agreement) termination by Employer other than for
cause (as described in Paragraph 4.2.4 of the Employment Agreement) or
termination by Employee for good reason (as described in Paragraph 4.2.5 of
the Employment Agreement) other than retirement.
3.6.3(b) Notwithstanding the foregoing Paragraph 3.6.3(a), in the
event that Employee's employment with Employer is terminated prior to
October 1, 2003 by Employer for cause (as described in Paragraph 4.2.3 of
the Employment Agreement) or by Employee by retirement (as described in
Paragraph 4.2.5 of the Employment Agreement), then the annual amount of the
Supplemental Retirement Benefits payable to the Employee shall equal the
sum of (i) the annual amount of Supplemental Retirement Benefits that was
accrued under the terms of the Prior Employment Agreement and (11) the
product of (A) the excess of Three Hundred and Twenty-five Thousand Dollars
($325,000.00) over the annual amount described in clause (i) above times
(B) a fraction the numerator of which is the number of days Employee has
remained employed by Employer from the effective date of this Agreement to
his date of termination and the denominator of which is 1,825.
3.6.3(c) Notwithstanding the foregoing, if a change in control (as
defined in Appendix A) shall occur at any time during the term of this
Agreement or before the Supplemental Retirement Benefits have been fully
paid, the Supplemental Retirement Benefits shall immediately become and be
fully vested and non-forfeitable in the amount set forth in Paragraph 3.6.3
(a) above and the Employer shall 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 equivalent guarantee or the actuarial lump
sum equivalent of the remaining Supplemental Retirement Benefits 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 or equivalent guarantee 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 in accordance with reasonable
actuarial assumptions. The Employer, 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 Employer shall elect
to make payment of the Supplemental Retirement Benefits by annuity as
provided above, upon the death of Employee's surviving spouse within the
15-year term of the SERP, the
2
<PAGE>
balance of any remaining Supplemental Retirement 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 Supplemental Retirement Benefits by annuity as provided above, any
taxable income is recognized by Employee in advance of receipt of payment
of the Supplemental Retirement Benefits 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 Supplemental
Retirement Benefits 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 Supplemental Retirement Benefits. (Collectively, the
General Retirement Benefits, Medical Retirement Benefits and Supplemental
Retirement Benefits are referred to as "Retirement Benefits").
2. Termination for Cause. Paragraph 4.2.3 of the Employment Agreement,
entitled "Termination for Cause" is hereby deleted from the Employment Agreement
and the following paragraph enumerated as 4.2.3 and entitled "Termination for
Cause" is deemed substituted and incorporated into the Employment Agreement as
if originally and fully set forth in its place and stead:
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 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 finding that,
in the good faith judgment of the Board, (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 of no less than one hundred and
twenty (120) days duration 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 grossly
3
<PAGE>
negligent under this Agreement or (2) Employee is convicted of or pleads
guilty or nolo contendere to a felony. For purposes of this Agreement
"grossly negligent" means that Employee willfully breaches or habitually
neglects the duties which he is required to perform under the terms of this
Agreement. 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.
3. Entire Understanding. This Agreement, together with the Employment
Agreement, all other documents, instruments, certificates and agreements
executed in connection herewith shall be read and construed together and 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.
4. 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.
5. 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.
4
<PAGE>
6. 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.
7. Ratification. Other than as amended by this Agreement, the Employment
Agreement is ratified, affirmed and remains in force and effect.
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.
EMPLOYEE: EMPLOYER:
/s/ Dominick M. Servedio
Attest: By: /s/ Harry Prystowsky, MD
(Authorized Officer)
/s/ Peter W. Knipe
Secretary
(Corporate Seal)
5
<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-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
<PAGE>
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
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
2
<PAGE>
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 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.
3
FIRST AMENDMENT TO EMPLOYMENT AGREEMENT
THIS FIRST AMENDMENT TO EMPLOYMENT AGREEMENT ("Agreement") made on December
31, 1998, but effective as of January 1, 1999 by and between Michael Haratunian
("Employee") and STV Group, Inc., a Pennsylvania corporation ("Employer").
WHEREAS, Employer and Employee are parties to an Employment Agreement, made
as of October 29, 1998, effective January 1, 1999 (the "Employment Agreement"),
pursuant to which Employee has been reemployed by Employer; and
WHEREAS, the Employer and the Employee desire to amend the Employment
Agreement solely to the extent set forth herein and otherwise desire to, and
hereby do, ratify and affirm the Employment Agreement;
NOW THEREFORE, in consideration of the promises, covenants and agreements
of the parties contained herein and in the Employment Agreement, and intending
to be legally bound, the parties hereby covenant and agree as follows:
1. Supplemental Retirement Benefits. Paragraph 3.6.3 of the Employment
Agreement, entitled "Supplemental Retirement Benefits" is hereby deleted from
the Employment Agreement and the following paragraph enumerated as 3.6.3 and
entitled "Supplemental Retirement Benefits" is deemed substituted and
incorporated into the Employment Agreement as if originally and fully set forth
in its place and stead:
3.6.3.(a) 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
("Supplemental Retirement Benefits") from Employer under a Supplemental
Executive Retirement Plan ("SERP"), as described in this section 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 per
annum. The foregoing Supplemental Retirement Benefits shall be payable
monthly in equal
<PAGE>
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 Supplemental Retirement Benefits
commences, the amount of the Supplemental Retirement Benefits 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.
The Supplemental Retirement Benefits shall be fully vested and
non-forfeitable in the event that Employee's employment with Employer
terminates after September 30, 2003 for any reason or if such employment
terminates prior to October 1, 2003 by reason of death, disability (as
described in Paragraph 4.2.2 of the Employment Agreement) termination by
Employer other than for cause (as described in Paragraph 4.2.4 of the
Employment Agreement) or termination by Employee for good reason (as
described in Paragraph 4.2.5 of the Employment Agreement) other than
retirement.
3.6.3(b) Notwithstanding the foregoing Paragraph 3.6.3(a), in the
event that Employee's employment with Employer is terminated prior to
October 1, 2003 by Employer for cause (as described in Paragraph 4.2.3 of
the Employment Agreement) or by Employee by retirement (as described in
Paragraph 4.2.5 of the Employment Agreement), then the annual amount of the
Supplemental Retirement Benefits payable to the Employee shall equal the
sum of (i) the annual amount of Supplemental Retirement Benefits that was
accrued under the terms of the Prior Employment Agreement and (11) the
product of (A) the excess of Two Hundred and Twelve Thousand Dollars
($212,000.00) over the annual amount described in clause (i) above times
(B) a fraction the numerator of which is the number of days Employee has
remained employed by Employer from the effective date of this Agreement to
his date of termination and the denominator of which is 1,825.
3.6.3(c) Notwithstanding the foregoing, if a change in control (as
defined in Appendix A) shall occur at any time during the term of this
Agreement or before the Supplemental Retirement Benefits have been fully
paid, the Supplemental Retirement Benefits shall immediately become and be
fully vested and non-forfeitable in the amount set forth in Paragraph 3.6.3
(a) above and the Employer shall 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 equivalent guarantee or the actuarial lump
sum equivalent of the remaining Supplemental Retirement Benefits 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 or equivalent guarantee 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 in accordance with reasonable
actuarial assumptions. The Employer, 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 Employer shall elect
to make payment of the Supplemental Retirement Benefits by annuity as
provided above,
2
<PAGE>
upon the death of Employee's surviving spouse within the 15-year term of
the SERP, the balance of any remaining Supplemental Retirement 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 Supplemental Retirement Benefits
by annuity as provided above, any taxable income is recognized by Employee
in advance of receipt of payment of the Supplemental Retirement Benefits 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 Supplemental Retirement Benefits 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 Supplemental Retirement
Benefits. (Collectively, the General Retirement Benefits, Medical
Retirement Benefits and Supplemental Retirement Benefits are referred to as
"Retirement Benefits").
2. Termination for Cause. Paragraph 4.2.3 of the Employment Agreement,
entitled "Termination for Cause" is hereby deleted from the Employment Agreement
and the following paragraph enumerated as 4.2.3 and entitled "Termination for
Cause" is deemed substituted and incorporated into the Employment Agreement as
if originally and fully set forth in its place and stead:
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 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 finding that,
in the good faith judgment of the Board, (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 of no less than one hundred and
twenty (120) days duration 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
3
<PAGE>
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 grossly negligent under this Agreement or
(2) Employee is convicted of or pleads guilty or nolo contendere to a
felony. For purposes of this Agreement "grossly negligent" means that
Employee willfully breaches or habitually neglects the duties which he is
required to perform under the terms of this Agreement. 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.
3. Entire Understanding. This Agreement, together with the Employment
Agreement, all other documents, instruments, certificates and agreements
executed in connection herewith shall be read and construed together and 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.
4. 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.
5. 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.
4
<PAGE>
6. 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.
7. Ratification. Other than as amended by this Agreement, the Employment
Agreement is ratified, affirmed and remains in force and effect.
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.
EMPLOYEE: EMPLOYER:
/s/ Michael Haratunian
Attest: By: /s/ Harry Prystowsky, MD
(Authorized Officer)
/s/ Peter W. Knipe
Secretary
(Corporate Seal)
5
<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-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
<PAGE>
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 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
2
<PAGE>
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 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.
3
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 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 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
<PAGE>
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
<PAGE>
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, 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.
225 FOURTH LLC, LANDLORD
AND
STV INCORPORATED, TENANT
LEASE FOR THE THIRD, FOURTH AND FIFTH FLOORS
AND PORTION OF BASEMENT
AT
225 PARK AVENUE SOUTH, NEW YORK, NY
<PAGE>
INDEX
Articles Page
1 Representations with respect to, and Cancellation of, the 225 Lease...2
2 Demised Premises and Lease Term.......................................2
3 Rent .................................................................2
4 Rent Increases ................................. .....................3
5 Use of the Premises ..................................................4
6 Tenant Alterations ...................................................4
7 Maintenance and Repairs ..............................................5
8 Window Cleaning ......................................................6
9 Requirements of Law, Fire Insurance, Floor Loads .....................6
10 Subordination; Non-Disturbance Agreement .............................7
11 Damages to or Loss of Tenant's Property, Reimbursement and
Indemnity ............................................................8
12 Destruction by Fire or Other Casualty ................................8
13 Eminent Domain .......................................................9
14 Assignment, Subletting, Mortgage, Etc ................................10
15 Electric Current .....................................................15
16 Alternate Electric Current ...........................................15
17 Limitation of Responsibility Regarding Electricity ...................17
18 Real Estate Taxes ....................................................17
1
<PAGE>
19 Improvements to the Premises .........................................18
20 Access to Premises ...................................................21
21 Vaults, Vault Space or Area ..........................................22
22 Certificate of Occupancy .............................................22
23 Bankruptcy ...........................................................22
24 Default by Tenant.....................................................23
25 Remedies of Landlord and Waiver of Redemption ........................24
26 Landlord's Right to Perform Tenant's Obligations; Legal Fees
and Other Expenses ...................................................24
27 Default by Landlord ..................................................25
28 No Representations by Landlord; Merger ...............................25
29 End of Term ..........................................................26
30 Liability for Failure to Timely Vacate the Premises ..................26
31 Survival of Liability ................................................27
32 Waivers of Trial by Jury, Counterclaims, and Punitive and
Consequential Damages ................................................27
33 Inability to Perform .................................................27
34 No Waiver ............................................................28
35 Services Provided by Landlord ........................................28
36 Water ................................................................29
37 Quiet Enjoyment ......................................................29
38 Adjacent Excavation; Shoring .........................................29
39 Insurance ............................................................29
40 Mechanic's Liens .....................................................30
2
<PAGE>
41 Brokerage ............................................................30
42 Liability of Landlord ................................................31
43 Estoppel Certificate .................................................31
44 Late Charge ..........................................................32
45 No Set-offs ..........................................................32
46 Guaranty of STV Group, Incorporated ..................................32
47 Representations as to Organization and Authority .....................32
48 Twenty Four (24-Hour) Access; Lobby Directory ........................32
49 Protest of Landlord Charges ..........................................32
50 Notices to Mortgagees ................................................33
51 Rules and Regulations ................................................33
52 Security .............................................................33
53 Satellite Dish .......................................................33
54 Attorneys' Fees ......................................................36
55 Millennial Transition ................................................36
56 Notices ..............................................................36
57 Definitions ..........................................................37
58 Captions .............................................................37
59 Successors and Assigns ...............................................37
Exhibits
A Subordination and Non-Disturbance Agreement .............................8
B Cleaning Specifications .................................................29
C Rules and Regulations ...................................................33
3
<PAGE>
AGREEMENT OF LEASE
AGREEMENT (this "Lease") made this 28th day of July 1999 between 225 Fourth LLC.
a Delaware limited liability company having an office c/o Orda Management
Corporation at 225 Park Avenue South, New York, New York 10003 (hereinafter
referred to as "Landlord"), and STV INCORPORATED, a New York corporation having
an office at 225 Park Avenue South, New York, New York 10003 (hereinafter
referred to as "Tenant").
RECITALS:
A. 225 Fourth Company (the "Partnership") and Seelye Stevenson Value & Knecht.
Inc ("Seelye") entered into a lease on November 22, 1983) for the entire fourth
and fifth floors, and a portion of the basement, in the building known as 225
Park Avenue South, New York, New York (the "1983 Lease", and the "Building")
for a term that commenced on November 22, 1984 and was to end on August 31,
1999.
B. The 1983 Lease was amended by an Agreement and First Amendment to Lease dated
January 1986, and by a Second Amendment to Lease dated June 30, 1987. The lease
was further amended, and the term thereof extended to December 31, 2006, by a
Lease Extension Agreement and Third Amendment to Lease dated March 13, 1992. The
1983 Lease, as so amended, is hereinafter referred to as the "225 Lease".
C. Seelye changed its name to STV Incorporated on June 7, 1995.
D. On March 9, 1999, the Partnership conveyed the Building and the building
known as 233 Park Avenue South, New York, New York, and the land on which the
buildings are situate, to Landlord by deed dated as of January 1, 1999, and on
the same date, assigned to Landlord all of its leases with tenants, including
Tenant, by an Assignment and Assumption of Contracts and Leases, dated as of
January 1, 1999, which Assignment and Assumption of Contracts and Leases was
assumed by Landlord.
E. Article 53 of the 1983 Lease obliges Landlord to offer the third or the sixth
floor of the Building to Tenant in the event either floor becomes vacant during
the term of the 225 Lease after the third year of the term. The Guardian Life
Insurance Company of America, which presently leases the third floor in the
Building, has agreed to vacate and surrender the floor to Landlord on or before
July 31, 1999. Landlord notified Tenant of the prospective vacancy, and Tenant
elected to lease said third floor on the terms and conditions set forth in said
Article 53, as modified as hereinafter set forth.
F. Landlord and Tenant wish to cancel the 225 Lease, and enter into a new lease
for the entire third, fourth and fifth floors, and a portion of the basement, in
the Building.
<PAGE>
NOW, THEREFORE, in consideration of the mutual promises herein contained, and
other good and valuable consideration, the parties hereby agree to the
following:
1. Representations with respect to, and Cancellation of, the 225 Lease. Tenant
represents: (i) that it is the owner of the 225 Lease; (ii) that no default, or
event that with the passing of time or the giving of notice or both would
constitute a default on the part of Landlord or the Partnership exists under the
225 Lease; (iii) that Landlord and the Partnership have performed all of the
terms, covenants and conditions of the 225 Lease required to be performed by
them; and (iv) that it has no charges, liens or offsets against the enforcement
of the 225 Lease or against the rents, additional rents or other charges due
thereunder. Landlord represents: (i) that it is the fee owner of the Building
and the land on which it is situate; (ii) that no default, or event that with
the passing of time or the giving of notice or both would constitute a default
on the part of Tenant exists under the 225 Lease; and (iii) that Tenant has
performed all of the terms, covenants and conditions of the 225 Lease required
to be performed by it.. Landlord and Tenant agree to apportion the rent, and
other charges paid and payable under the 225 Lease as of midnight of the day
preceding the date hereof (the "Apportionment Date"). Landlord agrees to prepare
a schedule of apportionments as of the Apportionment Date promptly after charges
for electricity and the like, heretofore incurred but not yet billed, have been
realized. Any amount owed by Landlord to Tenant shall be a credit against
Tenant's next installment of rent payable hereunder. Any amount owed by Tenant
to Landlord shall be paid within ten (10) days after receipt by Tenant of
Tenant's bill for August 1999 rent. Any amount that may become owed to Tenant
pursuant to Article 39 (f) of the 225 Lease shall be paid to Tenant within
thirty (30) days of Landlord's receipt of a tax refund from the City of New
York. The 225 Lease is hereby canceled, and neither party shall have any claim
against the other with respect thereto, except for such matters as are
specifically provided to survive the termination of the 225 Lease, in the event
of interpleader for third party liability claims, and except as hereinabove set
forth.
2. Demised Premises and Lease Term. Landlord hereby leases to Tenant, and Tenant
hereby hires from Landlord, the entire third, fourth and fifth floors, and the
one thousand (1,000) square feet of space in the basement presently leased by
Tenant, in the Building for a term to commence on the date hereof and to end on
May 31, 2014, or until such term shall sooner cease and expire as hereinafter
provided (the "Term"). If the last day of the Term falls on a Sunday or legal
holiday, the Term shall expire at 11:59 PM on the following business day. Tenant
shall pay rent for such additional day or days, or part thereof based on the
annual rental rate, additional rents and other charges payable for the last
month of the Term. The aforementioned premises are, collectively, called the
"Premises". The basement space is sometimes referred to individually as the
"Basement Space". Landlord shall have the option to relocate the Basement Space
from its present location to space in the basement of the Building that is
comparable in size and that has reasonable access, on thirty (30) days notice.
If Landlord so elects, the cost of the relocation shall be paid by Landlord.
3. Rent. (a) Tenant shall pay the following rentals for the Premises:
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(i) For the first six (6) months of the Term, Tenant shall pay an annual rental
rate of One Million Four Hundred Twenty Thousand ($1,420,000) dollars.
(ii) For each of the next four and one half (4 1/2) years of the Term, an annual
rental rate of Two Million, Two Hundred Twenty Eight Thousand Four Hundred
Eighty ($2,228,480) dollars;
(iii) For each of the sixth through the tenth years of the Term, an annual
rental rate of Two Million Three Hundred Sixty Seven Thousand Ten ($2,367,010)
dollars; and
(iv) For each of the eleventh through the fifteenth years of the Term, an annual
rental rate of Two Million Five Hundred Five Thousand Five Hundred Forty
($2,505,540) dollars.
(b) Tenant shall pay the annual rental rates set forth in subparagraph (a) in
lawful money of the United States which shall be legal tender in payment of all
debts and dues, public and private, at the time of payment, in equal monthly
installments in advance on the first day of each month during the Term at the
office of Landlord or such other place as Landlord may designate, without any
set off or deduction whatever.
(c). Tenant has paid Landlord, by check subject to collection, simultaneously
with the signing of this Lease, One Hundred Eighty Five Thousand Seven Hundred
Six and 66/100 ($185,706.66) dollars on account of the first monthly installment
of the annual rental rate payable for the Premises for the first year of the
term.
4. Rent Increases. (a) The annual rental rates set forth in Article 3 shall be
increased on each January I of the Term beginning January 1, 2000 by multiplying
Seven Hundred Two and 65/100 ($702.65) dollars by each one ($0.01) cent increase
in the Porter's Wage Rate, hereinafter defined, payable during the year in which
such January 1 occurs over the Base Amount, hereinafter defined. The product of
such multiplication shall be added to the annual rental rate set forth in
Article 3 payable for such year.
Example 1. The Porters Wage Rate payable during 2000 is Sixteen and 4300/10000
($16.4300) dollars. The annual rental rate, therefore, beginning January 1, 2000
for the calendar year 2000 will be Two Million Two Hundred Thirty Nine Thousand
Six Hundred Sixty One and 32/100 ($2,239,661.32) dollars, arrived at as follows:
2000 Porter's Wage Rate $16.4300
Base Amount $16.2703
Increase $0.1597
Increase in cents 15.97
$702.65 x 15.97 = $11,221.32. $11,221.32 + $2,228,440 = $2,239,661.32.
Example 2. If the Porter's Wage Rate payable during 2001 is Seventeen ($17.00)
dollars, the annual rental rate, beginning January 1, 2001 for the calendar year
2001 would be
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Two Million Two Hundred Seventy Nine Thousand Seven Hundred Fifty Two and 37/100
($2,279,752.37) dollars, arrived at as follows:
2001 Porter's Wage Rate $17.0000
Base Amount $16.2703
Increase $0.7297
Increase in cents 72.97
$702.65 x 72.97 = $51,272.37. $51,272.37 + $2,228,480 = $2,279,752.37.
Example 3. If the Porter's Wage Rate payable during 2006 is Nineteen and 50/100
($19.50) dollars, the annual rental rate, beginning January 1, 2006 for the
calendar year 2006 would be Two Million Five Hundred Ninety Three Thousand Nine
Hundred Forty Four and 87/100 ($2,593,944.87) dollars, arrived at as follows:
2006 Porter's Wage Rate $19.5000
Base Amount $16.2703
Increase $3.2297
Increase in cents 322.97
$702.65 x 322.97 = $226,934.87. $226,934.87 + $2,367,010 = $2,593,944.87
(b) "Porter's Wage Rate" shall mean the full minimum regular straight-time
hourly wage rate for an hour's work by a Porter, hereinafter defined, without
fringe benefits.
(c) "Porter" shall mean that classification of employee categorized as "Other"
engaged in the general maintenance and operation of a class A office building in
the Borough of Manhattan, City of New York, pursuant to collective bargaining
agreements between The Realty Advisory Board on Labor Relations, Incorporated
(or any successor thereto), and Local 32B-32J of the Building Service Employees
International Union AFL-CIO (or any successor thereto).
(d) "Base Amount" shall mean Sixteen and 2703/10000 ($16.2703) dollars.
(e) The parties agree that all rent increases made pursuant to this Article 4
shall be calculated using the method described herein.
5. Use of the Premises. Tenant shall use and occupy the Premises for executive
and general offices only, and for no other purpose. For the Tenant named herein
only, "general offices" shall include drafting rooms and pantries for the use of
its employees.
6. Tenant Alterations. Tenant shall make no structural changes in or to the
Premises, or any other changes that adversely affect the utility services or
mechanical systems in the Building. Tenant shall make no non-structural changes
in or to the Premises without Landlord's prior written consent, which consent
shall not be unreasonably withheld or delayed, except that Landlord's consent
shall not be required with respect to any
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alteration or improvement that is merely a change of decor, such as the
installation or replacement of wall and floor coverings. Any alteration or
improvement that shall require the issuance of a building permit from the New
York City Department of Buildings ("Changes") shall be submitted to Landlord in
the form of drawings and specifications prepared by an architect licensed as
such in New York State, who may be an architect affiliated with the Tenant named
herein. Landlord, within ten (10) business days after submission of Tenant's
Changes, shall approve the Changes or provide Tenant with written exceptions
thereto. Failure by Landlord to provide the written exceptions within the ten
(10) business day period aforesaid shall be deemed approval of the Changes.
Tenant shall before making any alterations, additions, installation or
improvements, at its expense obtain all permits, approvals and certificates
required by all governmental or quasi-governmental bodies and shall promptly
deliver duplicates of all such permits, approvals and certificates to Landlord.
Tenant agrees to carry, or will cause Tenant's contractors to carry, Workers'
Compensation and New York State Disability insurance and comprehensive general
liability and property damage insurance in such amounts as Landlord may
reasonably require, naming Landlord and Orda Management Corporation as
additional insured parties. Provided that Landlord shall have consented to
Changes requested by Tenant, Landlord agrees to cooperate with Tenant, but at no
expense to Landlord, with respect to obtaining any permit, approval or
certificate required by governmental or quasi-governmental bodies relating to
the Change. Tenant shall pay Orda Management Corporation, within ten (10) days
after being billed therefor, the reasonable out-of-pocket fees and disbursements
incurred by Landlord to architects and engineers for reviewing the Changes.
7. Maintenance and Repairs. Landlord shall maintain and repair the public
portions of the Building, both exterior and interior, and the Building's
mechanical and other equipment, and shall make all structural repairs to the
Building and the Premises, so as to maintain the same in good working order.
Landlord shall also maintain, repair and replace, if necessary, the air
conditioning equipment ("A/C Equipment") serving the Premises, except for A/C
Equipment serving Tenant's computer rooms, and any other supplementary or
auxiliary A/C Equipment that Tenant may choose to install in the Premises,
except that Tenant at Tenant's expense will clean all HVAC ducts whenever
required. Landlord represents that the A/C Equipment serving the third (3rd)
floor of the Premises is in good working order. Tenant shall throughout the Term
take good care of the Premises and the fixtures and appurtenances therein,
including but not limited to the plumbing, electric and heating equipment, and
at Tenant's sole cost and expenses make all non-structural repairs thereto as
and when needed to preserve them in good working order and condition,
reasonable wear and tear, obsolescence and damage from fire or other casualty,
excepted. Notwithstanding the foregoing, all damage or injury to the Premises or
to any other part of the Building, or to its fixtures, systems, equipment and
appurtenances, whether requiring structural or non-structural repairs, caused by
or resulting from the carelessness, omission, neglect or improper conduct of
Tenant, Tenant's servants, agents, employees or invitees, or arising out of any
work done for Tenant, shall be repaired promptly by Tenant, at its sole cost and
expense, to the satisfaction of Landlord reasonably exercised. In no event shall
Tenant be required to make any repairs which are required as a result of the
negligence or willful misconduct of
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Landlord or its agent, contractors, or employees. Tenant shall also repair all
damage to the Building and the Premises caused by the moving of Tenant's
fixtures, furniture or equipment. All the aforesaid repairs shall be of a
quality or class similar to the work or construction on the date of the damage.
If Tenant fails to promptly (within 30 days after notice, except in an
emergency, within 24 hours after telephonic notice) proceed and continue with
due diligence to make the repairs required to be made by Tenant hereunder, the
same may be made by Landlord at the expense of Tenant, and the expenses thereof
incurred by Landlord, including reasonable attorney's fees, if incurred, shall
be collectible as additional rent thirty (30) days after rendition of a bill or
statement therefor. Tenant shall give Landlord prompt notice of any defective
condition of which Tenant has or should have knowledge in any heating, plumbing
or electrical lines located in, servicing or passing through the Premises, and
following such notice, Landlord, to the extent that it has the responsibility
under this Lease to maintain or repair the same, shall remedy the condition with
due diligence at Landlord's expense, but at the expense of Tenant if repairs are
necessitated by damage or injury attributable to Tenant, Tenant's servants,
agents, employees or invitees, as aforesaid. Except as provided in Article 11,
or elsewhere in this Lease, there shall be no allowance to Tenant for a
diminution of rental value, and no liability on the part of Landlord by reason
of inconvenience, annoyance or injury to Tenant's business arising from
Landlord, Tenant or others making or failing to make any repairs, alterations,
additions or improvements in or to any portion of the Building or the Premises,
or in and to the fixtures, appurtenances or equipment thereof. The provisions of
this Article 7 with respect to the making of repairs shall not apply in the case
of fire or other casualty dealt with in Article 12 hereof.
8. Window Cleaning. Tenant will not clean, nor require, permit, suffer or allow
any window in the Premises to be cleaned, from the outside, in violation of
Section 202 of the Labor Law or any other applicable law or of the Rules of the
Board of Standards and Appeals, or of any other board or body having or
asserting jurisdiction over the Building.
9. Requirements of Law, Fire Insurance, Floor Loads. Tenant, during the Term,
shall comply with all present and future laws, orders and regulations of state,
federal, and municipal governments, and with all present and future laws, orders
and regulations of all state, federal, municipal and local governments,
departments, commissions and boards, and any direction of any public officer
pursuant to law, and all orders, rules and regulations of the New York Board of
Fire Underwriters or any similar body which shall impose any violation, order or
duty upon Landlord with respect to Tenant's particular use of the Premises, and
Tenant shall at all times throughout the Term have such current certificates,
licenses and/or permits as may be required by municipal authorities having
jurisdiction over the Building with respect to the operation of Tenant's
business. The cost and expense of such compliance shall be Tenant's. To the best
of Landlord's knowledge, the third floor of the Building presently complies with
all present laws, orders and regulations of state, federal, and municipal
governments. Landlord, during the Term, shall comply with all such laws, orders,
rules and regulations as they apply to the public portions and the exterior of
the Building, and shall pay the expense of such compliance, except as otherwise
set forth herein. Tenant may after securing Landlord to Landlord's reasonable
satisfaction against all damages, interest, penalties and expenses, including
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but not limited to reasonable attorney's fees, by cash deposit or by surety bond
in an amount and in a company reasonably satisfactory to Landlord, taking into
account Tenant's current financial position, contest and appeal any such laws,
ordinances, orders, rules, regulations or requirements, provided same is done
with an reasonable promptness and provided such appeal shall not subject
Landlord to prosecution for a criminal offense or constitute a default under any
lease or mortgage under which Landlord may be obligated, or cause the Building
or any part thereof to be condemned or vacated. Tenant shall not do or permit
any act or thing to be done in or to the Premises which is contrary to law, or
which will invalidate or be in conflict with any liability, fire or other policy
of insurance at any time carried by or for the benefit of Landlord with respect
to the Premises or the Building, or which would subject Landlord to any
liability or responsibility to any person or for property damage, nor shall
Tenant keep, use or store anything in the Premises except as now or hereafter
permitted by the New York City Fire Department, Board of Fire Underwriters, fire
insurance rating organization or other authority having jurisdiction, and then
only in such manner and quantity so as not to increase the rate for fire
insurance applicable to the Building, nor use the Premises in a manner which, or
use or store any chemical or other substance in the Premises which, will
increase the insurance rate for the Building or any property located therein
over that in effect prior to the commencement of Tenant's occupancy. Tenant may
install and use in the Premises a copy machine that utilizes anhydrous ammonia
for the copying process. Tenant shall pay all out of pocket costs, expenses,
fines, penalties, and damages, which may be imposed upon Landlord by reason of
Tenant's failure to comply with the provisions of this article, and if by reason
of such failure the fire insurance rate shall, at the beginning of this Lease,
or at any time thereafter, be higher than it otherwise would be, Tenant shall
reimburse Landlord, as additional rent hereunder, for that portion of all fire
insurance premiums thereafter paid by Landlord which shall have been charged
because of such failure by Tenant, and shall make such reimbursement within
thirty (30) days of demand following such outlay by Landlord. In any action or
proceeding wherein Landlord and Tenant are parties, a schedule or "make-up" of
rates for the Building or the Premises issued by the New York Fire Insurance
Exchange, or other body making fire insurance rates applicable to the Building
or the Premises, shall be conclusive evidence of the facts therein stated and of
the several items and charges in the fire insurance rate then applicable to the
Building. Tenant shall not place a load upon any floor of the Premises exceeding
the floor load per square foot area which it was designed to carry and which is
allowed by law. Landlord reserves the right to reasonably prescribe the weight
and position of all safes, business machines, and supplies.
10. Subordination; Non-Disturbance Agreement. (a)This Lease is subject and
subordinate to all ground or underlying leases, and to all mortgages which now
or may hereafter affect such leases or the real property of which the Premises
is a part, and to all renewals, modifications, consolidations, replacements and
extensions of any such underlying leases and mortgages. This clause shall be
self-operative, and no further instrument of subordination shaft be required by
any ground or underlying lessee or by any mortgagee affecting any lease or the
real property of which the Premises is a part. In confirmation of such
subordination, Tenant shall execute promptly any certificate that Landlord may
reasonably request. Landlord agrees to obtain from its mortgagee, Aetna
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Life Insurance Company ("Aetna"), a subordination and non-disturbance agreement
in the form attached hereto as Exhibit A, and thereafter from any mortgagee that
may replace or succeed Aetna, in such other mortgagee's standard form of
subordination and non-disturbance agreement, with such reasonable modifications
as Tenant requests.
(b) Tenant acknowledges being advised by Landlord that Landlord's mortgage with
Aetna contains a provision that Landlord may not waive any provision of any
lease without Aetna's written consent. This restriction shall be enforceable by
Landlord or Aetna or any future mortgagee whose mortgage contains such
provision.
11. Damages to or Loss of Tenant's Property; Damage or Injuries to Persons.
Neither Landlord nor Orda Management Corporation shall be liable for any damage
to property of Tenant or of others entrusted by Tenant to employees of the
Building, nor for loss of or damage to any property of Tenant by theft or
otherwise, nor for any injury or damage to persons or property resulting from
any cause of whatsoever nature, unless caused by or due to the negligence or
willful misconduct of Landlord, its agent, servants or employees; nor shall
Landlord or its agent be liable for any damage caused by other tenants or
persons in, upon or about the Building or caused by operations in construction
of any private, public or quasi public work. Tenant shall not move any safe,
heavy machinery, heavy equipment or other heavy load into or out of the Building
without Landlord's prior written consent, which consent shall not be
unreasonably withheld or delayed. If such safe, machinery, equipment or load
requires special handling, all work in connection therewith shall comply with
the Administrative Code of the City of New York and all other laws and
regulations applicable thereto and shall be done during such hours as Landlord
may reasonably designate. Tenant shall indemnify and save harmless Landlord
against and from all liabilities, obligations, damages, penalties, claims, costs
and expenses for which Landlord shall not be reimbursed by insurance, including
reasonable attorneys fees, paid, suffered or incurred as a result of any breach
by Tenant, Tenant's agents, contractors, employees or invitees, of any covenant
or condition of this Lease, or the carelessness, negligence or improper conduct
of Tenant, Tenant's agents, contractors, employees or invitees. Tenant's
liability under this Lease extends to the acts and omissions of any subtenant,
and any agent, contractor, employee or invitee of any subtenant. In case any
action or proceeding is brought against Landlord by reason of any such claim,
Tenant, upon written notice from Landlord, will at Tenant's expense, resist or
defend such action or proceeding by counsel approved by Landlord in writing,
such approval not to be unreasonably withheld or delayed.
12. Destruction by Fire or Other Casualty. (a) If the Premises or any part
thereof shall be damaged by fire or other casualty, Tenant shall give immediate
notice thereof to Landlord and this Lease shall continue in full force and
effect except as hereinafter set forth. (b) If the Premises are partially
damaged or rendered partially unusable by fire or other casualty, the damages
thereto shall be repaired by and at the expense of Landlord, and the annual
rental rate, additional rents and other charges payable hereunder, until such
repair shall be substantially completed, shall be apportioned from the day
following the casualty according to the part of the Premises which is used or
usable by Tenant in the normal course of its business. (c) If the Premises are
totally damaged or rendered wholly
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unusable by fire or other casualty, then the annual rental rate, additional
rents and other charges payable hereunder shall be paid up to the time of the
casualty and henceforth shall cease until the date when the Premises shall have
been repaired and restored, subject to Landlord's and Tenant's right to elect to
terminate this Lease as hereinafter provided. (d) If the Premises are rendered
wholly unusable, or (whether or not the Premises are damaged in whole or in
part) if the Building shall be so damaged that Landlord shall decide to demolish
or to rebuild, and Landlord shall be terminating all other leases in the
Building, then, in either of such events, Landlord may elect to terminate this
Lease by written notice to Tenant given within ninety (90) days after such fire
or other casualty specifying a date for the expiration of this Lease, which date
shall not be moire than sixty (60) days after the giving of such notice, and
upon the date specified in such notice the Term shall expire as fully and
completely as if such date were the date set forth above for the termination of
this Lease, and Tenant shall forthwith quit, surrender and vacate the Premises,
without prejudice, however, to Landlord's rights and remedies against Tenant,
and Tenant's rights and remedies against Landlord, under the provisions in
effect under this Lease prior to such termination, and any rent payable
hereunder then owing shall be paid up to the date of such fire or other
casualty, and any payments of rent payable hereunder made by Tenant on account
of any period subsequent to such date shall be returned to Tenant. Landlord
shall make the repairs and restorations under the conditions of (b) and (c)
hereof with all reasonable expedition and within twelve (12) months of the date
of the casualty, subject to delays due to labor troubles, adjustment of the loss
with Landlord's insurance carrier, and other causes beyond Landlord's control
("force majeure"). If Landlord has not substantially completed the repairs and
restorations within twelve (12) months of the date of the casualty, absent force
majeur, Tenant may give Landlord a thirty (30) day notice of cancellation of the
Lease. If Landlord does not substantially complete the repairs and restorations
within the thirty (30) day period, this Lease shall be deemed canceled on the
thirtieth (30th) day after the giving of the notice aforesaid, and Landlord
shall return the security deposited hereunder to Tenant. After any such
casualty, Tenant shall cooperate with Landlord's restoration by removing from
the Premises, as promptly as reasonably possible, all of Tenant's salvageable,
movable equipment, furniture, and other property. Tenant's liability for rent
shall resume on the date the Premises are substantially ready for Tenant's
occupancy. Notwithstanding the foregoing, each party shall look first to any
insurance in its favor before making any claim against the other party for
recovery for loss or damage resulting from fire or other casualty, and to the
extent that such insurance is in force and collectible and to the extent
permitted by law, and/or each party's insurers, Landlord and Tenant each hereby
releases and waives all rights of recovery against the other or any one claiming
through or under each of them by way of subrogation or otherwise. Tenant
acknowledges that Landlord will not carry insurance on Tenant's furniture or
furnishings, or any fixtures, equipment, improvements. or appurtenances and
agrees that Landlord will not be obligated to repair any damage thereto or
replace the same. (e) Tenant hereby waives the provisions of Section 227 of the
Real Property Law and agrees that the provisions of this article shall govern
and control in lieu thereof.
13. Eminent Domain. If the whole or a material part of the Premises shall be
acquired or condemned by Eminent Domain for any public or quasi public use, then
and in that event,
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the Term shall cease and terminate from the date of title vesting, and Tenant
shall neither make nor have any claim for the value of the unexpired Term.
Nothing contained in this article shall prevent Tenant from making a separate
claim to the condemning authority for its trade fixtures and moving expenses, so
long as such claim does not diminish Landlord's award for the value of the
Building and its fixtures, equipment and systems, and the land on which it is
situate. If Landlord's award specifically sets forth as a part thereof an amount
for Tenant's trade fixtures and moving expenses, Landlord shall pay over such
amount to Tenant within ten (10) days of Landlord's receipt of its award from
the condemning authority.
14. Assignment, Subletting, Mortgage, Etc. (a) Tenant expressly covenants that
it shall not assign, mortgage or encumber this Lease, or underlet, or suffer or
permit the Premises or any part thereof to be used or occupied by others,
without (i) following the procedure set forth in subparagraph (b), and (ii)
obtaining the prior written consent of Landlord and Landlord's mortgagee in each
instance. If this Lease be assigned pursuant to subparagraph (e) (ii) hereof or
otherwise, other than with Landlord's written consent, or if the Premises or any
part thereof be underlet or occupied by anybody other than Tenant, Landlord may,
after default by Tenant, beyond the giving of such notice and grace period as
may be provided herein, collect rent from the assignee, undertenant or occupant,
and apply the net amount collected to the rent herein reserved, but no
assignment, underletting, occupancy or collection shall be deemed a waiver of
the provisions hereof the acceptance of the assignee, undertenant or occupant as
Tenant, or a release of Tenant from the further performance by Tenant of the
covenants on the part of Tenant herein contained. The consent by Landlord to an
assignment or underletting shall not in any wise be construed to relieve Tenant
from obtaining the express consent in writing of Landlord to any further
assignment or underletting. In no event shall any permitted assignee assign this
Lease, or any permitted sublessee assign or encumber its sublease, or futher
sublet all or any portion of its sublet space, or otherwise suffer or permit the
Premises or the sublet space, as the case may be, or any part thereof to be used
or occupied by others, without Landlord's prior written consent in each
instance. A modification, amendment or extension of a sublease shall be deemed a
new sublease.
(b) If Tenant desires to assign this Lease or to sublet the Premises (Tenant may
not sublet to more than two subtenants on any one floor, and may not sublet less
than five thousand square feet of space to any one subtenant), it shall submit
in writing to Landlord (i) the name and address of the proposed assignee or
sublessee, (ii) a summary of the principal terms of the proposed agreement of
assignment or sublease, which shall include the rent, additional rents and all
other monies to be paid Tenant thereunder, (iii) reasonably satisfactory
information as to the nature and character of the business of the proposed
assignee or sublessee, and (iv) financial statements and banking or other credit
information relating to the proposed assignee or sublessee reasonably sufficient
to enable Landlord to determine the financial responsibility and character of
the proposed, assignee or sublessee.
(c) Landlord agrees not to unreasonably withhold or delay its consent to
Tenant's request for consent to such specific assignment or subletting. Any such
consent of Landlord shall
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be subject to the terms of this article and conditioned upon: (i) there being no
default by Tenant under any of the terms, covenants and conditions of this Lease
at the time that Landlord's consent to any such subletting or assignment is
requested, and on the date of the commencement of the term of any such proposed
sublease, or the effective date of any such proposed assignment, beyond the
giving of such notice and grace period as may be provided herein, and (ii)
Tenant's execution and delivery to Landlord of the following representations:
(A) that Tenant is the owner of this Lease, that it has not done or suffered
anything whereby this Lease has been encumbered in any way, (B) that no default,
or event that with the passing of time or the giving of notice or both would
constitute a default on the part of the Landlord exists under this Lease, (C)
that Landlord has performed all of the terms, covenants and conditions of this
Lease required to be performed by Landlord (to the extent true, and if not,
setting forth the manner in which Landlord has not so performed), and (D) that
Tenant has no charges, liens or offsets against the enforcement of this Lease,
or the rents, additional rents or other charges due or to become due hereunder
(to the extent true, and if not, setting forth the nature and amounts of such
charges, liens or offsets against the enforcement of this Lease, or the rents,
additional rents or other charges due or to become due hereunder).
(d) Upon receiving Landlord's written consent, Tenant shall deliver two (2) duly
executed duplicate original copies of the sublease or assignment to Landlord,
and if the obligations of the assignee or sublessee shall have been guaranteed,
two (2) duly executed duplicate original copies of the guaranty. Any such
sublease shall provide that all of the terms and provisions thereof are subject
to the terms and conditions of this Lease. The sublessee shall also assume, in a
separate agreement, the terms, covenants, conditions and restrictions contained
in Article 5 hereof with respect to the use of the Premises, and shall further
agree with respect to any assignment of the sublease, or any further subletting
of the sublet premises, to be bound by the terms, covenants, conditions and
restrictions contained in section (a) of this Article 14 with respect to an
assignment of this Lease. Any such assignment shall contain an assumption by the
assignee of all of the terms, covenants and conditions of this Lease to be
performed by Tenant. Notwithstanding any such assignment or subletting, Tenant
named herein shall remain, and continue to be, liable for the performance of the
terms and conditions in this Lease, including but not limited to payment of the
annual rent, additional rents and all other charges payable hereunder.
(e). Anything herein contained to the contrary notwithstanding: (i) Tenant shall
not advertise all or any part of the Premises for subletting, or this Lease for
assignment, at a rental rate lower than the annual rental rate then payable by
Tenant to Landlord under this Lease; (ii) no assignment or subletting shall be
made: (A) to the United States, State of New York or City of New York, or any
agency or department thereof or any entity funded by any of the foregoing; to
any foreign government or agency or department thereof or any entity funded by
any of the foregoing; to any school; to any person or entity whose work force at
the Premises would be substantially greater than that of the Tenant named
herein; or to or from any person or entity which shall at the time be a tenant,
subtenant or other occupant, or a subsidiary, parent or affiliate of any tenant,
subtenant or other occupant of the Building or Landlord's building at 233 Park
Avenue
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South, New York, New York, provided Landlord then has that amount of space
available in either building; (B) By the legal representatives of any person or
group of persons who shall become the Tenant hereunder, or by any person to whom
Tenant's interest under this Lease passes by operation of law, except in
compliance with the provisions of this article. (C) To any person or entity for
the conduct of business which is not in keeping with the standards and general
character of the Building.
(f) Tenant shall pay the reasonable fees of Landlord's attorney for reviewing
any request by Tenant for consent to assign this Lease or sublet the Premises,
and for the preparation or review of any other documents related to the
assignment or subletting, and payment of such fees shall be a condition
precedent to the giving of Landlord's consent.
(g) If Tenant desires to assign this Lease, or to sublet all or any portion of
the Premises for ten (10) years or more, or for a term that expires during the
last two (2) years of the Term, it shall notify Landlord, and Landlord shall
have thirty (30) days from receipt of the notice to elect (i) to accept a
surrender of this Lease, in the case of an assignment, or (ii) to take back the
portion of the Premises desired to be sublet, in the case of a sublet. If
Tenant's desire is to sublet, the notice shall describe the portion of the
Premises sought to be sublet, and the term of the proposed subletting. Any
option contained in a sublease permitting a subtenant to extend or renew the
sublease term shall be deemed exercised for the purpose of determining the term
of a proposed sublease. If Tenant's desire is to assign this Lease, and if
Landlord elects to accept the surrender of the Premises and this Lease, Landlord
and Tenant shall enter into a surrender and acceptance agreement (the "Surrender
Agreement") in form reasonably acceptable to Landlords attorneys and Tenant's
attorneys. The effective date of the surrender and acceptance of the Premises
and the Lease shall be a date set by Landlord as of the date of the Surrender
Agreement which date shall not be less than ninety (90) nor more than one
hundred eighty (180) days after Landlord's receipt of Tenant's notice. If an
assignment is effected, and provided that Tenant shall not be in default of any
of the terms, provisions and conditions set forth in this Lease after any
applicable notice and cure period, Tenant shall be released from its obligations
under this Lease from on and after the effective date of the surrender and
acceptance. If Tenant's desire is to sublet all or a portion of the Premises for
a term that gives rise to Landlord's right to take back the same, Landlord and
Tenant shall modify this Lease (the "Lease Modification Agreement") to reflect
the withdrawal therefrom of the sublet Premises. The effective date of the take
back shall be a date set by Landlord as of the date of the Lease Modification
Agreement, which date shall not be less than ninety (90) nor more than one
hundred eighty ( 180) days after Landlord's receipt of Tenant's notice. If
Landlord does not make the election aforesaid within the thirty (30) days,
Tenant shall be free, within the next six (6) months, to assign this Lease to
another person or entity, or to sublet the portion of the Premises described in
the notice for the term described, provided, however, that Tenant conforms to
the requirements set forth in subsection (b) of this Article 14 and obtains
Landlord's prior written consent to such assignment or subletting, which
Landlord agrees not to unreasonably withhold or delay. If Tenant effects an
assignment of this Lease, or a subletting of all or a portion of the Premises,
and has obtained Landlord's prior written consent thereto, Tenant shall pay
Landlord fifty (50%) percent of the "Net Consideration", defined below, received
or to be
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received by Tenant by reason of such assignment or subletting, or if the
consideration received or to be received by Tenant is from periodic payments of
rent or additional rent, then fifty (50%) percent of the net amount of such rent
and additional rent as and when received, as shall exceed the rent and
additional rent payable under this Lease. "Net consideration", as used in this
subparagraph shall mean the gross consideration received, less brokerage
commissions, legal fees, rent concessions, advertising costs, nondecorative
construction costs, and other reasonable out-of-pocket expenses incurred by
Tenant, amortized over the term of the periodic payments of rent or additional
rent, if the consideration received is not paid in a lump sum.
(h) In no event shall Tenant be entitled to make, nor shall Tenant make, any
claim, and Tenant hereby waives any claim, for money damages (nor shall Tenant
claim any money damages by way of set-off, counterclaim or defense) based upon
any claim or assertion by Tenant that Landlord has unreasonably withheld or
unreasonably delayed its consent or approval to a proposed assignment or
subletting as provided for in this article. Tenant's sole remedy shall be an
action or proceeding to enforce any such provision, or for specific performance,
injunction or declaratory judgment, or the commencement of arbitration pursuant
to the procedure set forth in subparagraph (i).
(i) If Tenant desires to determine any dispute between Landlord and Tenant as to
the reasonableness of Landlord's decision to refuse to consent to any assignment
or subletting, such dispute shall be determined by arbitration in the City of
New York in accordance with the following provisions. Within five (5) business
days next following the giving of a notice by Tenant to Landlord stating that it
wishes such dispute to be so determined, Landlord and Tenant shall each give
notice to the other setting forth the name and address of an arbitrator
designated by the party giving such notice. If either party shall fail to give
notice of such designation within said five (5) business days, then the
arbitrator chosen by the other side shall make the determination alone. The two
arbitrators shall designate a third arbitrator. If the two arbitrators shall
fail to agree upon the designation of a third arbitrator within five (5)
business days after the designation of the second arbitrator, then either party
may apply to the Supreme Court of the State of New York, or to any other court
having jurisdiction, for the designation of such arbitrator. All arbitrators
shall be persons who shall have had at least ten (10) years continuous
experience in the real estate business in the Borough of Manhattan, as an
attorney, real estate agent or a broker. The three arbitrators shall conduct
such hearings as they deem appropriate, making their determination in writing
and giving notice to Landlord and Tenant of their determination as soon as
practicable, and if possible within five (5) business days after the designation
of the third arbitrator. The concurrence of any two of said arbitrators shall be
binding upon Landlord and Tenant, or in the event no two of the arbitrators
shall render a concurrent determination, then the determination of the third
arbitrator designated shall be binding upon Landlord and Tenant. Judgment upon
any award rendered in any arbitration held pursuant to this subparagraph shall
be final and binding upon Landlord and Tenant, whether or not a judgment shall
be entered in any court. Each party shall pay its own counsel fees and expenses,
if any, in connection with any arbitration under this subparagraph, including
the expenses and fees of any arbitrator selected by it in accordance with the
provisions of this subparagraph, and the parties shall
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equally share all other expenses and fees of any such arbitration. The
arbitrators shall be bound by the provisions of this Lease, and shall not add
to, subtract from, or otherwise modify such provisions.
(1) The transfer of the majority of the stock of a corporate tenant, or the
majority partnership interest of a partnership tenant, or the majority
membership interest in a limited liability company or limited liability
partnership, or the sale of more than 50% of the assets of Tenant, however the
same is accomplished, and whether in a single transaction or in a series of
transactions, shall be deemed an assignment of this Lease. The transfer of the
stock of any corporate tenant, for purposes of this subparagraph, shall not
include the sale of such stock by persons other than those deemed "insiders"
within the meaning of the Securities Exchange Act of 1934, as amended, and which
sale is effected through "over-the-counter market" or through any recognized
stock exchange.
(k) Anything to the contrary in this article notwithstanding, no Landlord's
consent shall be required to an assignment of this Lease, or to a sublease of
all or a permitted portion of the Premises to a majority owned subsidiary of
Tenant, or the parent of Tenant, or to a majority owned subsidiary of the parent
of Tenant, or to an entity or entities of Tenant created by the division of
Tenant into one or more separate corporations or partnerships, or to any
corporation into or with which Tenant may be merged or consolidated, provided
that any such assignment shall contain an assumption by the assignee of all of
the terms, covenants and conditions of this Lease to be performed by Tenant, and
that any such sublease shall contain a provision, or that a separate document be
signed and acknowledged by the subtenant, whereby the subtenant affirmatively
agrees that it will use and occupy the portion of the Premises sublet to it for
offices only, and that it will not assign the sublease, or sublet all or any
portion of the sublet space, or permit the same or any desk space therein to be
occupied by any person or persons other than employees of said subtenant.
Notwithstanding any such assignment or subletting, Tenant named herein shall
remain and continue to be liable for the performance of the terms and conditions
in this Lease, including but not limited to payment of annual rentals and
additional rents. Tenant agrees that no such assignment or subletting shall be
effective unless and until Tenant gives Landlord written notice thereof together
with two (2) duplicate original copies of the assignment and assumption, or the
sublease, and Landlord has given its written approval of such assignment or
subletting.
(1) Landlord's consent shall not be required to (i) a sublease of a portion of
the Premises entered into by Tenant with an "affiliate" (hereinafter defined),
(ii) the occupancy of desk space in the Premises by an affiliate, provided that
Tenant gives Landlord notice of the identity of any such affiliate occupying
desk space, and the approximate length of time of such occupancy; or (iii) an
assignment of this Lease to a corporation into or with which Tenant is merged or
consolidated, or with an entity to which substantially all of Tenant's assets
are transferred, provided (w) Tenant is not then in monetary or non-monetary
default under this Lease, beyond any applicable notice and grace periods, (x)
such merger, consolidation or transfer of assets is for a good business purpose
and not principally for the purpose of transferring the leasehold estate created
hereby, and (y) the assignee, sublessee or successor entity has a net worth at
least equal to Tenant's net worth
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immediately prior to such merger, consolidation or transfer, provided that
during the three (3) years immediately preceding that date, Tenant did not enter
into a course of conduct artificially reducing its net worth for the purpose of
making the assignment or subletting, and (z) that Tenant obtains a written
statement from STV Group, Incorporated, reasonably satisfactory to Landlord,
that the Guaranty of this Lease will continue in full force and effect after
such assignment or subletting. For the purposes of this Article 14, an affiliate
means (i) a corporation controlled by, controlling or under common control with
Tenant (an "affiliated corporation"), or (ii) a partnership, limited liability
company or joint venture in which Tenant or a wholly owned subsidiary of Tenant
owns at least fifty one (51%) percent of the partnership, limited liability
company or joint venture interest therein. Without limiting the generality of
the foregoing, a corporation shall not be deemed controlled by another entity
unless at least fifty one (51%) percent of each class of its outstanding capital
stock is owned, both beneficially and of record, by such entity.
15. Electric Current. Landlord shall supply the Premises with electric service
equal to at least six (6) watts (demand load) per square foot of usable space
for lighting and receptacles, and six (6) watts (demand load) for air
conditioning, and shall cause Tenant's electric energy usage to be measured on a
submetering basis. If the electric service supplied to the Premises is supplied
by more than one (1) kw demand submeter, the kw demand used for billing Tenant
shall be the maximum coincident demand of all submeters measuring electric
service to the Premises. Landlord shall, at Landlord's expense, purchase and
install the submeter(s). Tenant shall pay Landlord, as additional rent, within
ten (10) days of receipt of its next rent bill, for the kw hours and kw demand
used by Tenant at the service classification under which the public utility
bills Landlord commensurate with the rate for the usage as shown on the meters,
plus ten (10%) percent thereof for providing, reading and billing the
submetering service. Landlord shall have the sole right to select the provider
of electricity for the Building.
16. Alternate Electric Current. If it shall become unlawful for Landlord to
submeter Tenant's electric energy usage, such usage shall thereafter be paid for
and measured as follows:
(a) Tenant agrees to pay for its electric energy usage as additional rent
(hereinafter referred to as the "Additional Rental for Electricity"). The
Additional Rental for Electricity shall be determined initially by a survey of
the Premises made by an electrical consultant or electrical engineer chosen by
Landlord. The survey so made will determine the number of kw hours and kw demand
based an the electrical equipment and fixtures in the Premises and the period of
use thereof and based thereon will determine the value, expressed in dollars per
year, of Tenant's electric energy usage. The Additional Rental for Electricity
so determined, as adjusted from time to time pursuant to subparagraphs (b), (c)
and (d), shall be paid by Tenant in equal monthly installments in advance an the
first day of each month during the Term without any set off or deduction of any
kind.
(b) If the public utility rate schedule for the supply of electric current to
the Building shall be increased or decreased subsequent to the date of the
survey referred to above, or
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if there shall be an increase or decrease in the fuel adjustment or taxes, or if
additional taxes, surcharges, or charges of any kind shall be imposed upon the
sale or furnishing of such electric current, the Additional Rental for
Electricity shall be increased or decreased by applying the changed rate, fuel
adjustment and taxes to the kw hours and kw demand shown on the electric survey
then in effect.
(c) If there shall be a change subsequent to the initial survey, or any future
survey, in the Premises, or in the number of hours during which the Premises is
used, or if Tenant's failure to maintain its installations in good order and
repair causes greater consumption of electric current, or if Tenant uses
electricity for purposes other than the use permitted hereunder, or if Tenant
adds any fixtures, machinery or equipment which significantly increases its
electricity usage, the Additional Rental for Electricity, theretofore adjusted,
shall be increased by applying the Service Classification Rate under which the
public utility bills Landlord to the additional kw hours and kw demand furnished
by Landlord. If Tenant's electricity usage shall decrease due to the use of its
electric fixtures or equipment for lesser periods of time, or due to less or
more efficient fixtures or equipment, the Additional Rental for Electricity,
theretofore adjusted, shall be decreased by applying the Service Classification
Rate aforesaid to the lesser kw hours and kw demand.
(d) Landlord and Tenant shall each have the right from time to time during the
Term to have an electric rate consultant or electrical engineer survey the
electric current consumed by Tenant in the Premises. If such consultant
determines that the value of the electric current furnished Tenant is more or
less than the Additional Rental for Electricity, as most recently adjusted, such
annual amount shall be further adjusted to equal the amount determined by said
consultant. The cost of the survey shall be borne by the party ordering the
same.
(e) Landlord shall deliver a copy of the initial survey, and a copy of any
future survey made pursuant to this Article 16, to Tenant, and Tenant shall have
sixty (60) days within which it may protest the findings contained therein. If
Tenant fails to protest within the sixty (60) day period, the findings contained
in the survey shall be final. If Tenant protests within the sixty (60) day
period (by sending Landlord a notice in the manner herein provided for the
giving of notices), Tenant shall have a second survey made by an electric
engineer or electric rate consultant of its choice, and deliver a copy thereof
to Landlord within sixty (60) days of the date of the protest. If Landlord's and
Tenant's surveyors are unable to agree upon the amount of electric energy
consumed by Tenant, or the amount of any increase or decrease, or an any other
matter contained in the surveys, the determination of the same shall be
submitted to arbitration under the rules of the American Arbitration Association
then obtaining. The determination of the electric rate consultant or engineer,
or the American Arbitration Association if there is disagreement and the
determination is submitted to arbitration made pursuant to this subparagraph,
shall be binding on Landlord and Tenant. The parties hereto shall, within ten
(10) days from the date of any such determination, execute, acknowledge and
deliver to each other an agreement setting forth the adjusted Additional Rental
for Electricity, but such increase or decrease shall be effective from the date
of the increase or decrease
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(subparagraph b), or change (subparagraph c), or new survey (subparagraph d),
whether or not such agreement is executed, and notwithstanding the date of
execution thereof.
17. Limitation of Responsibility Regarding Electricity. (a) Landlord shall not
in any way be liable or responsible to Tenant, except where due to its
negligence or willful misconduct, for any loss, damage or expense which Tenant
may sustain or incur if during the Term, by reason of the act or inaction of the
public utility servicing the Building, either the quantity or character of
electrical energy is changed or is no longer available or suitable for Tenant's
requirements.
(b) Landlord shall not be obligated to increase the existing electrical capacity
of any portion of the Building's systems, nor to provide any additional wiring
or capacity to meet Tenant's requirements, other than as set forth in Article
15. Tenant shall make no substantial alteration or addition to the electrical
equipment in the Premises as of the commencement of the Term, nor increase the
use of electricity in the Premises without the prior written consent of the
Landlord in each instance, which Landlord agrees not to unreasonably withhold or
delay. Tenant covenants and agrees that at all times its use of electric current
shall never exceed the capacity of the then existing feeders of the Building or
the risers or wiring installations, and further agrees that Tenant may not use
any electrical equipment which, in Landlord's opinion, reasonable exercised, win
overload such installations or interfere with the use thereof by any other
tenants of the Building. Nothing contained in the previous sentence is intended
to diminish Landlord's obligation to supply the Premises with the electric
service set forth in Article 15.
18. Real Estate Taxes. Tenant shall pay Landlord for each Tax Year, hereinafter
defined, or part thereof as falls within the Term, an amount equal to Tenant's
proportionate share of any increase in Taxes, hereinafter defined, over the Base
Taxes, hereinafter defined, whether such increase results from a higher tax rate
or an increase in the assessed valuation of the Building or the land on which
the Building is situate. The payment for a partial Tax Year that falls within
the last year of the Term shall be prorated. Such proportionate share, to wit,
fourteen and 825/1000 (14.825%), has been determined by dividing the Gross Area
of Tenant's Demise by the Gross Area of the Building.
(a)"Gross Area of Tenant's Demise" shall be deemed to be 69,265 square feet.
(b) "Gross Area of the Building" shall be deemed to be 467,209 square feet.
(c) "Tax Year" shall mean each twelve month period beginning July 1 and ending
June 30 that is subsequent to the Tax Year 1999/2000, in which occurs any part
of the Term or such other period of twelve months occurring during the Term as
hereafter may be duly adopted as the fiscal year for real estate tax purposes of
the City of New York.
(d) "Base Taxes" shall mean the sum of 83.33 % of the New York City real estate
tax year 1999/2000, and 16.67 % of the New York City real estate tax year
2000/2001.
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(e) "Taxes" shall mean all real estate taxes, assessments and special
assessments, water and sewer rates and rents, excises, levies, permits and
similar charges payable to the local taxing authority upon the Building and/or
the land upon which it is situate, but shall not include interest or penalties
thereon, or income, estate succession, inheritance, capital stock or similar
taxes of Landlord, or franchise taxes imposed an any corporate owner of the
Building. If at any time during the Term, the methods of taxation prevailing on
the date hereof shall be altered so that in lieu of or as a substitute for the
whole or any part of the taxes, assessments, levies, impositions or charges now
levied, assessed or imposed on real estate and the improvements thereon, there
shall be levied, assessed and imposed (i) a tax, assessment, levy, imposition or
charge wholly or partially as a capital levy on the rents received therefrom, or
(ii) a tax, assessment, levy, imposition or charge measured by or based in whole
or in part upon the Premises and imposed upon Landlord, or (iii) a license fee
measured by the rent payable by Tenant to Landlord, or (iv) any other charge,
then all such taxes, assessments, levies, impositions or charges, or the part
thereof so measured or based, shall be deemed to be included within the term
"Taxes" for the purpose hereof as if the Building and/or the land upon which it
is situate were the only property of the Landlord.
(f) If either of the tax years 1999/2000 or 2000/2001 shall be reduced, such
lesser amount shall be the Base Taxes used to compute Tenant's share of
increases in Taxes for each Tax Year.
(g) If Taxes for any Tax Year subsequent to the 1999/2000 Tax Year are reduced
below their original assessment due to a protest or other action taken by
Landlord, such proportion of the reduction as shall be allocable to payments of
Taxes actually made by Tenant, less the costs, expenses and attorneys' fees
incurred in obtaining such reduction, shall be a credit to Tenant against any
arrearages in annual rental, additional rent or other charges payable by Tenant
under this Lease, and if none, then against the next installment of annual
rental, additional rent or other charges payable by Tenant under this Lease,
except that if the Term has expired, or if the amount of the credit is larger
than the arrearages or installments of rent or other charges payable by Tenant
under this Lease remaining in the Term, such amount shall be paid directly to
Tenant. Landlord represents that it has been its practice to annually file an
application protesting the assessed value of the Building and the land on which
it is situate to the New York City Tax Commission.
(h) Any amount due to Landlord under the provisions of this Article 18,
including any adjustment in Landlord's favor under subparagraph (f), shall be
paid by Tenant as additional rent together with the next rent installment
payable by Tenant, provided that Landlord shall have given Tenant a statement
showing the computation of Tenant's proportionate share. The statement showing
the computation of Tenant's proportionate share shall cover only those Taxes
which Landlord is then required to pay to the taxing authority, and such
statement shall be accompanied by copies of the applicable tax bills or other
evidence showing the taxes or tax assessments.
19. Improvements to the Premises. (a) Tenant agrees to improve the Premises in
accordance with detailed specifications and working drawings to be prepared by
Tenant's
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architect. The detailed specifications and working drawings are hereinafter
referred to as "Tenant's Plans", and the work shown by the Tenant's Plans is
hereinafter referred to as the "Improvements". Notwithstanding anything to the
contrary contained in Article 6 hereof the Improvements may include the
construction of an interior stair between the third and fourth floors of the
Premises.
(b) Tenant shall proceed forthwith to cause Tenant's Plans to be prepared by an
architect licensed as such in the State of New York. Tenant's Plans, including
structural and mechanical drawings and specifications, shall be prepared at
Tenant's sole cost and expense. Tenant shall submit Tenant's Plans to Landlord
for Landlord's approval. Landlord agrees to review Tenant's Plans and to approve
the same or make written exceptions thereto within ten (10) business days from
the date of the submission of the plans. Landlord agrees not to unreasonably
withhold or delay its approval of Tenant's Plans, and failure by Landlord to
provide the written exceptions within the ten (10) business day period aforesaid
shall be deemed approval of Tenant's Plans. If Landlord disapproves Tenant's
Plans, Tenant shall revise them. Upon approval by Landlord of Tenant's Plans,
Tenant shall submit the same to the New York City Department of Buildings for
approval and for issuance of a building permit to perform the Improvements.
Tenant acknowledges that preparation of a Fire Protection Plan with respect to
the Premises may be a prerequisite to obtaining a sign-off on the Improvements,
and Tenant agrees to prepare the same at its expense if one is required.
Landlord agrees to cooperate with Tenant and Tenant's architect and engineer in
providing information needed for the preparation of Tenant's Plans, the Fire
Protection Plan, the application for a building permit and all other permits
required for the Improvements, and to promptly execute all documents required to
be signed by Landlord.
(c). Tenant agrees to hire a reputable general contractor, construction manager
or subcontractors and materialmen (hereinafter "Contractor(s)") reasonably
acceptable to Landlord, to perform the Improvements in a good and workmanlike
manner in accordance with (x) the approved Tenant's Plans and any material
amendments or additions thereto approved by Tenant and Landlord and all
municipal authorities having jurisdiction, and (y) all provisions of law and any
and all permits and other requirements specified by any ordinance, law or public
regulation. Tenant shall cause the Contractor(s) to obtain and maintain
throughout the work, Workers' Compensation Insurance, New York State Disability
Insurance and comprehensive general liability insurance, including contractual
liability coverage, in an amount of not less than $1 million combined single
limit for bodily injury or death for any one occurance and for property damage,
plus a $2 million umbrella policy. The liability coverage shall name Landlord
and Orda Management Corporation as additional insured parties, and Tenant shall
deliver to Landlord proper certificates of insurance confirming the coverages
described above prior to commencement of the Improvements. If Tenant acts as its
own General Contractor or Construction Manager, Tenant shall obtain and maintain
such insurance. All Contractor(s) shall be members of a union affiliated with
the building trades in the City of New York that has jurisdiction over the
Building and the Improvements.
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(d) The parties acknowledge that there is vinyl asbestos tile ("VAT") in the
third floor of the Premises. Tenant shall have the option of (1) having the VAT
removed by a company that is licensed to remove VAT (a "Licensed Company")
reasonably acceptable to Landlord, at a price reasonably acceptable to Landlord,
and receiving a credit from Landlord for the cost of the work to be applied
against Tenant's next installment of rent, or (ii)) if Tenant, as part of its
Improvements to the third floor of the Premises, demolishes the floor and
removes the carpet now covering the VAT, having the VAT removed by Landlord by a
Licensed Company reasonably acceptable to Tenant. If Landlord does the work of
removing the VAT, it shall be done promptly and in a workmanlike manner, and
Landlord shall deliver a form ACP-5 to Tenant at the conclusion of the work. If
Tenant has the VAT removed, Tenant shall be responsible for obtaining the APC-5
for the third floor, unless other asbestos containing material ("ACM") or other
hazardous material that would prevent an ACP-5 from being issued shall be
present on the third floor, in which case Landlord shall have the newly
discovered ACM or hazardous material removed by a Licensed Company reasonably
acceptable to Tenant, and obtain an ACP-5. Except for the existing VAT, there
is, to the best of Landlord's knowledge, no other ACM or other hazardous
material on the third floor. If any ACM or other hazardous material that has not
been installed in or brought onto the Premises by Tenant, its agents,
contractors or employees, is hereafter discovered on the Premises, Landlord
shall, at its sole cost and expense, promptly cause the same to be removed by a
Licensed Company reasonably acceptable to Tenant.
(e) Landlord agrees to contribute Seven Hundred Fifty Seven Thousand Nine
Hundred Fifty ($757,950) dollars toward the cost of the Improvements
("Landlord's Contribution"). Landlord shall pay the Landlord's Contribution to
Tenant's Contractor(s) over the duration of the construction, no more frequently
than monthly, on receipt of a notice from Tenant of the names of the
Contractor(s) who performed work or supplied materials with respect to the
Improvements, together with an Application and Certificate for Payment on AIA
Document G702 and G703, or similar form, duly executed by the Contractor(s) to
be paid, and Tenant's architect, who shall certify to Landlord (i) that the work
performed and materials delivered under said application generally conform to
Tenant's Plans, (ii) that the amount of such payment request approved by the
architect is justified by the work, (iii) the percentage of the Improvements
completed by that date, and (iv) that in said architect's opinion adequate funds
remain to complete the Improvements. Landlord may retain ten (10%) percent of
each requested amount until ten (10) days after (x) substantial completion of
the Improvements, (y) delivery to Landlord of waivers of
mechanic's/materialmen's liens from all of Tenant's Contractor(s) for amounts
paid to date, and statements from the Contractor(s) stating the balance owed,
(z) receipt of invoices, requisitions, canceled checks or other documentary
evidence showing payment of the cost of the Improvements, and (zz) receipt of
two (2) sets of as-built drawings, or drawings marked "Final", of the improved
Premises.
(f) All fees payable to municipal authorities by reason of the Improvements, and
by reason of any hook-up into the Building's existing fire alarm and
communication systems, shall be part of, and not in addition to, the Landlord's
Contribution.
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(g) All of Tenant's fixtures, machinery and equipment, whether or not attached
to or built into the Premises, including the Improvements, and which can be
removed without damaging the Premises, and all furniture, furnishings and other
articles of personal property owned by Tenant and located in the Premises,
whether installed as part of the Improvements or thereafter (all of which is
sometimes referred to as "Tenant's Property") shall be and shall remain the
property of Tenant and may be removed by it at any time during the Term,
provided that if any Tenant's Property is removed, Tenant shall repair or pay
the cost of repairing any damage to the Premises resulting from such removal. At
or before the expiration of the Term, or promptly after an earlier termination
date, Tenant, at its sole expense, shall remove from the Premises all of
Tenant's Property, and repair any damage to the Premises resulting from such
removal In addition to the foregoing, at least six (6) months prior to the
expiration of the Term Tenant shall by written notice to Landlord request that
Landlord advise Tenant, in writing, no later than three (3) months prior to the
expiration of the Term, of whether Landlord will require that Tenant demolish
and remove the interior stairs between floors, and close and restore all
interior stair openings. In the event that Landlord does not so advise Tenant,
as aforesaid, Landlord shall be deemed to have required the demolition, removal
and restoration of stair openings. In connection with such work, Tenant shall at
its sole cost and expense repair and close the internal slab-cuts between the
third and fourth, and fourth and fifth floors. The replaced slabs shall have a
load bearing capacity not less than the capacity for such space permitted by the
certificate of occupancy for the Building. The structural supports shall be
fireproofed and shall provide the same above ceiling clearances as available on
the balance of the floor. If columns need to be installed, they shall be lined
up with existing columns on contiguous floors of the Building.
(h) Any item of Tenant's Property, which shall remain in the Premises after the
expiration of the Term, or after a reasonable period following an earlier
termination date, shall be deemed to have been abandoned.
(i) Tenant shall pay Orda Management Corporation, within ten (10) days after
being billed therefor, the reasonable out of pocket fees and disbursements paid
by Landlord to architects and engineers for reviewing Tenant's Plans.
20. Access to the Premises. Landlord or Landlord's agents shall have the right
(but shall not be obligated) to enter the Premises at reasonable times upon
reasonable notice, and in an emergency at any time (with telephonic notice if
reasonably practicable) to inspect, perform maintenance or make such repairs,
replacements and improvements as Landlord may deem necessary and reasonably
desirable to the Premises or to any other part of the Building, or which
Landlord may elect to perform, following Tenant' s failure, beyond any
applicable grace period, to make repairs or perform any work which Tenant is
obligated to perform under this Lease, or for the purpose of complying with
laws, regulations and other directions of governmental authorities. All such
maintenance, repairs, replacements and improvements shall be made with a minimum
of inconvenience to Tenant, and Landlord will use its best efforts to promptly
complete them Tenant shall permit Landlord to use and maintain and replace pipes
and conduits in and through the Premises, and to erect new pipes and conduits
therein. Landlord agrees to perform such
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work in a manner and at such times as will not unreasonably interfere with
Tenant's use and occupancy of the Premises. Landlord may, during the progress of
any work in the Premises, take all necessary materials and equipment into the
Premises without the same constituting an eviction, nor shall Tenant be entitled
to any abatement of rent while such work is in progress, nor to any damages by
reason of loss or interruption of business or otherwise. Throughout the Term,
Landlord shall have the right to enter the Premises at reasonable hours, upon
reasonable advance notice to Tenant, for the purpose of showing the same to
prospective purchasers or mortgagees or insurance carriers, and during the last
six months of the Term, for the purpose of showing the same to prospective
tenants. If Tenant is not present to open and permit an entry into the Premises,
Landlord or Landlord's agent may enter the same whenever such entry may be
permissible by master key and provided reasonable care is exercised to safeguard
Tenant's Property, and such entry shall not render Landlord or its agent liable
therefor, nor in any event shall the obligations of Tenant hereunder be
affected. Tenant may have a representative of Tenant present at any entry by
Landlord into the Premises. Neither Landlord nor any of its agents, contractors
or employees shall have access to any locked closet designated by Tenant as a
"Security Space-Do Not Enter".
21. Vaults, Vault Space or Area. No vaults, vault space or area, whether or not
enclosed or covered, not within the property line of the Building is leased
hereunder, anything contained in or indicated on any sketch, blue print or plan
or anything contained elsewhere in this Lease to the contrary notwithstanding.
Landlord makes no representation as to the location of the property line of the
Building. All vaults and vault space, and all such areas not within the property
line of the Building, which Tenant may be permitted to use and/or occupy, is to
be used and/or occupied under a revocable license, and if any such license be
revoked, or if the amount of such space or area be diminished or required by any
federal, state or municipal authority or public utility, Landlord shall not be
subject to any liability nor shall Tenant be entitled to any compensation or
diminution or abatement of rent, nor shall such revocation, diminution or
requisition be deemed constructive or actual eviction. Any tax, fee or charge of
municipal authorities for such vault or area shall be paid by Tenant.
22. Certificate of Occupancy. Tenant shall not at any time use or occupy the
Premises in violation of the Building's certificate of occupancy, as amended.
23. Bankruptcy. (a) Anything elsewhere in this Lease to the contrary
notwithstanding, this Lease may be terminated by Landlord by the sending of a
written notice to Tenant within a reasonable time after the happening of any one
or more of the following events: (i) the commencement by Tenant of a case in
bankruptcy or under the laws of any state naming Tenant as the debtor; or (ii)
the commencement of an involuntary case in bankruptcy which is not dismissed or
stayed within ninety (90) days; or (iii) the making by Tenant of an assignment
or any other arrangement for the benefit of its creditors under any state
statute. Neither Tenant nor any person claiming through or under Tenant, or by
reason of any statute or order of any court shall thereafter be entitled to
possession of the Premises, and shall forthwith quit and surrender the Premises.
If this Lease shall be assigned in accordance with the provisions of this Lease,
the provisions of this Article 23
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shall be applicable only to the party then owning Tenant's interest in this
Lease.
(b) It is stipulated and agreed that in the event of the termination of this
Lease pursuant to subparagraph (a) hereof Landlord shall forthwith,
notwithstanding any other provisions of this Lease to the contrary, be entitled
to recover from Tenant, as and for liquidated damages, an amount equal to the
excess, if any, of the rent reserved hereunder for the unexpired portion of the
Term, and the fair and reasonable rental value of the Premises for the same
period. In the computation of such damages, the difference between any
installment of rent becoming due hereunder after the date of termination, and
the fair and reasonable rental value of the Premises for the period for which
such installment was payable, shall be discounted to the date of termination at
the annual prime rate then set by Chase Manhattan Bank. If the Premises or any
part thereof be relet by Landlord for the unexpired Term, or any part thereof
before presentation of proof of such liquidated damages to any court, commission
or tribunal, the amount of rent reserved upon such reletting shall be deemed
prima facie to be the fair and reasonable rental value for the part or the whole
of the Premises so relet during the term of the reletting. Nothing herein
contained shall limit or prejudice the right of the Landlord to obtain as
liquidated damages by reason of such termination, an amount equal to the maximum
allowed by any statute or rule of law in effect at the time when, and governing
the proceedings in which, such damages are to be proved, whether or not such
amount be greater, equal to, or less than the amount of the difference referred
to above. In no event shall Tenant be permitted to continue to use and occupy
the Premises unless and until it delivers to Landlord as security for the
performance of its obligations under this Lease the indubitable equivalent
thereof.
24. Default by Tenant. (a) If Tenant defaults in fulfilling any of the covenants
of this Lease other than the covenant for the payment of rent or additional
rent, or if any execution or attachment shall be issued against Tenant or any of
Tenant's Property whereupon the Premises or any part thereof shall be taken or
occupied by someone other than Tenant, or if the Premises becomes vacant or
deserted (unless Tenant secures the Premises to Landlord's reasonable
satisfaction, and provides exterminating services reasonably acceptable to
Landlord), or if Tenant defaults in any respect under any other lease between
this Landlord and this Tenant, or if Tenant fails to replenish the security
deposit after Landlord has applied any part of it to any rent, additional rent
or other charge default, then, in any one or more of such events, upon Landlord
serving a written thirty (30) day notice upon Tenant specifying the nature of
said default, and upon the expiration of said thirty (30) days if Tenant shall
have failed to comply with or remedy such default, or if the said default or
omission complained of shall be of a nature that the same cannot be completely
cured or remedied within said thirty (30) day period, if Tenant shall not have
diligently commenced curing such default within such thirty (30) day period, and
shall not thereafter with reasonable diligence and in good faith proceed to
remedy or cure such default, then this Lease and the Term shall end and expire
as fully and completely as if the expiration of such thirty (30) day period were
the day herein definitely fixed for the end and expiration of this Lease and the
Term, and Tenant shall then quit and surrender the Premises to Landlord, but
Tenant shall remain liable as hereinafter provided.
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(b) If the notice provided for in subparagraph (a) hereof shall have been given,
and the Term shall expire as aforesaid, or if Tenant shall make default in the
payment of rent or additional rent or any part thereof or in making any other
payment herein required, upon Landlord serving a written ten (10) day notice
upon Tenant of said default, and upon the expiration of said ten (10) days if
Tenant shall have failed to pay the amount due, then and in any of such events,
Landlord may, without further notice, re-enter the Premises and dispossess
Tenant, the legal representative of Tenant or other occupant of the Premises by
summary proceedings or otherwise, and remove their effects and hold the Premises
as if this Lease had not been made, and Tenant hereby waives the service of
notice of intention to re-enter or to institute legal proceedings to that end.
Landlord shall not be required to give more than one such ten (10) day notice in
any twelve (12) month period.
(c) In the event of the cancellation of this Lease, or after Landlord's re-entry
by summary proceedings or otherwise, Landlord agrees to use reasonable efforts
to re-let the Premises.
25. Remedies of Landlord and Waiver of Redemption. In case of any such default,
re-entry, expiration and or dispossess by summary proceedings or otherwise, (a)
the rent shall become due and be paid up to the time of such re-entry,
dispossess and/or expiration, together with such reasonable expenses as Landlord
may incur for legal expenses, attorneys' fees, brokerage, and/or putting the
Premises in good order, or for preparing the same for re-rental; (b) Landlord
may re-let the Premises or any part- or parts thereof either in the name of
Landlord or otherwise, for a term or terms which may at Landlord's option be
less than or exceed the period which would otherwise have constituted the
balance of the Term, and may grant concessions or free rent or charge a higher
rental than that in this Lease, and/or (c) Tenant or the legal representative of
Tenant shall also pay Landlord as liquidated damages for the failure of Tenant
to observe and perform said Tenant's covenants herein contained, any deficiency
between the rent hereby reserved and/or covenanted to be paid and the net
amount, if any, of the rents collected on account of the lease or leases of the
Premises for each month of the period which would otherwise have constituted the
balance of the Term. The failure of Landlord to relet the Premises or any part
or parts thereof shall not release or affect Tenant's liability for damages. In
computing such liquidated damages, there shall be added to the said deficiency
such reasonable expenses as Landlord may incur in connection with re-letting,
such as legal expenses, brokerage fees, advertising and for keeping the Premises
in good order, or for preparing the same for reletting. Any such liquidated
damages shall be paid in monthly installments by Tenant on the rent day
specified in this Lease, and any suit brought to collect the amount of the
deficiency for any month shall not prejudice in any way the rights of Landlord
to collect the deficiency for any subsequent month by a similar proceeding.
Landlord, in putting the Premises in good order, or preparing the same for
rerental, may, at Landlord's option, make such alterations, repairs,
replacements and/or decorations in the Premises as Landlord, in Landlord's
reasonable judgment, considers advisable and necessary for the purpose of
reletting the Premises, and the making of such alterations, repairs,
replacements, and/or
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decorations shall not operate or be construed to release Tenant from liability
hereunder as aforesaid. Landlord shall in no event be liable in any way
whatsoever for failure to relet the Premises, or in the event that the Premises
are relet, for failure to collect the rent thereof under such reletting, and in
no event shall Tenant be entitled to receive any excess, if any, of such net
rent collected over the sums payable by Tenant to Landlord hereunder. In the
event of a breach, threatened breach or anticipatory breach by Tenant beyond any
applicable grace period of any of the covenants or provisions hereof Landlord
shall have the right of injunction, and the right to invoke any remedy allowed
at law or in equity as if re-entry, summary-proceedings and other remedies were
not herein provided for. Mention in this Lease of any particular remedy shall
not preclude Landlord from any other remedy in law or in equity. Tenant hereby
expressly waives any and an rights of redemption granted by or under any present
or future laws in the event of Tenant being evicted or dispossessed for any
cause as provided in this Lease, or in the event of Landlord obtaining
possession of the Premises as provided in this Lease, by reason of the violation
by Tenant of any of the covenants and conditions of this Lease, or otherwise,
beyond any applicable grace period.
26. Landlord's Right to Perform Tenant's Obligations; Legal Fees and Other
Expenses. If Tenant shall default in observing or performing any term or
covenant on Tenant's part to be observed or performed under this Lease, beyond
the giving of such notice and grace period as may be provided herein, then,
unless otherwise provided in this Lease, Landlord may immediately or at any time
thereafter, and without notice, observe and/or perform the obligation of Tenant
hereunder, and if Landlord, in connection therewith makes any expenditure or
incurs any obligation for the payment of money, including but not limited to
reasonable attorneys fees, such sums so paid or obligations incurred, with
interest, shall be deemed to be additional rent hereunder and shall be paid by
Tenant to Landlord within ten (10) days of receipt by Tenant of Tenant's next
monthly bill for rent, and if the Term shall have expired at the time of making
of such expenditures or incurring of such obligations, such sums shall be
recoverable by Landlord as damages.
27. Default by Landlord. Landlord shall be in default hereunder if default shall
be made in the payment of any sum to be paid by Landlord to Tenant under this
Lease, and such default shall continue for thirty (30) days after Landlord's
receipt of written notice thereof or if default shall be made in the performance
of any of the other covenants or conditions which Landlord is required to
observe and to perform, and such default shall continue for thirty (30) days
after Landlord's receipt of written notice thereof except in case of emergency
(in which event Tenant may act immediately to cure such Landlord default), or if
the default cannot reasonably be cured within such thirty (30) day period, if
Landlord shall fail to commence such cure within such thirty (30) day period
and/or thereafter fail to proceed diligently through completion. Upon a default
by Landlord under this Lease, after notice and after the expiration of the cure
period aforesaid, Tenant shall have the right, at its option, to exercise such
remedies as may be provided in this Lease or by law or equity.
28. No Representations by Landlord; Merger. Neither Landlord nor Landlord's
agents have made any representations or promises with respect to the physical
condition of the
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Building, the land upon which it is erected or the Premises, or any other matter
or thing affecting or related to the Premises except as herein expressly set
forth, and no rights, easements or licenses are acquired by Tenant by
implication or otherwise except as expressly set forth in this Lease. Tenant is
presently in possession of the fourth and fifth floors of the Building and is
thoroughly acquainted with their condition, and agrees to take the same "as is".
Tenant has inspected the third floor of the Building and is thoroughly
acquainted with its condition, and except as otherwise set forth in Article 19,
agrees to take the same "as is". Tenant further agrees that the taking of
possession of the Premises by Tenant shall be conclusive evidence that the
Premises and the Building were in good and satisfactory condition at the time
such possession was so taken, except for latent defects with respect to the
third floor. All understandings and agreements heretofore made between the
parties hereto are merged in this Lease, which alone fully and completely
expresses the agreement between Landlord and Tenant, and any executory agreement
hereafter made shall be ineffective to change, modify, discharge or effect an
abandonment of it in whole or in part, unless such executory agreement is in
writing and signed by the party against whom enforcement of the change,
modification, discharge or abandonment is sought.
29. End of Term. Upon the expiration or other termination of the Term Tenant
shall quit and surrender the Premises, broom clean, in good order and condition,
ordinary wear, tear and damage by fire or other insured casualty excepted.
Tenant's obligation to observe or perform this covenant shall survive the
expiration or earlier termination of this Lease.
30. Liability for Failure to Timely Vacate the Premises. If Tenant fails to
vacate the Premises on or before the expiration date or date of earlier
termination of this Lease, Landlord may, without waiving any other right or
remedy, elect to treat Tenant's continued use and occupancy of the Premises as a
holdover under a month-to-month tenancy, in which event Tenant shall be
obligated to pay Landlord in advance on the first day of each month, as
liquidated damages, a monthly fixed rental equal to two hundred (200%) percent
of the annual rental rate, as increased pursuant to Article 4, payable for the
last month of the Term, and all additional rents and other charges that would
have been payable for the month in which Tenant is holding over if that month
were a month of the last year of the Term, as liquidated damages.
Notwithstanding the foregoing, Tenant agrees to make no request to any court for
an extension of its tenancy or occupancy beyond the end of the Term as herein
set forth, or earlier expiration thereof. If Tenant's failure to timely vacate
is due to any of the reasons or causes set forth in Article 33, Tenant shall be
liable to Landlord to the extent only of paying rent for each day or part
thereof that Tenant continues to occupy the Premises based on the rent,
additional rent, and other charges payable for the last month of the Term. It is
hereby agreed that Tenant's failure to have obtained other premises to remove
to, or to have caused such other premises to have been constructed or altered to
suit Tenant's needs by the date that Tenant is required to vacate the Premises,
shall not be deemed to be a reason or cause set forth in Article 33. If Tenant
holds over in the Premises, or any part thereof for more than thirty (30) days
after the expiration of the Term, or earlier expiration thereof Tenant shall be
liable for any and all damages sustained by Landlord as a result of the failure
by
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Tenant to surrender the Premises in the manner and at the time provided in this
Lease, including but not limited to: (i) losses incurred by Landlord due to
Landlord's inability to lease the Premises to another tenant from on and after
the day following the end of Tenant's Term hereunder; (ii) losses incurred by
Landlord due to Landlord's inability to lease the Premises for a definite term
beginning on a day certain; and (iii) losses incurred by a new tenant of the
Premises due to that tenant's inability to obtain timely possession of the
Premises, including that tenant's expenses in holding over at its former
premises, or the expenses of an interim move, or expenses of storage, telephone,
computer installations and similar expenses.
31. Survival of Liability. It is agreed by the parties that any entry or
re-entry by Landlord, whether had or taken under what are known generally as
summary proceedings, or otherwise if occasioned by Tenant's default hereunder,
and in any manner, or if Tenant is dispossessed by the issuance of any warrant
or final order in summary proceedings, or if Tenant shall abandon the Premises
and not secured it and contracted to have it periodically exterminated to
Landlord's reasonable satisfaction as hereinabove provided, or if this Lease
shall expire as provided in Article 23 hereof Tenant shall nevertheless continue
liable for the payment of the annual rent, additional rents and other charges
payable hereunder, and for the performance of all of the other conditions herein
contained and such entry, re-entry, abandonment, or dispossess shall not be
deemed to have absolved or discharged Tenant from any liability hereunder
notwithstanding that the landlord-tenant, relationship between the parties shall
have ended.
32. Waivers of Trial by Jury, Counterclaims, and Punitive and Consequential
Damages. It is mutually agreed by and between Landlord and Tenant that the
respective parties hereto shall and they hereby do waive trial by jury in any
action, proceeding or counterclaim brought by either of the parties hereto
against the other (except for personal injury or property damage) on any matters
whatsoever arising out of or in any way connected with this Lease, the
relationship of landlord and tenant, Tenant's use of or occupancy of the
Premises, and any emergency statutory or any other statutory remedy. It is
further mutually agreed that in the event Landlord commences any summary
proceeding for possession of the Premises, Tenant will not interpose any
counterclaim of whatever nature or description in any such proceeding.
Notwithstanding anything to the contrary herein contained, it is further
mutually agreed by and between Landlord and Tenant that the respective parties
hereto shall and they hereby do waive all claims for punitive or consequential
damages in any action, proceeding or counterclaim brought by either of the
parties hereto against the other on any matters whatsoever arising out of or in
any way connected with this Lease, the relationship of landlord and tenant, or
Tenant's use or occupancy of the Premises.
33. Inability to Perform. Except as otherwise provided in this Lease, this Lease
and the obligation of Tenant to pay rent hereunder and perform all of the other
covenants and agreements hereunder on part of Tenant to be performed shall in no
wise be affected, impaired or excused because Landlord is unable to fulfill any
of its obligations under this Lease, or to supply or is delayed in supplying any
service expressly or implied to be
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supplied, or is unable to make, or is delayed in making any repair, addition,
alteration or decoration, or is unable to supply or is delayed in supplying any
equipment or fixtures, if Landlord is prevented or delayed from so doing by
reason of strike or other labor troubles, the failure of any public utility to
deliver adequate electrical energy to the Building, the inability to obtain
adequate steam or fuel for heating, or any other cause whatsoever beyond
Landlord's reasonable control, including but not limited to, government
preemption in connection with a National Emergency, or by reason of any rule,
order or regulation of any department or subdivision thereof of any government
agency, or by reason of the conditions of supply and demand which have been or
are affected by war or other emergency,.
34. No Waiver. The failure of Landlord to seek redress for violation of or to
insist upon the strict performance of any covenant or condition of this Lease,
or of any of the Rules or Regulations set forth or hereafter adopted by
Landlord, shall not prevent a subsequent act which would have originally
constituted a violation from having all the force and effect of an original
violation. The receipt by Landlord of rent, additional rent or other charge
payable hereunder with knowledge of the breach of any covenant of this Lease
shall not be deemed a waiver of such breach, and no provision of this Lease
shall be deemed to have been waived by Landlord unless such waiver be in writing
signed by Landlord. No payment by Tenant or receipt by Landlord of a lesser
amount than the rent, additional rents and other charges herein stipulated shall
be deemed to be other than on account of the earliest owed rent, additional rent
or other charge, nor shall any endorsement or statement on any check or any
letter accompanying any check or payment as rent be deemed an accord and
satisfaction, and Landlord may accept such check or payment without prejudice to
Landlord's right to recover the balance of such rent, additional rent or other
charge, or pursue any other remedy in this Lease provided. No act or thing done
by Landlord or Landlord's agents during the Term shall be deemed an acceptance
or a surrender of the Premises, and no agreement to accept such offender shall
be valid unless in writing signed by Landlord. No employee of Landlord or
Landlord's agent shall have any power to accept the keys to said Premises prior
to the termination of the Term, and the delivery of keys to any such agent or
employee shall not operate as a termination of this Lease or a surrender of the
Premises. If, notwithstanding the foregoing, Tenant wishes to assert that
Landlord has somehow waived any right, including Landlord's right to invoke any
of the anti-waiver clauses contained in this article, Tenant shall, as a
condition precedent to raising any such claim, give written notice to Landlord
of (i) the Tenant defaults that Tenant intends to assert are being waived; and
(ii) the conduct of Landlord that Tenant intends to assert is giving rise to the
waiver; and if Landlord, within thirty (30) days of receipt of such notice,
gives notice to Tenant that Landlord is not waiving, and intends to invoke
rights by reason of the defaults identified by Tenant, Tenant shall be precluded
from asserting such conduct as a waiver of such defaults.
35. Services Provided by Landlord. Landlord shall provide (a) heat to the
Premises on business days from 8 a.m. to 6 p.m. and on Saturdays from 8 a.m. to
1 p.m.; (b) passenger elevator services twenty four hours a day, seven days a
week; (c) water for ordinary lavatory, drinking and kitchenette purposes; and
(d) cleaning and rubbish removal service
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for the Premises, except the Basement Space, on business days in accordance with
the cleaning specification attached hereto as Exhibit B. Condenser water from
Landlord's cooling towers will be furnished from May 1 through October 15th on
business days (Mondays through Fridays, holidays excepted) from 8 a.m. to 6 p.m.
If Tenant requires condenser water from Landlord's cooling towers on days
between October 16 and April 30, or for more extended hours or on Saturdays,
Sundays or on holidays, Landlord will furnish the same at Tenant's expense in an
amount equal to Landlord's commercially reasonable cost uniformly charged
tenants in the Building, which cost shall be prorated among all tenants who have
requested such service for such period. Subject to Landlord's obligation to
minimize inconvenience to Tenant, Landlord reserves the right to stop services
of the elevators, heating, plumbing and air-conditioning and power systems, or
cleaning or other services, when necessary by reason of accident or for repairs,
alterations, replacements or improvements necessary or desirable in the
reasonable judgment of Landlord for as long as may be reasonably required by
reason thereof or by reason of strikes, accidents, laws, orders or regulations
or any other reason beyond the control of Landlord.
36. Water. If Tenant shall use water for other than normal office use (normal
office use shall include water for lavatory, kitchenette and drinking fountain),
Landlord may install a water meter at Tenant's expense to register such water
consumption, and Tenant shall pay as additional rent for water consumed as shown
on the meter. Tenant shall maintain and repair said meter.
37. Quiet Enjoyment. Landlord covenants and agrees with Tenant that so long as
this Lease shall not have been terminated in accordance with the provisions
hereof Tenant may peaceably and quietly enjoy the Premises hereby demised,
subject nevertheless, to the terms and conditions of this Lease.
38. Adjacent Excavation; Shoring. If an excavation shall be made upon land
adjacent to the Building, or shall be authorized to be made, Tenant shall afford
to the person causing or authorized to cause such excavation, license to enter
upon the Premises for the purpose of doing such work as said person shall deem
necessary to preserve the wall or the Building from injury or damage and to
support the same by proper foundations, without any claim for damages or
indemnity against Landlord, or diminution or abatement of rent, except as may be
provided in this Lease.
39. Insurance. Tenant, throughout the Term, shall maintain general public
liability insurance coverage, including contractual liability coverage, in an
amount of not less than $1 million combined single limit for bodily injury or
death for any one occurrence, and for property damage, plus a $2 million
umbrella policy. Tenant shall also obtain and maintain during the Term all risk
property insurance against fire, theft, vandalism, malicious mischief sprinkler
leakage and such other perils as now are or hereafter may be included in a
standard extended coverage endorsement in general use in New York City insuring
Tenant's trade fixtures, furniture, furnishings, equipment, supplies and an
items of personal property of Tenant located on or in the Premises, in an amount
equal to the full replacement value thereof. Such policy shall be written by an
insurance company
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licensed to do business in New York State, shall name Landlord and Orda
Management Corporation (and Landlord's mortgagee, if requested) as additional
insured parties, shall contain the endorsement commonly referred to as "personal
injury endorsements" and shall provide not less than thirty (30) days notice to
Landlord of cancellation. The insurance aforesaid may be carried under one or
more policies, including an "Umbrella" or "Blanket". Tenant shall deliver
duplicate originals or certificates of insurance to Landlord with respect to
said insurance on or before the commencement of the Term.
40. Mechanic's Liens. Nothing in this Lease shall be deemed or construed as
constituting the consent or request of Landlord, express or implied, to any
contractor, subcontractor, laborer or materialman for the performance of any
labor or the furnishing of any materials for any improvement, alteration or
repair of the Premises or any part thereof nor as giving Tenant any right,
power, authority or permit for the rendering of any services or the furnishing
of any materials that would give rise to the filing of any lien against the real
property of which the Premises is a part, the Premises or any part thereof. Any
work done for and materials supplied to Tenant by a contractor, subcontractor,
laborer or materialman at Tenant's request shall be paid for by Tenant directly,
and Landlord shall have no liability therefor. Tenant shall keep the Building
and the Premises free and clear of all liens for any work or material claimed to
have been furnished to Tenant or to the Premises on Tenant's behalf and all work
to be performed by Tenant shall be done in a manner which will not unreasonably
interfere with or disturb other tenants or occupants of the Building. Nothing
contained in the previous sentence shall require Tenant to do any work "after
hours". Any mechanic's lien filed against the Premises or the Building for work
claimed to have been done or for materials claimed to have been furnished to the
Premises shall be discharged by Tenant at its expense within thirty (30) days
after Landlord shall have given Tenant a notice of such filing, by payment,
filing of the bond required by law or otherwise. Landlord may, at Landlord's
option, discharge any such lien by bonding same if Tenant fails to do so after
such notice and the expiration of the thirty (30) day period, and Landlord's
expense in so doing (including reasonable attorneys' fees) shall be paid by
Tenant, as additional rent, within ten (10) days after receipt of its next rent
bill.
41. Brokerage. Landlord, on behalf of itself and its agent Orda Management
Corporation, and Tenant, warrant and represent that neither have had
conversations or negotiations with any broker other than GVA Williams, Williams
Real Estate Co. Inc. and Insignia/ESG with respect to Tenant's renting of the
Premises. Tenant agrees to indemnify and hold Landlord and Orda Management
Corporation harmless from and against any and all claims, loss, liability and
expense (including without limitation, reasonable attorneys' fees) arising from
or pertaining to any demand for brokerage commission or other payment which may
be due any broker with whom Tenant, or any employee, agent or representative of
Tenant has dealt with respect to Tenant's renting of the Premises other than GVA
Williams, Williams Real Estate Co. Inc. and Insignia/ESG Landlord agrees to
indemnify and hold Tenant harmless from and against any and all claims, loss,
liability and expense (including without limitation, reasonable attorneys' fees)
arising from or pertaining to any demand for brokerage commission or other
payment which may be due any broker with whom Landlord, or any employee, agent
or
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representative of Landlord has dealt with respect to Tenant's renting of the
Premises other than GVA Williams, Williams Real Estate Co. Inc. and
Insignia/ESG, and with whom Tenant has not dealt. Landlord agrees to pay a
commission to Insignia/ESG pursuant to a separate agreement.
42. Liability of Landlord. (a) If landlord hereunder is an individual or group
of individuals, Tenant agrees to look solely to the estate of the landlord in
and to the land and Building of which the Premises is a part, and the income and
any insurance or condemnation proceeds therefrom, for the satisfaction of any
right or remedy of Tenant for the collection of a judgment (or other judicial
process) requiring the payment of money by landlord in the event of any
liability of landlord, and no other property or assets of landlord or any of its
partners or members shall be subject to levy, execution, attachment, or other
enforcement procedure for the satisfaction of any such judgment or Tenant's
remedies under or with respect to this Lease, the relationship of Landlord and
Tenant hereunder, or Tenant's use and occupancy of the Premises, or any other
liability of landlord to Tenant.
(b) In the event of a transfer of title to the land and Building of which the
Premises is a part, or in the event of a lease of the Building of which the
Premises is a part, or of the land and Building, upon notification to Tenant of
such transfer or lease, the said transferor landlord named herein shall be and
hereby is entirely freed and relieved of all future covenants, obligations and
liabilities of Landlord hereunder, and it shall be deemed and construed without
further agreement between the parties or their successors in interest, or
between the parties and the transferee of title to or lessee of said land and
Building, that the transferee or lessee has assumed and agreed to carry out all
of the covenants and obligations of Landlord hereunder.
(c) The word "Landlord" as used in this paragraph means 225 Fourth LLC, or any
subsequent owner of the fee of the land and Building, or any mortgage in
possession.
43. Estoppel Certificate. Tenant, without charge, at any time and from time to
time, and within ten (10) days of a notice from Landlord, shall execute,
acknowledge and deliver to Landlord, Landlord's mortgagee, and any other person,
partnership, limited liability company or corporation specified by Landlord, a
statement certifying:
(i) that this Lease is unmodified and in full force and effect or, if there has
been any modification, that the same is in full force and effect as modified,
and stating any such modification; that to Tenant's knowledge there is no
existing basis to cancel or terminate this Lease, and that Landlord is not in
default thereunder, or if such be not the case, stating the nature of any
default;
(ii) whether the Term has commenced and rent become payable hereunder, and
whether Tenant is in possession of all of the Premises;
(iii) whether or not to Tenant's knowledge there are any defenses which are not
claims under subparagraph (i) of this article against the enforcement of any of
the agreements,
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terms, covenants, or conditions of this Lease and any modification thereof and
if so, specifying the same;
(iv) the amount of the annual rentals, additional rents and other charges
payable under this Lease, and the dates to which such rentals, additional rents
and other charges hereunder have been paid; and
(v) whether or not Tenant has made any claim against Landlord under this Lease,
and if so the nature thereof and the dollar amount, if any, of such claim.
44. Late Charge. If any rent, additional rent or other charge owed by Tenant
under this Lease is paid more than five (5) days after the date such rent,
additional rent or other charge is payable pursuant to the provisions of this
Lease, more than once in any twelve (12) month period, Tenant shall pay Landlord
interest thereon at the prime rate published by Chemical Bank, or any successor
thereto, plus two (2%) percent for the month within which such late payment
occurs, for the period from the date such rent, additional rent or other charge
was payable to the date such rent, additional rent or other charge is paid. The
five (5) day period after which a late charge is due, as provided in this
article, is not and is not intended to be construed as, a grace period within
which Tenant may cure a default, nor is it intended to enlarge any time period
allowed in this Lease to cure a default.
45. No Set-Offs. All rent, additional rents and other charges payable hereunder
shall be paid without set off or deduction whatsoever.
46. Guaranty of STV Group Incorporated. STV Group, Incorporated, Tenant's
parent, has delivered to Landlord simultaneously with the execution of this
Lease its guaranty of the performance of this Lease.
47. Representations as to Organization and Authority. Landlord represents that
it is a duly organized and validly existing Delaware limited liability company
having authority to do business in New York and to enter into this Lease, and
that Orda Management Corporation, its Manager, is duly authorized to execute and
deliver this Lease on Landlord's behalf. Tenant represents and warrants that it
is a duly organized and validly existing New York corporation, that it changed
its corporate name from Seelye Stevenson Value & Knecht, Inc. to STV,
Incorporated on June, 7, 1995, that it has the power and authority to enter into
this Lease, and that its stock is wholly owned by STV Group, Incorporated, a
Pennsylvania corporation.
48. 24 Hour Access; Lobby Directory. Tenant shall have access to the Premises
365 days a year, 24 hours a day. Landlord agrees to provide Tenant with fifteen
(15) lines in the Building's lobby directory.
49. Protest of Landlord Charges. Tenant shall have sixty (60) days from receipt
of a bill or other request from Landlord for payment of any charge, other than
the annual rent rate, payable by Tenant under this Lease within which to protest
the correctness of such
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set forth for the giving of notices, within the sixty (60) day period
aforementioned, the charge set forth in such bill or other request shall be
deemed to have been accepted by Tenant and shall no longer be contestable by
Tenant, time being of the essence.
50. Notices to Mortgagees. Tenant agrees to give Aetna Life Insurance Company
("Aetna"), Landlord's mortgagee, and any other or future mortgagee and/or trust
deed holder, by Federal Express or similar nationwide overnight carrier, or
certified mail, return receipt requested, a copy of any notice of default served
upon the Landlord, provided that prior to such notice Tenant has been notified,
in writing, (by way of Notice of Assignment of Rents and Leases, or otherwise)
of the address of such mortgagee and/or trust deed holder. Tenant further agrees
that if Landlord shall have failed to cure such default within the time provided
for in this Lease, then the mortgagee and/or trust deed holder shall have an
additional thirty (30) days within which to cure such default, or if such
default cannot be cured within that time, then such additional time as may be
necessary if within thirty (30) days, the mortgagee and/or trust deed holder has
commenced and is diligently pursuing the remedies necessary to cure such
default, (including but not limited to commencement of foreclosure proceedings,
if necessary to effect such cure), in which event this Lease shall not be
terminated while such remedies are being so diligently pursued. Aetna's address
is 151 Farmington Avenue, Hartford, CT 06156-9624.
51. Rules and Regulations. Tenant and Tenant's servants, employees, agents,
visitors, and licensees shall observe faithfully, and comply strictly with, the
Rules and Regulations attached hereto as Exhibit C and such other and further
reasonable rules and regulations as Landlord or Landlord's agent may from time
to time adopt. Notice of any additional rules or regulations shall be given to
Tenant in the manner herein provided for the giving of notices. Nothing
contained in this Lease shall be construed to impose upon Landlord any duty or
obligation to enforce the Rules and Regulations, or terms, covenants or
conditions in any other lease, as against any other tenant, and Landlord shall
not be liable to Tenant for violation of the same by any other tenant, its
servants, employees, agents, visitors or licensees. Notwithstanding the
foregoing, Landlord agrees not to discriminate against Tenant in the enforcement
of the Rules and Regulations. Landlord will not change the Rules and Regulations
in any way which changes Landlord's obligations under this Lease or interferes
with Tenant's permitted use of the Premises.
52. Security. (a) Tenant agrees to deliver to Landlord within ten (10) business
days from the date hereof a clean and irrevocable commercial letter of credit in
the amount of Six Hundred Fifty Thousand ($650,000) dollars as security for the
faithful performance and observance by Tenant of the terms, provisions and
conditions of this Lease. The letter of credit shall be for at least one (1)
year, be issued by First Union Bank, or by any other bank that is a member of
the Federal Reserve system having a branch office in the City, County and State
of New York, in form and substance reasonably acceptable to Landlord, and
payable in whole or part, as the case may be, upon the presentation by Landlord
to such bank of a sworn statement by Landlord or its agent that Tenant is in
default under the terms of this Lease in the amount of ____________________
($____) dollars [such amount being the amount claimed by Landlord to be due and
owing by
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Tenant to Landlord under this Lease at such time] and has failed to cure such
default within the grace period, if any, specified under this Lease for such
cure, without presentation of any other documents, statements or authorizations,
other than the original letter of credit. Tenant agrees to deliver to Landlord,
throughout the Term, at least thirty (30) days prior to the date on which any
letter of credit expires, an extension of such letter of credit, or a new or
substitute letter of credit, which extended, new or substitute letter of credit
shall be in the amount indicated above, be for a period of at least one year,
and issued by First Union Bank or any other bank that is a member of the Federal
Reserve system having a branch office in the City, County and State of New York,
in form and substance reasonably acceptable to Landlord, and payable in whole or
in part, as the case may be, upon the presentation by Landlord to such bank of
the sworn statement by Landlord or its agent described above, without
presentation of any other documents, statements or authorizations, other than
the original letter of credit, and provide for the continuance of such credit
for the period of at least one year from the date of its issuance. If Tenant
fails to deliver such extended, new or substitute letter of credit as aforesaid,
Landlord may elect to draw on the letter of credit then in effect and hold the
proceeds thereof in accordance with the provisions of subparagraph (b). Each
letter of credit to be deposited with Landlord (or the proceeds thereof) shall
be held by Landlord as security for the faithful performance and observance by
Tenant of the terms, provisions and conditions of this Lease, as provided in
subparagraph (b) below, and in the event that any default occurs as provided in
Article 24, or in the event that Landlord transfers its right, title and
interest under this Lease to a third party, and the bank issuing such letter of
credit does not consent to the transfer of such letter of credit to such third
party, then, in any such event, Landlord may draw on such letter of credit, and
the proceeds of such letter of credit shall then be held and applied as security
(and be replenished, if necessary) as provided in subparagraph (b) below.
Provided that Tenant is not in default under this Lease at the end of the Term,
the letter of credit, or the proceeds or remaining proceed thereof shall be
returned to Tenant.
(b) In the event Tenant defaults in respect of any of the terms, provisions and
conditions of this Lease, including, but not limited to, the payment of rent and
additional rent, Landlord may use, apply or retain the whole or any part of the
security so deposited to the extent required for the payment of any rent and
additional rent, or any other charge as to which Tenant is in default, or for
any sum which Landlord may expend or may be required to expend by reason of
Tenant's default in respect of any of the terms, covenants and conditions of
this Lease, including but not limited to, any damages or deficiency in the
re-letting of the Premises, whether such damages or defiency accrued before or
after summary proceedings or other re-entry by Landlord. In the event that
Tenant shall fully and faithfully comply with all of the terms, provisions,
covenants and conditions of this Lease, the security shall be returned to Tenant
after the date fixed as the end of the Term and after delivery of entire
possession of the Premises to Landlord. In the event of a sale of the land and
Building, or leasing of the Building of which the Premises form a part, Landlord
shall have the right to transfer the security to the vendee or lessee, and
Landlord shall thereupon be released by Tenant from all liability for the return
of such security, and Tenant agrees to look to the new owner solely for the
return of said security, and it is agreed that the provisions hereof shall apply
to every transfer or assignment made of the
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security to a new owner. Tenant further covenants that it will not assign or
encumber or attempt to assign or encumber the monies or letter of credit
deposited herein as security, and that neither Landlord nor its successors or
assigns shall be bound by any such assignment, encumbrance, attempted assignment
or attempted encumbrance.
53. Satellite Dish. Landlord hereby grants a license to Tenant to install and
maintain on the roof of the Building at a location designated by Landlord, a
satellite dish [no larger than eighteen (18") inches in diameter], and to pull
and maintain the required cables [no larger than one and one half (1 1/2")
inches in diameter] for its operation through a Building riser designated by
Landlord to the roof of the Building, for the purpose of receiving satellite
television service at the Premises. Tenant shall not provide television service
to any other tenant in the Building or to anyone outside the Building, or use
its equipment for any other purpose. Landlord shall have the right, at Landlords
sole cost and expense, and provided that Tenant's service is not adversely
affected thereby, to relocate the satellite dish to another location on the roof
of the Building. Except as provided in the immediately preceding sentence, the
cost of the installation and maintenance of the satellite dish and cables shall
be Tenant's, and Landlord shall not be required to do any work or supply any
materials or prepare any space with respect to the installation. Tenant shall,
prior to any work or installation of any equipment, and at its sole cost and
expense, prepare and deliver to Landlord an engineer's plan showing the route of
the cables, the location of the satellite dish and the specifications of the
cable, satellite dish and any other equipment to be used for the installation of
the satellite dish for Landlord's approval. Landlord agrees not to unreasonably
withhold or delay its approval. Tenant agrees to reimburse Landlord for any
reasonable out-of-pocket costs paid by Landlord for the review of such plan and
specifications. The plan shall provide for the labeling of all cable used by
Tenant to identify the same as Tenant's cable. Tenant shall obtain, at its sole
cost and expense, prior to any work, all necessary federal, state or municipal
permits, licenses and approvals and deliver copies of the same to Landlord.
Tenant's equipment shall at all times comply with all applicable safety
standards of any federal, state or municipal authority having jurisdiction.
Tenant agrees that the installation of the satellite dish, cables and any other
equipment necessary to provide satellite television service to the Premises
shall be performed in a neat, responsible and workmanlike manner with such
reasonable requirements as shall be imposed by Landlord. Tenant shall
immediately repair any damage done to any part of the Building as a result of
Tenant's work. If Tenant's satellite interferes with any Building-wide
television satellite service, or telecommunications or computer systems, or
other tenant's television, tele-conmmunication or computer system, Tenant shall
immediately discontinue use of its satellite and remedy the interference. If the
interference cannot be eliminated, Tenant shall remove its satellite dish,
cables and other equipment and this license shall become null and void. Tenant
shall comply with all reasonable Building rules and regulations uniformly
enforced with respect to the installation, maintenance and repair of its
satellite dish. Landlord shall have no liability or responsibility with respect
to the satellite dish, cables and other equipment, its installation,
maintenance, repair or removal, and Tenant hereby indemnifies and holds harmless
Landlord and Orda Management Corporation from and with respect to all claims,
expenses and damages, including reasonable legal fees, sustained by Landlord and
Orda Management Corporation by
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reason of any such claim. Tenant agrees that Landlord shall not be responsible
for damage to Tenant's satellite dish or wiring, or theft or other loss
connected therewith. Tenant shall have access to the satellite dish during
normal business hours for the purpose of installing, maintaining and repairing
the same only after notice to the Building's manager. Tenant shall obtain and
maintain general liability insurance with respect to its satellite dish in the
limits specified in Article 39, naming Landlord and Orda Management Corporation
as additional insureds.
54. Attorneys' Fees. In the event of any action or proceeding (including any
appeals from a decision or judgment) brought by either party to this Lease
against the other party, the party prevailing in such action or proceeding, as
determinable at the end thereof shall be entitled to recover court costs and the
fees and disbursements of its attorneys from the other party in such amount as
the court may judge reasonable.
55. Millennial Transition. Landlord warrants to Tenant that Landlord shall use
its best efforts to ensure that all necessary equipment, software and
appliances, including but not limited to elevators, heating, and air
conditioning systems, sprinkler systems, fire detection and life safety systems
and other Building systems will remain fully functional and perform their normal
operations on and after January 1, 2000, without interruptions or malfunctions
as a result of the passage from the year 1999 to the year 2000. If any repairs,
alterations or replacements must be made to any of the aforesaid equipment,
software or appliances in order to prevent or eliminate any such interruptions
or malfunctions in the services or operations provided thereby, Landlord will
cause any such repairs, alterations or replacements to be promptly and timely
made, and the cost of such repairs, alterations or replacements will be paid by
Landlord. Landlord further agrees that any interruption or malfunction of any of
the aforesaid Building systems which may occur as the result of the passage from
the year 1999 to the year 2000 win not per be deemed to constitute a "force
majeure" event or any event the occurrence of which per se is beyond the
reasonable control of Landlord to prevent or avoid.
56. Notices. Except as otherwise in this Lease provided, a bill, statement,
notice or communication which Landlord may desire or be required to give to
Tenant, shall be deemed sufficiently given or rendered if in writing and hand
delivered to Tenant's offices at the Premises, attention: President, with a copy
to Battle Fowler LLP, Park Avenue Tower, 75 East 55th Street, New York, New York
10022, attention Bradley A. Kaufman, Esq. delivered by hand or Federal Express,
or sent by certified mail return receipt requested or to such other address or
person as Tenant shall designate by Landlord, and the time of the rendition of
such bill or statement, and of the giving of such notice or communication, shall
be deemed to be the date of the first attempted delivery. Any notice by Tenant
to Landlord shall be hand delivered to Landlord's offices at the address first
above given, or such other address or person as Landlord shall designate by
notice to Tenant, with a copy to Robert G. Tischler, Esq., 225 Park Avenue
South, New York, NY 10003, faxed or sent by registered or certified mail, return
receipt requested. "Hand delivered" as used in this paragraph shall mean
delivered personally by messenger or courier service such as Federal Express or
Express Mail.
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57. Definitions. The words "re-enter" and "re-entry" as used in this Lease are
not restricted to their technical legal meaning. The term "business days" as
used in this Lease shall exclude Saturdays, Sundays and all days observed by the
State or Federal Government as legal holidays and those designated as holidays
by the applicable building service union employees contract. The word "rent"
whenever used alone in this Lease shall mean the annual rental rates, additional
rents and all other charges payable by Tenant hereunder.
58. Captions. The captions are inserted only as a matter of convenience and for
reference, and in no way define, limit or describe the scope of this Lease, or
the intent of any provision thereof.
59. Successors and Assigns. The covenants, conditions and agreements contained
in this Lease shall bind and inure to the benefit of Landlord and Tenant and
their respective successors, and except as otherwise provided in this Lease,
their assigns.
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IN WITNESS WHEREOF, Landlord and Tenant have respectively signed and delivered
this Lease the day and year first above written.
225 FOURTH LLC
By Orda Management Corporation
Manage
By /s/ Morton F. Silver
-------------------------------
Morton F. Silver, President
STV INCORPORATED
By /s/ Dominick M. Servedio
-------------------------------
Dominick M. Servedio, President
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STATE OF NEW YORK )
ss.:
COUNTY OF NEW YORK)
On the 28th day of July in the year 1999, before me, the undersigned, personally
appeared Dominick M. Servedio and Morton F. Silver, personally known to me or
proved to me on the basis of satisfactory evidence to be the individuals whose
names are subscribed to the within instrument and acknowledged to me that they
executed the same in their capacities, and that by their signatures on the
instrument, the individuals, or the person upon behalf of which the individuals
acted, executed the instrument
/s/ ROBERT TISCHLER
------------------------------------
Notary Public
ROBERT TISCHLER
Notary Public, State of New York
No. 31-3989860
Qualified in New York County
Commission Expires Sept. 30, 1999
<PAGE>
EXHIBIT A
SUBORDINATION, NON-DISTURBANCE
AND ATTORNMENT AGREEMENT
THIS SUBORDINATION, NON-DISTURBANCE AND ATTORMENT AGREEMENT ("Agreement")
is made and entered into to be effective as of the 28th day of July, 1999, by
and between AETNA LIFE INSURANCE COMPANY, a Connecticut corporation having an
office and place of business c/o Aetna Investment Group, 151 Farmington Avenue,
Hartford, Connecticut 06156 ("Lender") and STV INCORPORATED, a New York
corporation having an office and place of business at 225 Park Avenue South, New
York, New York 10003 ("Tenant").
WITNESSETH:
WHEAREAS, 225 FOURTH LLC, a Delaware limited liability company ("Landlord")
and Tenant are parties to that certain Lease dated as of July 1999 (the
"Lease"), covering the entire third, fourth and fifth floors in that certain
building known as and located at 225 Park Avenue South, New York, New York
10003, as more particularly described in the Lease (the "Demised Premises"); and
WHEREAS, Lender has made a loan to Landlord (the "Loan") which is secured
by inter alia, a mortgage upon certain property including the Demised Premises
(as the same may be amended from time to time, the "Mortgage"); and
WHEREAS, Lender and Tenant desire to set forth their agreement concerning
their respective interests in the Demised Premises.
NOW THEREFORE, in consideration of the foregoing recitals, the leasing of
the Demised Premises, and of the sum of One Dollar ($1.00) and other good and
valuable consideration the receipt and sufficiency of which is hereby
acknowledged, the parties hereby agree as follows:
1. The Lease is and shall be subject and subordinate to the Mortgage
insofar as it affects the real property of which the Demised Premises form a
part, and to all renewals modification, consolidations, replacements and
extensions thereof, to the full extent of amounts secured thereby and interest
thereon.
2 Tenant agrees that it will attorn to and recognize any purchaser at a
foreclosure sale under the Mortgage, any transferee who acquires the Demised,
Premises by deed in lieu of foreclosure, and the successors and assigns of such
purchaser or transferee, as its landlord for the unexpired balance (and any
extensions, if exercised) of the term of the Lease upon the same terms and
conditions as are set forth in the Lease.
3. Lender covenants and agrees that so long as Tenant is not then in
default under the Lease beyond any applicable cure period, in the event Lender
forecloses the Mortgage Lender shall not terminate the Lease nor join Tenant in
summary or foreclosure proceedings, and will recognize Tenant and its rights
under the Lease and will not disturb Tenant in its possession pursuant to the
Lease of the Demised Premises.
<PAGE>
4. Tenant covenants and agrees with Lender that if Lender succeeds to the
interest of Landlord under the Lease, Lender shall not be:
a. liable for any act or omission of any prior landlord (including
Landlord); or
b. liable for the return of any security deposit, unless and only to
the extent that Lender actually receives such security deposit ; or
c. subject to any offsets or defenses which Tenant might have against
any prior landlord (including Landlord), other then as specifically
provided for in the Lease, provided the foregoing shall not relieve Lender
from any obligation of the Landlord under the Lease accruing or arising
after Under's succeeding to the interest of Landlord under the Lease; or
d. bound by any rent or additional rent which Tenant might have paid
in advance for more than the current month to any prior landlord (including
Landlord); or
e. bound by any amendment or modification of the Lease made without
Lender's written approval or consent not to be unreasonably withheld; or
f. bound by any representation or warranty made by any prior landlord
(including Landlord).
5. This Agreement shall bind and inure to the benefit of the parties hereto
and their respective successors and assigns.
6. Tenant agrees to give Lender, by certified mail, return receipt
requested, sent to Lender's address set forth above a copy of any notice of
default served upon Landlord. Tenant further agrees that if Landlord shall have
failed to cure such default within the time provided for in the Lease and Tenant
would have the right to terminate the Lease based on such default then the
Lender shall have an additional thirty (30) days within which to cure such
default before Tenant may terminate the Lease, or if such default cannot be
cured within that time, then such additional time as may be necessary to cure
such default shall be granted if within thirty (30) days Lender has commenced
and is diligently pursuing to cure such default, in which event the Lease shall
not be terminated while such remedies are being so diligently pursued.
7. The liability of Lender for the performance of any obligation of
Landlord under the Lease shall be limited to Lender's interest in the Demised
Premises and the income and proceeds therefrom, and Tenant hereby agrees that
any judgment it may obtain against Lender as a result of Lender's failure, as
Landlord, to perform any of Landlord's obligations under the Lease shall be
enforceable solely against Lender's interest in the Demised Premises.
2
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the day and year first above written;
TENANT:
STV INCORPORATED
By:
Name: Domenic Servidio
Title: President
LENDER:
AETNA LIFE INSURANCE COMPANY
By:
Name:
Title:
3
<PAGE>
EXHIBIT B
GENERAL TENANT CLEANING SERVICES
The following services will be performed five nights per week (Monday through
Friday), except on union holidays.
Empty waste paper baskets and all other rubbish containers, including
containers in bathrooms. Bags of rubbish will be properly tied and left at a
place to be designated by Orda Management, which will arrange for their removal.
Under NYC law it is the responsibility of the tenant to have all recyclable
materials placed in one large central container.
Clean water fountains and water coolers.
Sweep and damp mop composition tile floors.
Dust all furniture such as desks, tables, chairs, files, cabinets, and
lockers.
Dust window sills, moldings, and radiator covers; once a week.
Vacuum carpeting once per week, carpet sweep rest of week, including steps.
Dust telephones.
Lavatories:
Clean and disinfect bowls, seats, basins and urinals
Clean mirrors
Clean all metal fixtures
Clean metal partitions and tile walls
Wash floors.
*Refill containers of hand towels and toilet tissues.
Turn off all lights as required.
All exterior windows will be cleaned inside and outside: once every
four months.
High dust every three months.
Damp wipe venetian blinds every three months.
Machine scrub lavatory floors as necessary.
*On single tenant floors Management will not furnish paper and soap
supplies.
<PAGE>
EXHIBIT C
RULES AND REGULATIONS
ATTACHED TO AND MADE A PART OF THIS LEASE
IN ACCORDANCE WITH ARTICLE 51
1. The sidewalks, entrances, driveways, passages, courts, elevators, vestibules,
stairways, corridors or halls shall not be obstructed or encumbered by any
Tenant or used for any purpose other than for ingress or egress from the demised
premises and for delivery of merchandise and equipment in a prompt and efficient
manner using elevators and passageways designated for such delivery by Landlord.
There shall not be used in any space, or in the public hall of the building,
either by any Tenant or by jobbers or others in the delivery or receipt of
merchandise, any hand trucks, except those equipped with rubber tires and
sideguards.
2. The water and wash closets and plumbing fixtures shall not be used for any
purposes other than those for which they were designed or constructed and no
sweepings, rubbish, rags, acids or other substances shall be deposited therein,
and the expense of any breakage, stoppage, or damage resulting from the
violation of this rule shall be borne by the Tenant who, or whose clerks,
agents, employees or visitors, shall have caused it.
3. No carpet, rug or other article shall be hung or shaken out of any window of
the building, and no Tenant shall sweep or throw or permit to be swept or thrown
from the demised premises any dirt or other substances into any of the corridors
or halls, elevators, or out of the doors or windows or stairways of the building
and Tenant shall not use, keep or permit to be used or kept any foul or noxious
gas or substance in the demised premises, or permit or suffer the demised
premises to be occupied or used in a manner offensive or objectionable to
Landlord or other occupants of the building by reason of noise, odors, and/or
vibrations, or interfere in any way with other Tenants or those having business
therein, nor shall any animals or birds be kept in or about the building.
Smoking or carrying lighted cigars or cigarettes in the elevators or elsewhere
in the building is prohibited.
4. No awnings or other projections shall be attached to the outside walls of the
building without the prior written consent of Landlord.
5. No sign, advertisement, notice or other lettering shall be exhibited,
inscribed, painted or affixed by any Tenant on any part of the outside of the
demised premises or the building or on the inside of the demised premises if the
same is visible from the outside of the premises without the prior written
consent of Landlord, except that the name and/or logo of Tenant may appear on
the entrance door, and in the event of a full floor tenant, in the elevator
lobby of the premises. In the event of the violation of the foregoing by any
Tenant, Landlord may remove same without any liability, and may charge the
expense incurred by such removal to Tenant or Tenants violating this rule.
Interior signs on doors and the directory in the lobby shall be inscribed,
painted or affixed for each Tenant by Landlord at the expense of such Tenant,
and shall be of a size, color and style acceptable to Landlord and consistent
with the standard for the building.
<PAGE>
Tenant may place signs on the inside of its premises, including in the lobby of
its premises.
6. No Tenant shall mark, paint, drill into, or in any way deface, any masonry
wall of the demised premises or the building of which they form a part, except
that Tenant may paint interior masonry walls. No boring, cutting or stringing of
wires shall be permitted, except with the prior written consent of Landlord, and
as Landlord may direct, except for the installation of telecommunication and
electric wires. No Tenant shall lay linoleum, or other similar floor covering,
so that the same shall come in direct contact with the floor of the demised
premises, and if linoleum or other similar floor covering is desired to be used,
an interlining of builder's deadening felt shall be first affixed to the floor,
by a paste or other material, soluble in water, the use of cement or other
similar adhesive material being expressly prohibited.
7. No additional locks or bolts of any kind shall be placed upon any of the
doors or windows by any Tenant, nor shall any changes be made in existing locks
or mechanism thereof. Each Tenant must, upon the termination of his Tenancy,
restore to Landlord all keys of offices and toilet rooms, either furnished to,
or otherwise procured by, such Tenant, and in the event of the loss of any keys
so furnished, such Tenant shall pay to Landlord the cost thereof. Tenant may
place a lock or locks on any "secure area" closet that Tenant shall designate,
and Landlord shall not have access thereto except in an emergency.
8. Freight, furniture, business equipment, merchandise and bulky matter of any
description shall be delivered to and removed from the premises only on the
freight elevators and through the service entrances and corridors, and only
between 8:OOAM and 5:OOPM, Monday through Friday, and in a manner approved by
Landlord. Tenant shall have the right to use the freight elevator after 5:00 PM
upon reasonable notice to Landlord, and upon payment of a commercially
reasonable charge set by Landlord for all tenants. Landlord reserves the right
to inspect all freight to be brought into the building and to exclude from the
building all freight which violates any of these Rules and Regulations of the
lease or which these Rules and Regulations are a part.
9. Canvassing, soliciting, hawking and peddling in the building is prohibited
and each Tenant shall cooperate to prevent the same.
10. Landlord shall have the right to prohibit any advertising by any Tenant
which in Owner's opinion, tends to impair the reputation of the building or its
desirability as a building for offices, and upon written notice from Landlord,
Tenant shall refrain from or discontinue such advertising.
11. Tenant shall not bring or permit to be brought or kept in or on the demised
premises, any vending machines dispensing food or beverage, inflammable,
combustible or explosive or hazardous fluid, material, chemical or substance, or
any other hazardous material, or cause or permit any odors of cooking or other
processes, or any unusual or
2
<PAGE>
other objectionable odors to permeate in or emanate from the demised premises.
Tenant may have copying equipment that uses ammonia.
12. Tenant shall not move any safe, heavy machinery, heavy equipment, bulky
matter, or fixtures into or out of the building without Landlord's prior written
consent, which Landlord agrees not to unreasonably withhold or delay. If such
safe, machinery, equipment, bulky matter or fixtures requires special handing,
all work in connection therewith shall comply with the Administration Code of
the City of New York and all other laws and regulations applicable thereto and
shall be done during such hours as Landlord may designate.
13. Refuse and trash. (1) Compliance by Tenant. Tenant covenants and agrees, at
its sole cost and expense, to comply with all present and future laws, orders,
and regulations of all state, federal, municipal, and local governments,
departments, commissions and boards regarding the collection, sorting,
separation and recycling of waste products, garbage, refuse and trash. Tenant
shall sort and separate such waste products, garbage, refuse and trash into such
categories as provided by law. Each separately sorted category of waste
products, garbage, refuse and trash shall be placed in separate receptacles
reasonably approved by Landlord. Such separate receptacles may, at Landlord's
option, be removed from the demised premises in accordance with a collection
schedule prescribed by law. Tenant shall remove, or cause to be removed by a
contractor acceptable to Landlord, at Landlord's sole discretion, such items as
Landlord may expressly designate. (2) Owner's Rights in Event of Noncompliance.
Owner has the option to refuse to collect or accept from Tenant waste products,
garbage, refuse or trash (a) that is not separated and sorted as required by law
or (b) which consists of such items as Landlord may expressly designate for
Tenant's removal, and to require Tenant to arrange for such collection at
Tenant's sole cost and expense, utilizing a contractor satisfactory to Landlord.
Tenant shall pay all costs, expenses, fines, penalties, or damages that may be
imposed on Landlord or Tenant by reason of Tenant's failure to comply with the
provisions of this Rule 15, and, at Tenant's sole cost and expense, shall
indemnify, defend and hold Landlord harmless (including reasonable legal fees
and expenses) from and against any actions, claims and suits arising from such
noncompliance, utilizing counsel reasonably satisfactory to Landlord.
14. No equipment or large boxes containing personal or office items are allowed
to enter or exit through our lobbies. These items must be brought in or removed
through the freight elevators. When leaving the building, a pass for these items
must be given to the freight elevator operator.
15. No pets are allowed in the building at any time. Guide Dogs are the only
exception to this rule.
16. No bicycles are allowed in the building.
17. Anyone entering the building from 6 P.M. to 7 A.M. (Monday - Friday), and
anytime Saturday or Sunday, must be on an authorized list supplied by Tenant's
office
3
<PAGE>
manager. In addition, he/she must sign in and out (fire safety), and if asked,
must show identification. Updates should list all the employees still granted
permission to enter the premises after hours, not just the newly authorized
employees. This will allow our lobby attendants to have one simple list rather
than 20 sheets of additions and deletions for each tenant.
4
<PAGE>
[LETTERHEAD]
0 R D A
July 28, 1999
STV Incorporated
225 Park Avenue South, 5th Floor
New York, NY 10003
This is to confirm our receipt of $185,706.66 representing the first
month's rent for the Premises demised under the Lease signed by us today.
$67,3373.33 of that amount will be a credit against the $185,706.66 payable for
the 7th month of the Term.
Landlord agrees to cause ATC Associates Inc. to inspect the 4th and 5th
floors of the Premises to determine whether there is any mercury contamination
on those floors, and to render a written report of the inspection. If any
mercury or other hazardous material (other than VAT and other than any hazardous
material brought into those floors by you) is discovered, Landlord, at
Landlord's expense, shall cause the same to be removed or remediated within 60
days from the date hereof.
225 Fourth LLC
By Orda Management Corporation
By: /s/ Morton F. Silver
-----------------------------------
Morton F. Silver, President
<PAGE>
GUARANTY
In consideration of and as an inducement to 225 Fourth LLC ("landlord") in
entering into that certain Agreement of Lease dated July 29, 1999 (the "Lease")
with STV Incorporated ("Principal") for the third, fourth and fifth floors in
the building known as 225 Park Avenue South, New York, New York, hereinafter
referred to as the "Lease"), STV Group, Incorporated, a Pennsylvania corporation
having an office at 205 West Welsh Road, Douglassville, PA 19518 ("Guarantor"),
hereby guarantees to Landlord, its successors and assigns, the full and timely
payment and performance of all obligations of Principal, its successors and
assigns, under and in accordance with the Lease and shall promptly pay all
amounts due, including the annual rental rates, additional rents and all other
charges payable thereunder, and timely perform and observe all of the covenants,
conditions and agreements provided in the Lease which are not fully or timely
paid, observed or performed by Principal for any reason after any applicable
notice has been given and any applicable cure period has expired (a "Lease
Default), without any defense, deduction, counterclaim, offset, or setoff which
Principal may have (other than the defense of payment or performance by
Principal), together with interest and all reasonable costs and expenses
(including reasonable legal fees) incurred by Landlord because of any Lease
Default, or because of any default under this Guaranty, provided that Landlord
shall have given Guarantor ten (10) days notice of such Lease Default, or
default under this Guaranty. Guarantor expressly agrees that the validity of
this Guaranty and the obligations of the Guarantor hereunder shall in no wise be
terminated, affected or impaired by reason of the assertion by Landlord against
Tenant of any of the rights or remedies reserved to Landlord pursuant to the
provisions of the Lease. This is an absolute and unconditional guarantee of
payment and performance and may be proceeded upon by Landlord without taking any
action against Principal or after action against Principal has been commenced.
The obligations of Guarantor hereunder shall not be discharged or impaired or
otherwise affected by the failure of Landlord to assert any claim or demand or
to enforce any remedy under the Lease, by any waiver, modification, or amendment
of any provision thereof by any default, failure or delay, willful or otherwise,
in the payment by Principal of amounts payable under the Lease, or by any other
act or thing or omission or delay to do any other act or thing which may or
might in any manner or to any extent vary the risk of Guarantor, or would
otherwise operate as a discharge of Guarantor as a matter of law, provided that
if Guarantor's written consent is not obtained to any further amendment or
modification of the Lease which materially increases the obligations of
Guarantor hereunder, Guarantor shall not be responsible for such increased
obligations. No payment by Guarantor pursuant to this Guaranty shall entitle
Guarantor to any payment by Principal or to any payment out of or in respect of
the property of Principal, except after payment in full of all sums (including
interest and reasonable costs and expenses) which may be or have become payable
by Principal to Landlord at any time or from time to time pursuant to the Lease
or otherwise.
Whenever used in this Guaranty, the term "Guarantor" shall include the
successors and assigns of the Guarantor.
<PAGE>
[LETTERHEAD]
GUARDIAN
VIA FEDERAL EXPRESS and FACSIMILE
212-___-____ and 212-___-_____
Debra R.Smith
Vice President Investment
and Real Estate Counsel
July 28, 1998
225 Fourth LLC 225
Park Avenue South
New York, NY 10003
Attention: Morton F. Silver, Esq.
Re: Lease dated March 10, 1988 ("Expiring Guardian Lease") from 225 Fourth
Company to The Guardian Life Insurance Company of America ("Guardian")
and Lease dated July 28, 1999 ("New STV Lease') from 225 Fourth LLC
("Owner') to STV Inc . ("STV"), both covering the 3rd floor of 225 Park
Avenue South, New York, NY 10003
Dear Mr. Silver:
In connection with Guardian's move out of the third floor of 225 Park Avenue
South, New York, NY 10003 ("Premises") STV has requested a license from Guardian
to allow its development teams to enter the Premises prior to the July 31, 1999
expiration date of the Expiring Guardian Lease to begin planning and layout work
for several new projects being undertaken by STV and Guardian has requested a
license from STV to delay moving Guardian's telephone switch in the Premises
until sometime in August, 1999.
Guardian and STV grant their respective approvals to the aforesaid licenses
subject to the following:
1. Receipt by Guardian and STV of the Owner's written consent.
2. Receipt by Guardian and Owner prior to the license from Guardian becoming
effective of STV's Certificates of Insurance for commercial general
liability and workman's compensation naming Guardian and 225 Fourth LLC as
additional insureds, in a form acceptable to Guardian and Owner.
3. Receipt by STV and Owner prior to the license from STV becoming effective
of Guardian's Certificates of Insurance for commercial general liability
and workman's compensation naming STV and 225 Fourth LLC as additional
insureds, in a form acceptable to STV and Owner.
4. These licenses are reciprocal and each constitutes the consideration for
the other.
5. Written approval below of STV.
Very truly yours,
Debra R. Smith
APPROVAL OF THE ABOVE:
STV INCORPORATED 225 FOURTH LLC
By: /s/ Dominick M. Servedio By: /s/ Morton F. Silver
--------------------------- ------------------------------
Dominick M. Servedio Morton F. Silver
STV GROUP 1999 Annual Report
[GRAPHICS OMITTED]
<PAGE>
Table of Contents
01
Introduction
02
Financial Highlights
03
Message to Shareholders
07
STV Offices
08
Financial Report
[GRAPHICS OMITTED]
<PAGE>
STV Group
1999 Annual Report
01 Introduction
The Firm
STV Group is a leading international firm recognized for delivering value and
excellence in engineering, architectural, planning, environmental and
construction services. Our staff of more than 1,100 professional, technical and
support personnel offers a wide range of expertise to an ever-expanding client
base.
Mission Statement
STV Group's mission is to create exceptional value for clients worldwide in the
planning, design, construction, operation, maintenance and finance of projects.
We commit to perform our services with a high level of vision, integrity,
innovation, quality and environmental sensitivity. We will provide a
challenging, rewarding and stable work environment that encourages professional
development and continuous improvements for our diverse workforce. We will be a
proactive, profitable firm providing improved financial performance for the
benefit of our employees and shareholders.
A Record-Setting Year
STV's unprecedented performance in fiscal 1999 is the result of planning and
business initiatives established earlier in the decade. Our firm has benefited
from proactive business practices and strategic marketing in today's strong
business climate. The approach that led to the financial results described in
this annual report serves as a model for future successes.
[GRAPHIC OMITTED - caption as follows:
Millennium Inorganic Chemicals Research Center -
Baltimore, Glen Burnie, Md.
Photo (c) Robert I. Faulkner]
<PAGE>
Financial Highlights 02
(For Fiscal Years Ended September 30)
<TABLE>
<CAPTION>
'99 '98 '97 '96 '95
<S> <C> <C> <C> <C> <C>
Total Revenues $138,940,000 $105,178,000 $ 94,676,000 $ 94,073,000 $ 89,232,000
Operating Revenues 97,438,000 80,648,000 72,832,000 71,271,000 69,397,000
Net Income 5,184,000 2,194,000 860,000 595,000 394,000
*Net Income Per Common Share 1.24 .55 .23 .16 .11
Working Capital 17,593,000 12,341,000 10,099,000 8,721,000 8,220,000
Stockholders' Equity 18,767,000 13,472,000 11,202,000 10,342,000 9,872,000
Total Assets 60,734,000 46,488,000 41,825,000 39,995,000 41,626,000
Long-Term Obligations 3,864,000 3,061,000 2,612,000 1,795,000 2,033,000
Short-Term Bank Debt 0 0 10,228,000 9,448,000 13,251,000
</TABLE>
* Net income per common share for prior years has been adjusted to reflect the
2-for-1 stock split effective April 13, 1998.
<PAGE>
STV Group
1999 Annual Report
03 Message To Shareholders
Dear Shareholders:
STV has had another banner year. Clearly our strategic initiatives and
investments have paid off - in vital infrastructure enhancements, new management
teams, geographic expansion, a wider range of skills and better-trained
employees.
[GRAPHIC OMITTED - caption as follows:
The Can Company Baltimore, Md.
Photo (c) Jeffrey G. Katz]
However, the most dramatic improvements can be attributed to a heightened
company-wide focus on quality and profitability, as well as the importance of
cash management.
STV's increasingly strong financial performance in recent years carried through
fiscal 1999, culminating in a record-setting year for the company. Our revenues
were the highest ever at $138,940,000, marking a 32 percent increase over
$105,178,000 in fiscal 1998. Net income rose 136 percent, increasing to
$5,184,000 in fiscal 1999, compared with $2,194,000 in 1998. Earnings per share
increased 125 percent to $1.24, up from $0.55 in fiscal year 1998.
For the second consecutive year, STV has no short-term bank debt, and our cash
and cash equivalents are up 63 percent.
With a strong balance sheet, STV has never been in a better position to
effectively pursue an ever-expanding range of business opportunities. We are now
reaping the rewards of a proactive business approach, a strategic marketing
focus, key infrastructure investments, and employee benefit enhancements
initiated several years ago.
Achieving new heights
STV's financial strength reflects several factors. One is our growing
participation in major design-build contracts, which offer higher margins than
design-only contracts. The firm is currently involved with the country's first
rail-related design-build assignments.
While our major markets remain the same, STV has achieved greater market share
and profitability within these markets, particularly
[GRAPHS OMITTED - data as follows]
Operating Revenues (In Millions of Dollars)
1995 69.4
1996 71.3
1997 72.8
1998 80.6
1999 97.4
Net Income (In thousands of Dollars)
1995 394
1996 595
1997 860
1998 2,194
1999 5,184
Backlog (In Millions of Dollars)
1995 129
1996 130
1997 110
1998 150
1999 200
Short-Term Bank Debt (In Millions of Dollars)
1995 13.2
1996 9.4
1997 10.2
1998 NO DEBT
1999 NO DEBT
<PAGE>
04
[GRAPHIC OMITTED - caption as follows:
P.S. 340 Bronx N.Y. for
New York City School
Construction Authority
Photo (c) Julian Olivas/Air-to-Ground]
Engineering
News-Record, a
highly respected
engineering
industry publication,
has ranked STV
among the top
20 firms in trans-
portation design,
and specifically
in the top five in
mass transit/light
rail design.
infrastructure design-build and educational facilities. We have accomplished
this by participating in larger projects and delivery methods with greater
potential for profit. Our strategic alliances with other major firms have also
been advantageous - a proven project team is an asset in securing work with our
clients.
STV's national prominence in the design and construction industry is growing.
Engineering News-Record, a highly respected engineering industry publication,
has ranked STV among the top 20 firms in transportation design, and specifically
in the top five in mass transit/light rail design.
As in previous years, the quality of our professionals' work has been recognized
with numerous awards. National, state and local agencies and professional
organizations have honored STV projects from coast to coast.
Our backlog stands at a record high of $200 million. Major projects reflected in
this number include the tunnel-engineering contract, awarded this year, for the
$2.3 billion extension of Long Island Rail Road service through Manhattan's East
Side into Grand Central Terminal. This project will save nearly 100,000
commuters more than 30 minutes each day. We also conducted the original major
investment study for this landmark project.
[GRAPHIC OMITTED - caption as follows:
Environmental projects for Sprint PCS
communication stations in five states
Photo (c) Jim Schafer Location Photography]
<PAGE>
STV Group
1999 Annual Report
05 Message To Shareholders (continued)
Improvements in the way we do business have enabled STV to manage growth by
maximizing the use of our personnel and other resources while retaining a focus
on the bottom line. Strategic investments in information technology have
translated into improved efficiency and effectiveness in the services we
provide, and an enhanced work environment for our employees. To continue to
attract and retain the industry's most talented personnel, STV regularly reviews
and continues to implement enhanced employee benefits and training programs.
Looking ahead
Nearly two years ago, the six-year, $218 billion Transportation Equity Act for
the 21st Century (TEA-21) became the largest infrastructure funding bill in
U.S. history. As we anticipated, this legislation has had, and will continue to
have, a positive impact on STV's transportation business, contributing federal
dollars to many projects that would not exist without this funding. STV projects
benefiting from TEA-21 range from the commuter rail tunnel into Grand Central
Terminal and ongoing rail projects in St. Louis and Dallas to highways and
bridges for the various state transportation departments with which STV
regularly does business.
[GRAPHS OMITTED - Data as follows:]
Net Worth (In Millions of Dollars)
1995 9.9
1996 10.3
1997 11.2
1998 13.5
1999 18.7
Diluted Earnings Per Share* (In Dollars)
1995 .11
1996 .16
1997 .23
1998 .55
1999 1.24
Working Capital (In Millions of Dollars)
1995 8.2
1996 8.7
1997 10.1
1998 12.3
1999 17.6
Price Per Share* (In Dollars)
1995 2 1/2
1996 3 3/4
1997 3 7/8
1998 4 1/2
1999 7 11/16
* Numbers for prior years have been adjusted to reflect the 2-for-1 stock split
effective April 13, 1998.
[GRAPHIC OMITTED - caption as follows:
North End Access into Grand Central
Terminal, New York, N.Y.
Photo (c) Julian Olivas, Air-to-Ground]
<PAGE>
06
[GRAPHIC OMITTED caption as follows:
Amtrak Northeast Corridor
High-Speed Rail, Ivy City Yard,
Washington, D.C.
Photo (c) Michael Goodman]
We are proud
that, under our
administration,
the firm's fiscal
1999 reached
record-breaking
revenues, with
profits that more
than doubled
from the previous
fiscal year.
As we write this message, the advent of the year 2000 is still ahead of us.
Begun over two years ago, long-term planning for Y2K compliance has been a
priority at STV. We have taken a proactive approach to identify and address
potential business issues that could result from the Y2K "bug" that affects
technology unable to read a date or time beyond two digits. We believe that, by
the time you read this, our substantial planning, technology replacement, and
testing efforts will have resulted in a smooth transition to the new millennium
for our company, clients and shareholders alike.
On a personal note, you probably know that we passed the responsibilities of
chief executive officer from one to the other as we entered calendar year 1999.
Because we worked together closely over the past 22 years we were able to ensure
a seamless transition of leadership to guide STV into the future. We are proud
that, under our administration, the firm's fiscal 1999 reached record-breaking
revenues, with profits that more than doubled from the previous fiscal year. We
look forward to sharing STV's future successes with you, our shareholders.
Sincerely,
/s/ Dominick M. Servedio
Dominick M. Servedio, P.E.
President and Chief Executive Officer
/s/ Michael Haratunian
Michael Haratunian, P.E.
Chairman
[GRAPHIC OMITTED - caption as follows:
Michael Haratunian, P.E., and Dominick M. Servedio, P.E.
Photo (c) Robert Essel Photography]
<PAGE>
STV Group
1999 Annual Report
07 STV Offices
Corporate Headquarters
STV Group
205 West Welsh Drive
Douglassville, PA 19518
670-385-8200, Fax 610-385-8500
225 Park Avenue South
New York, NY 10003
212-777-4400, Fax 212-529-5237
Web site: www.stvinc.com
e-mail: [email protected]
Dominick M. Servedio, P.E.
President and Chief Executive Officer
Peter W. Knipe
Chief Financial Officer
Board of Directors
Michael Haratunian, P.E., Chairman
Dominick M. Servedio, RE.
President and Chief Executive Officer
William J. Doyle, Director
Richard L. Holland, P.E., Director
Maurice L. Meier, P.E., Director
R.M. Monti, P.E., Director
G. Michael Stakias, Director
Corporate Management: Human Resources/
Information Technology/Strategic Planning
Ralph V. Locurcio, P.E.
205 West Welsh Drive, Douglassville, PA 19518
610-385-8200, Fax 610-385-8500
STV Incorporated
North Atlantic Region
Gerald C. Gerletz, P.E.
80 Ferry Boulevard, Stratford, CT 06615
203-375-0521, Fax 203-377-2541
230 Congress Street, 9th Floor, Boston, MA 02110
617-482-7298, Fax 617-482-1837
Mid-Atlantic Region
Maher Labib, P.E., Facilities
Edward J. Petrou, P.E., Civil
225 Park Avenue South, New York, NY 10003
212-777-4400, Fax 212-529-5237
75 Montgomery Street, Jersey City, NJ 07302
201-547-4150, Fax 201-547-4172
South Atlantic Region
Donald J. Wise, P.E.
21 Governor's Court, Baltimore, MD 21244-2722
410-944-9112, Fax 410-298-2794
Central Region
Whitney A. Sanders II, P.E.
20S West Welsh Drive, Douglassville, PA 19518
610-385-8200, Fax 610-385-8501
2105 West County Line Road, Jackson, NJ 08527-9852
732-370-2100, Fax 732-370-2051
44427 Airport Road, Suite 120, California, MD 20619
301-862-2344, Fax 301-863-9637
Four Gateway Center, Suite 325, Pittsburgh, PA 15222
412-392-3500, Fax 412-392-3501
820 Bear Tavern Road, Suite 105, Trenton, NJ 08628-1021
609-530-0300, Fax 609-530-0305
Midwest Region
William B. David, P.E.
70 West Madison Street, Suite 2840
Chicago, IL 60602-4207
312-553-0655, Fax 312-563-0661
2040 West Wisconsin Avenue, Suite 563
Milwaukee, WI 53233-2012
414-342-7799, Fax 414-342-7899
Western Region
David L. Borger, P.E.
1055 Wilshire Boulevard, Suite 1455
Los Angeles, CA 90017-2499
213-482-9444, Fax 213-482-5278
425 Market Street, Suite 2835, San Francisco, CA 94105
415-777-9206, Fax 415-777-9207
Transportation Systems Division
William F. Matts, P.E.
225 Park Avenue South, New York, NY 10003
212-777-4400, Fax 212-529-5237
1101 Market Street, Suite 1410, Philadelphia, PA 19107
215-629-4004, Fax 215-629-3960
425 Market Street, Suite 2835, San Francisco, CA 94105
415-777-9206, Fax 415-777-9207
One Main Place, 1201 Main Street, Suite 1512
Dallas, TX 75202-3990
214-651-7337, Fax 214-651-7339
727 North First Street, Suite 210, St. Louis, MO 63102
314-436-2130, Fax 314-436-2530
5762 South Semoran Boulevard, Orlando, FL 32822
407-208-0385, Fax 407-208-0393
STV Environmental
Roger Zyma
205 West Welsh Drive, Douglassville, PA 19518
610-385-8200, Fax 610-385-8501
225 Park Avenue South, New York, NY 10003
212-777-4400, Fax 212-529-5237
STV Construction Services
James J, Fetterolf
205 West Welsh Drive, Douglassville, PA 19518
610-385-8200, Fax 610-385-8501
Brian J. Flaherty
225 Park Avenue South, New York, NY 10003
212-777-4400, Fax 212-529-5237
STV Architects
Robert W. Darlington, A.I.A.
205 West Welsh Drive, Douglassville, PA 19518
610-385-8200, Fax 610-385-8501
David Miles Ziskind, A.I.A.
225 Park Avenue South, New York, NY 10003
272-777-4400, Fax 212-529-5237
STV International
Michael R. Santoro
225 Park Avenue South, New York, NY 10003
212-777-4400, Fax 212-529-5237
<PAGE>
Financial Report 08
1999 Annual Report for STV Group and Subsidiaries
Subsidiaries: STV Incorporated, STV Architects, Inc., STV Environmental,
Inc., STV International, Inc., STV Surveying, Inc., STV Construction, Inc.,
STV Construction Services, Inc., and STV/Silver & Ziskind
Management Discussion and Analysis of Financial Condition and Results of
Operations
STV Group and Subsidiaries
This discussion and analysis should be read in conjunction with the Message to
Shareholders and the information on pages 11 through 22 of this Annual Report.
Fiscal 1999 Compared to Fiscal 1998
Total revenues for the fiscal year ended September 30, 1999, increased 32.1
percent to $138,940,000. This is up from an 11.1 percent increase in fiscal 1998
and a .7 percent increase in fiscal 1997. The increase in total revenues in
fiscal 1999 was attributable to a 20.8 percent increase in operating revenues
mainly in the transportation and infrastructure areas, and an increase in
subcontractor and procurement revenue (pass-through cost reimbursement).
Revenues from U.S. government contracts decreased 4.2 percent in fiscal 1999 as
compared to fiscal 1998 and decreased 2.4 percent in fiscal 1998 as compared to
fiscal 1997. This continued decrease is attributable to the government's reduced
spending, particularly in defense systems projects. Operating revenues (total
revenues excluding pass-through costs) increased 20.8 percent to $97,438,000
compared to a 10.7 percent increase to $80,648,000 in fiscal 1998 and a 2.2
percent increase in fiscal 1997.
We continue to see an increased demand for facilities and transportation
engineering. In particular, the six-year, $218 billion Transportation Equity Act
for the 21st Century (TEA-21) is positively impacting STV's transportation
business, contributing federal dollars to many projects that would not exist
without this funding. When it passed two years ago, TEA-21 became the largest
infrastructure funding bill in U.S. history. At the same time, U.S. 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
29.9 percent in fiscal 1999 compared to 23.3 percent in fiscal 1998 and 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 84.3
percent in fiscal 1999, which is a decrease from 86.4 percent in fiscal 1998 and
88.4 percent in fiscal 1997. This percentage decrease is due to an increase in
margins on design-build projects and labor utilization improvements partially
offset by an increase in labor-related expenses. Costs increased from
$69,658,000 in fiscal 1998 to $82,185,000 in fiscal 1999. This increase is due
primarily to the growth in engineering service costs.
General and administrative expense, expressed as a percentage of operating
revenues, increased to 8.7 percent in fiscal 1999 from 7.8 percent in 1998 and
7.3 percent in 1997. Total general and administrative costs increased 33.8
percent in fiscal 1999 to $8,438,000 from $6,307,000 in fiscal 1998. This
increase is again due primarily to higher labor and concomitant expenses.
The 1999 operating results include a $2.6 million insurance and interest
settlement payment received in September. STV and its insurers had been involved
in protracted litigation concerning the settlement of a personal injury lawsuit
in 1992. In STV's fourth quarter, the Appellant Court found in favor of the
Company and its professional liability insurer which resulted in a favorable
settlement and a payment of $2.6 million to STV. Interest income, expressed as a
percentage of operating revenues, was .4 percent in fiscal 1999, .1 percent in
fiscal 1998, and .05 percent in fiscal 1997. Interest expense, expressed as a
percentage of operating revenues, was .2 percent in fiscal 1999, .6 percent in
fiscal 1998, and 1.9 percent in fiscal 1997. These results reflect STV's ability
to maintain a positive cash flow with efficient advance billings and higher net
income.
The Company had a pre-tax profit of $9,570,000. Income tax expense was 46
percent of pre-tax income compared to 49 percent in fiscal 1998 and 51 percent
in fiscal 1997. The variance in the rate is due to a reduction in nondeductible
expenses as a percent of significantly higher pre-tax income.
<PAGE>
09 Management Discussion and Analysis of Financial Condition and Results of
Operations (continued)
STV Group and Subsidiaries
Fiscal 1998 Compared to Fiscal 1997
Total revenues for the fiscal year ended September 30, 1998, increased 11.1
percent to $105,178,000. 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
23.3 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.
Costs of services, expressed as a percentage of operating revenues, was 86.4
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 from $64,398,000 in
fiscal 1997 to $69,658,000 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.
Liquidity, Capital Resources and Financing Agreements
Cash provided in operating activities was $4,391,000 in fiscal 1999 compared to
$14,509,000 in fiscal 1998. This decrease was due mainly to decreases in
billings in excess of related costs and an increase in accounts receivable.
Working capital increased $5,252,000 to $17,593,000 in fiscal 1999 compared to a
$2,242,000 increase in 1998 and a $1,378,000 increase in 1997. Investing
activities decreased from $1,371,000 in 1998 to $1,172,000 in 1999, and
consisted primarily of $1,309,000 for the continued purchase of computer
hardware and software compared to $1,097,000 in 1998. The net decrease was due
to the absence of treasury stock purchases in fiscal 1999. Financing activities
included a $526,000 net decrease in short-term borrowing due to lower amount of
debt outstanding.
Capital resources available to STV include an existing line of credit for
working capital. The current line is a maximum of $15,500,000 based on accounts
receivable and work-in-progress, of which approximately $13,518,000 is currently
available. An agreement was signed last 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, STV 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.
STV is currently negotiating with other banks to obtain a revolving line of
credit at a lower level with more favorable terms.
In the long term, the Company relies on the ability to generate sufficient cash
flows from operating activities to fund investing and financing requirements.
<PAGE>
Management Discussion and Analysis of Financial Condition and Results of 10
Operations (continued)
STV Group and Subsidiaries
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.
STV has recently acquired and installed new financial and project management
systems that are certified Year 2000-compliant. The Company also replaced or
upgraded other systems that may not have been compliant. Costs of becoming
2000-compliant were not 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 were analyzed and remedial action was taken with those suppliers
who were deemed non-compliant. In addition, STV has notified its clients of Year
2000 compliance actions and issues, and has completed the testing of the
Company's in-house equipment and software under simulated Year 2000 conditions
to attempt to 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 clients 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. Ongoing testing of equipment and software will
considerably lessen the risk of failure, and STV currently has a contingency
plan to 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 the Company has sufficient hardware, software 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.
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.
These and other factors are discussed in more detail in STV's annual report on
Form 10-K for the fiscal year ended September 30, 1999.
<PAGE>
11 Consolidated Balance Sheets
STV Group and Subsidiaries
<TABLE>
<CAPTION>
September 30
1999 1998
<S> <C> <C>
Assets
Current Assets:
Cash and cash equivalents $ 7,248,000 $ 4,444,000
Accounts receivable 30,590,000 23,485,000
Costs and estimated profits of uncompleted contracts in
excess of related billings 17,029,000 13,218,000
Prepaid income taxes 0 84,000
Prepaid expenses and other current assets 829,000 1,065,000
----------- -----------
Total Current Assets 55,696,000 42,296,000
Property and equipment, net 1,813,000 1,553,000
Deferred income taxes 2,443,000 1,882,000
Other assets 782,000 757,000
----------- -----------
Total Assets $60,734,000 $46,488,000
Liabilities and Stockholders' Equity
Current Liabilities:
Current maturity of long-term debt $ 110,000 $ 564,000
Accounts payable 7,675,000 6,382,000
Billings on uncompleted contracts in excess of related
costs and estimated profits 17,094,000 13,375,000
Accrued payroll and related expenses 8,174,000 5,812,000
Accrued expenses 2,037,000 1,864,000
Deferred income taxes 2,137,000 1,862,000
Income tax payable 876,000 96,000
----------- -----------
Total Current Liabilities 38,103,000 29,955,000
Long-term debt 2,794,000 2,134,000
Post-retirement benefits 1,070,000 927,000
----------- -----------
Total Liabilities 41,967,000 33,016,000
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 2,041,000 2,025,000
Capital in excess of par 3,445,000 3,350,000
Retained earnings 14,052,000 8,868,000
----------- -----------
19,538,000 14,243,000
Less: Treasury stock 771,000 771,000
----------- -----------
Total Stockholders' Equity 18,767,000 13,472,000
----------- -----------
Total Liabilities and Stockholders' Equity $60,734,000 $46,488,000
</TABLE>
See notes to consolidated financial statements.
<PAGE>
Consolidated Statements of Income 12
STV Group and Subsidiaries
<TABLE>
<CAPTION>
For the Fiscal Year Ended September 30
1999 1998 1997
<S> <C> <C> <C>
Total revenues $ 138,940,000 $ 105,178,000 $ 94,676,000
Subcontract and procurement costs 41,502,000 24,530,000 21,844,000
------------- ------------- -------------
Operating revenue 97,438,000 80,648,000 72,832,000
Costs and expenses:
Costs of services 82,185,000 69,658,000 64,398,000
General and administrative 8,438,000 6,307,000 5,322,000
------------- ------------- -------------
Total costs and expenses 90,623,000 75,965,000 69,720,000
Insurance settlement 2,600,000 0 0
Interest expense (195,000) (469,000)
(1,380,000)
Interest income 350,000 78,000 36,000
------------- ------------- -------------
Other income (expense) 2,755,000 (391,000) (1,344,000)
Income before income taxes 9,570,000 4,292,000 1,768,000
Income tax expense 4,386,000 2,098,000 908,000
------------- ------------- -------------
Net income $ 5,184,000 $ 2,194,000 $ 860,000
Basic earnings per share $ 1.36 $ .59 $ .24
Diluted earnings per share $ 1.24 $ .55 $ .23
</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, 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
Exercise of options 32,500 16,000 95,000
Net income for the year 5,184,000
Balance, September 30, 1999 4,081,654 $ 2,041,000 $ 3,445,000 $14,052,000 248,836 $ 771,000
</TABLE>
See notes to consolidated financial statements.
<PAGE>
13 Consolidated Statements of Cash Flows
STV Group and Subsidiaries
<TABLE>
<CAPTION>
For the Fiscal Year Ended September 30
1999 1998 1997
<S> <C> <C> <C>
Operating Activities
Net income $ 5,184,000 $ 2,194,000 $ 860,000
Adjustments to reconcile net income to net cash provided
by operating activities
Depreciation 887,000 741,000 795,000
Deferred income taxes (286,000) 944,000 585,000
Changes in operating assets and liabilities
Accounts receivable (7,105,000) (3,331,000) 350,000
Costs and estimated profits of uncompleted
contracts in excess of related billings and other
current assets (3,575,000) 2,017,000 (487,000)
Accounts payable and other liabilities 4,703,000 2,440,000 204,000
Billings on uncompleted contracts in excess of
related costs and estimated profits 3,719,000 8,989,000 68,000
Current income taxes 864,000 515,000 (641,000)
------------ ------------ ------------
Net cash provided by operating activities $ 4,391,000 $ 14,509,000 $ 1,734,000
Investing Activities
Purchase of property and equipment $ (961,000) $ (843,000) $ (724,000)
Purchase of software (348,000) (254,000) (107,000)
Decrease in other assets 137,000 68,000 28,000
Purchase of treasury stock 0 (342,000) 0
------------ ------------ ------------
Net cash used in investing activities $ (1,172,000) $ (1,371,000) $ (803,000)
Financing Activities
Proceeds from issuance of common stock $ 111,000 $ 451,000 $ 0
Proceeds from line of credit and long term borrowings 0 55,073,000 92,435,000
Principal payments on line of credit and long term
borrowings (526,000) (65,371,000) (92,241,000)
------------ ------------ ------------
Net cash (used in) provided by financing
activities $ (415,000) $ (9,847,000) $ 194,000
Increase in cash 2,804,000 3,291,000 1,125,000
Cash and cash equivalents at beginning of year 4,444,000 1,153,000 28,000
Cash and cash equivalents at end of year $ 7,248,000 $ 4,444,000 $ 1,153,000
</TABLE>
See notes to consolidated financial statements.
<PAGE>
Notes to Consolidated Financial Statements 14
STV Group and Subsidiaries
1. Significant Accounting Policies
Basis of Presentation
STV 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 STV 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
STV 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
STV'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 values 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
$741,000.
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
1999 presentation.
Long-lived Assets
The carrying amount of the long-lived assets is 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 STV adopted in 1998. All disclosures as
required by SFAS 128 are included in Note 6 to the financial statements.
<PAGE>
15 Notes to Consolidated Financial Statements (continued)
STV Group and Subsidiaries
2. Costs and Estimated Profits of Uncompleted Contracts in Excess of Related
Billings
Costs and estimated profits of uncompleted contracts at September 30, 1999 and
1998, respectively, are as follows:
1999 1998
Costs and estimated earn-
ings on uncompleted
contracts $ 462,774,000 $ 350,044,000
Less billings to date 462,839,000 350,201,000
-------------- --------------
$ (65,000) $ (157,000)
Costs and estimated profits of uncompleted contracts are included in the
accompanying balance sheets under the following captions:
1999 1998
Costs and estimated
profits of uncompleted
contracts in excess of
related billings $ 17,029,000 $ 13,218,000
Billings on uncompleted
contracts in excess of
related costs and
estimated profits 17,094,000 13,375,000
------------ -------------
$ (65,000) $ (157,000)
Included in accounts receivable are retainages related to uncompleted contracts
in the amounts of $7,683,000 in 1999 and $7,225,000 in 1998. The collection of
retainages generally coincides with final project acceptance.
3. Property and Equipment
Property and equipment, at cost, are as follows:
1999 1998
Land $ 54,000 $ 54,000
Equipment 2,934,000 4,572,000
Furniture and fixtures 1,903,000 1,825,000
Leasehold
improvements 1,754,000 1,744,000
------------ -------------
$ 6,645,000 $ 8,195,000
Less:
Accumulated
depreciation and
amortization 4,832,000 6,642,000
------------ -------------
$ 1,813,000 $ 1,553,000
4. Note Payable
STV's current credit facility, as amended, includes a note payable on demand (no
borrowings outstanding during the year ended September 30, 1999) which bears
interest at the bank's base rate (9.5 percent at September 30, 1999) and is
secured by substantially all assets. The weighted average interest rate was 9.7
percent in fiscal 1998. The bank also provides letters of credit which incur a
charge of 1.5 percent of the face value. Currently, $1,982,000 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 covenants regarding additional debt and
stockholders' equity. The covenants include maintaining a minimum tangible net
worth, a maximum total debt to tangible net worth ratio, and a minimum working
capital amount.
5. Income Taxes
STV uses the liability method of accounting for income taxes required by
Statement of Financial Accounting Standards (SFAS) No. 109, "Accounting for
Income Taxes."
<PAGE>
Notes to Consolidated Financial Statements (continued) 16
STV Group and Subsidiaries
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. Significant components of
the Company's deferred tax assets and liabilities as of September 30, 1999 and
1998, are as follows:
1999 1998
Deferred tax assets:
Vacation accruals $ 827,000 $ 694,000
Depreciation 15,000 50,000
Deferred compensation 1,245,000 920,000
Litigation 613,000 479,000
International asset sale 34,000 107,000
Postemployment benefits 0 5,000
State taxes 178,000 0
Postretirement
medical benefits 507,000 427,000
---------- ----------
Total deferred
tax assets $3,419,000 $2,682,000
Deferred tax liabilities:
Retainage 3,113,000 2,662,000
---------- ----------
Total deferred tax
liabilities $3,113,000 $2,662,000
Net deferred
tax assets $ 306,000 $ 20,000
Significant components of the provision (benefit) for income taxes are as
follows:
1999 1998 1997
Current:
Federal 3,191,000 $ 798,000 $ 208,000
State 1,481,000 356,000 86,000
----------- ----------- -----------
Total current $ 4,672,000 $ 1,154,000 $ 294,000
Deferred:
Federal $ (242,000) $ 592,000 $ 427,000
State (44,000) 352,000 187,000
----------- ----------- -----------
Total deferred $ (286,000) $ 944,000 $ 614,000
Income tax
expense $ 4,386,000 $ 2,098,000 $ 908,000
A reconciliation of federal income taxes at the statutory rate to the Company's
income tax provision follows:
1999 1998 1997
Federal income tax rate 34.0% 34.0% 34.0%
Non-deductible expenses
and other 2.1 4.3 7.0
State taxes, net of federal
tax effect 9.9 10.7 10.0
------ ------ ------
46.0% 49.0% 51.0%
STV made income tax payments of $3,808,000, $639,000, and $971,000 in 1999, 1998
and 1997, respectively. The Company received $58,000 in income tax refunds in
1999 and $7,000 in 1997.
6. Earnings per Share
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
1999 1998 1997
Net income $5,184,000 $2,194,000 $ 860,000
Weighted average
shares for basic
earnings per share 3,813,000 3,719,000 3,642,000
Weighted average
shares for diluted
earnings per share 4,186,000 3,959,000 3,803,000
Basic earnings
per share 1.36 .59 .24
Diluted earnings
per share 1.24 .55 .23
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 adopting SFAS No. 128, "Earnings
Per Share," in 1998 are reflected in the earnings per share and weighted average
number of shares outstanding calculations above for all periods presented.
<PAGE>
17 Notes to Consolidated Financial Statements (continued)
STV Group and Subsidiaries
7. Commitments and Contingencies
STV 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 STV's financial
statements.
During 1992, STV 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
STV'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 (the "Skinner Litigation") was filed on or about February 1991 by the
general liability insurer in the Supreme Court. Pursuant to this, the general
liability insurer is seeking a judgment that the professional liability insurer
and STV are obligated to reimburse the general liability insurer for the
payments which it made, plus expenses. STV 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. Following an appellate court decision affirming the
Company's entitlement to recover, the litigation was settled in September 1999
by the general liability company paying the Company $2,600,000 and reimbursing
the Company's professional liability insurer $2,700,000. Diluted earnings per
share increased by approximately $ .37 per share in 1999 related to this
settlement.
In addition, in 1992, STV'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 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 STV's professional liability insurer. The Company intervened in the
garnishment proceeding. This proceeding had been stayed pending resolution of
the Skinner Litigation. The litigation is now moving forward.
If the outcome of this litigation is adverse to STV, and the Company is required
to pay amounts in addition to the policy limits of the insurance policy, it
could have a material adverse effect on STV's earnings and financial condition
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.
STV sold its International Region as of March 13, 1997. A gain of $170,000 was
recorded by the Company. 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.
STV 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
2000 $ 5,328,000
2001 4,607,000
2002 3,449,000
2003 3,051,000
2004 3,013,000
Thereafter 32,379,000
Total minimum
lease payments $51,827,000
Rental expense under operating leases amounted to $4,380,000, $4,314,000 and
$3,783,000 in 1999, 1998 and 1997, respectively.
8. Stock Plans
On October 1, 1981, STV 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
1999, 1998 and 1997 was $1,157,000, $1,144,000, and $1,087,000, 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
<PAGE>
Notes to Consolidated Financial Statements (continued) 18
STV Group and Subsidiaries
payment for future stock purchases. The Company will fund the 1999 contribution
with cash payments throughout 1999 and 2000. At September 30, 1999, 2,466,229
shares of STV 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. No additional grants are available under this
plan.
STV 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 1999 and 1998: risk-free interest rates of 5 percent,
dividend yield of 0 percent, expected volatility of the market price of STV's
common stock of 44 and 18 percent, respectively, 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.
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. STV's pro forma information is as follows:
1999 1998
Pro forma net income $ 4,145,000 $ 1,849,000
Pro forma basic earnings per share $ 1.09 $ .50
Pro forma diluted earnings per share $ .99 $ .47
Outstanding options to purchase shares of common stock have been granted to
officers and employees at prices ranging from $2.06 to $7.79 per share. The
weighted-average remaining contractual life of those options is 8.01 years. A
summary of the option transactions is as follows:
Year ended September 30
1999 1998 1997
Options outstanding,
beginning of period 617,000 245,000 190,000
Granted 550,000 172,000 55,000
Effect of split -- 344,000 --
Exercised (32,500) (139,000) --
Canceled (4,000) (5,000) --
Options outstanding,
end of period 1,130,500 617,000 245,000
Options exercisable 582,000 273,000 190,000
Shares available for
future option grants 0 546,000 445,000
The weighted average fair value of options granted during fiscal 1999 and 1998
was $2.98 and $1.16 per share, respectively. The weighted average exercise price
of options granted during fiscal 1999 and 1998 was $6.49 and $4.22,
respectively. The weighted average exercise price of options exercised in 1999
and 1998 was $3.44 and $3.25, respectively. The weighted average exercise price
of options outstanding at September 30, 1999 and 1998, was $5.06 and $3.69,
respectively, while the weighted average exercise price of exercisable options
at September 30, 1999, was $3.70.
On October 20, 1995, certain STV officers borrowed $125,000 from the Company to
purchase 25,000 shares of common stock from an outside STV director. 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.
<PAGE>
19 Notes to Consolidated Financial Statements (continued)
STV Group and Subsidiaries
9. Postretirement Benefit and Pension Plans
STV sponsors a defined benefit health care plan that provides postretirement
medical benefits to all current and retired officers and their spouses upon
attaining age 65, or age 55 with 10 years of service. The plan is contributory,
with retiree contributions adjusted annually, and contains other cost-sharing
features such as deductibles and coinsurance. The accounting for the plan
anticipates future cost-sharing changes to the written plan that are consistent
with the Company's expressed intent to increase the retiree contribution rate
annually for the expected general inflation rate for that year.
The following table presents the plan's status reconciled with amounts
recognized in the Company's balance sheet (current and long-term):
1999 1998
Changes in plan assets:
Fair value of plan assets
at beginning of year 0 0
Employer contributions 70,000 73,000
Benefits paid (70,000) 73,000
----------- -----------
Fair value of plan assets
at year end 0 0
Accumulated
postretirement
benefit obligation $(1,612,000) $(1,684,000)
Unrecognized
net gain (356,000) (222,000)
Unrecognized prior
service costs 0 41,000
Unrecognized
transition obligation 783,000 839,000
----------- -----------
Accrued postretirement
benefit cost $(1,185,000) $(1,026,000)
Net periodic postretirement benefit costs include the following components:
1999 1998 1997
Service cost $ 32,000 $ 32,000 $ 36,000
Interest cost 112,000 114,000 101,000
Amortization of transition
obligation over 20 years 56,000 56,000 56,000
Amortization of unrecognized
prior service cost 41,000 41,000 41,000
Amortization of unrecognized
gain (12,000) (24,000) (44,000)
--------- --------- ---------
Net periodic postretirement
benefit cost $ 229,000 $ 219,000 $ 190,000
The weighted-average annual assumed rate of increase in the per capita cost of
covered benefits (i.e., health care cost trend rate) is 10.0 percent for 1999
(10.5 percent for 1998 and 11 percent in 1997) 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, 1999, by $180,000, and the aggregate of
the service and interest cost components of net periodic postretirement benefit
cost for 1999, 1998 and 1997 by $18,000, $17,000, and $16,000, respectively.
The weighted-average discount rate used in determining the accumulated
postretirement benefit obligation was 8.0 percent at September 30, 1999, and 7.0
percent at September 30, 1998.
STV has a defined contribution savings and investment plan covering
substantially all employees. Employees may contribute up to 15 percent of base
salary to the plan, excluding highly compensated employees, which are limited to
8 percent. The plan was amended to include a discretionary company match in
1999. Plan provisions have established a company match of $ .25 for each $1
contributed on the first 4 percent of employee contributions, with an additional
match at the discretion of the Board of Directors. In 1999, the Company's Board
of Directors elected to increase the match by 50 percent. The Company's cost for
this plan was $468,000 in 1999.
10. Major Customers
The percentage of total revenues derived from contracts with the United States
government for fiscal years 1999, 1998 and 1997 was 9 percent, 14 percent and 16
percent, respectively.
<PAGE>
Notes to Consolidated Financial Statements (continued) 20
STV Group and Subsidiaries
11. Long-Term Debt
Long-term debt consists of the following:
<TABLE>
<CAPTION>
1999 1998
<S> <C> <C>
Deferred compensation liability payable in fixed monthly installments of
$11,542 through September 2006 with interest imputed at 16 percent $ 581,000 $ 623,000
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 490,000 699,000
Supplemental executive retirement agreements for two current executives payable
in monthly installments upon retirement with interest imputed
at 7 percent. (1) 1,833,000 850,000
Other, including capital leases in 1998 0 526,000
---------- ----------
2,904,000 2,698,000
Less: Current portion 110,000 564,000
---------- ----------
$2,794,000 $2,134,000
</TABLE>
Interest paid during 1999, 1998 and 1997 amounted to $147,000, $505,000 and
$1,310,000, respectively.
Annual maturities of long-term debt are as follows:
Year ending September 30
2000 $ 110,000
2001 57,000
2002 67,000
2003 79,000
2004 93,000
Thereafter 2,498,000
(1) These agreements for two current executives provide for annual future cash
payments at retirement commencing October 2003 and January 2004, respectively.
These agreements provide for cash payments of $325,000 and $234,000 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.
<PAGE>
21 Notes to Consolidated Financial Statements (continued)
STV Group and Subsidiaries
12. Quarterly Results (unaudited)
(All dollar amounts omit 000 except per share data.)
<TABLE>
<CAPTION>
Quarter Year
First Second Third Fourth
<S> <C> <C> <C> <C> <C>
Revenue from services:
1999 $ 34,221 $ 33,345 $ 34,670 $ 36,704 $ 138,940
1998 $ 24,127 $ 25,986 $ 25,525 $ 29,540 $ 105,178
Operating revenue:
1999 $ 22,859 $ 23,758 $ 24,857 $ 25,964 $ 97,438
1998 $ 19,158 $ 19,796 $ 20,040 $ 21,654 $ 80,648
Gross profit:
1999 $ 3,457 $ 3,803 $ 3,955 $ 4,038 $ 15,253
1998 $ 2,575 $ 2,571 $ 2,750 $ 3,094 $ 10,990
Net income:
1999 $ 912 $ 910 $ 912 $ 2,450 $ 5,184
1998 $ 412 $ 495 $ 602 $ 685 $ 2,194
Basic earnings per share:
1999 $ .24 $ .24 $ .24 $ .64 $ 1.36
1998 $ .11 $ .14 $ .16 $ .18 $ .59
Diluted earnings per share:
1999 $ .22 $ .22 $ .22 $ .58 $ 1.24
1998 $ .11 $ .13 $ .15 $ .17 $ .55
</TABLE>
In the fourth quarter of 1999, STV was paid $2,600,000 as settlement of a
litigation claim. This settlement increased net income by approximately
$1,500,000, or $ .37 per diluted share.
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.
<PAGE>
22
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, 1999 and 1998, 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, 1999 and 1998, 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
October 29, 1999
<PAGE>
23 Shareholder Information
STV Group Managing Officers
Dominick M. Servedio, P.E., President & Chief
Executive Officer
Peter W. Knipe, Chief Financial Officer
Board of Directors
Michael Haratunian, P.E., Chairman
Dominick M. Servedio, P.E., President & Chief
Executive Officer
William J. Doyle, Director
Richard L. Holland, P.E., Director
Maurice L. Meier, P.E., Director
R.M. Monti, P.E., Director
G. Michael Stakias, Director
Transfer Agent and Registrar
Continental Stock Transfer & Trust Co.
2 Broadway
New York, NY 10004-2207
Counsel
Blank Rome Comisky & McCauley LLP
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 1,022 shareholders of record as of September 30, 1999.
Annual Meeting
The annual meeting of stockholders of STV Group, Inc., will be held at 10:00
a.m., Wednesday, March 29, 2000, 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.
1999 High Ask Low Bid
4th Quarter 8 7/16 7
3rd Quarter 8 11/16 6 3/4
2nd Quarter 9 6 1/2
1st Quarter 9 4
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
Form 10K Available
Copies of the STV Group, Inc., Form 10K report to the Securities and Exchange
Commission may be obtained without charge by contacting:
Peter W. Knipe, Chief Financial Officer
STV Group, Inc.
205 West Welsh Drive
Douglassville, PA 19518
(610) 385-8200, fax (610) 385-8500
[email protected]
Subsidiaries:
STV Incorporated,
STV Architects, Inc.,
STV Environmental, Inc.,
STV International, Inc.,
STV Surveying, Inc.,
STV Construction, Inc.,
STV Construction Services, Inc., and
STV/Silver & Ziskind
Exhibit 23.1 - Consent of Ernst & Young LLP
Consent of Independent Auditors
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 October 29, 1999 with respect to the
consolidated financial statements of STV Group, Incorporated and Subsidiaries,
included in the Annual Report (Form 10-K) for the fiscal year ended September
30, 1999.
/s/ Ernst & Young LLP
Harrisburg, Pennsylvania
December 23, 1999
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
TRANSMITTING STV GROUP'S FISCAL 1999 FORM 10-K.
</LEGEND>
<CIK> 0000095045
<NAME> STV GROUP, INC
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> Sep-30-1999
<PERIOD-END> Sep-30-1999
<CASH> 7,248,000
<SECURITIES> 26,000
<RECEIVABLES> 30,590,000
<ALLOWANCES> 0
<INVENTORY> 17,029,000
<CURRENT-ASSETS> 55,696,000
<PP&E> 6,646,000
<DEPRECIATION> 4,833,000
<TOTAL-ASSETS> 60,734,000
<CURRENT-LIABILITIES> 38,103,000
<BONDS> 0
0
0
<COMMON> 2,041,000
<OTHER-SE> 16,726,000
<TOTAL-LIABILITY-AND-EQUITY> 60,734,000
<SALES> 138,940,000
<TOTAL-REVENUES> 138,940,000
<CGS> 82,185,000
<TOTAL-COSTS> 90,623,000
<OTHER-EXPENSES> (2,950,000)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 195,000
<INCOME-PRETAX> 9,570,000
<INCOME-TAX> 4,386,000
<INCOME-CONTINUING> 5,184,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 5,184,000
<EPS-BASIC> 1.36
<EPS-DILUTED> 1.24
</TABLE>
