UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _____ to_____
Commission File Number 0-28208
APPLIED GRAPHICS TECHNOLOGIES, INC.
(Exact name of Registrant as specified in its charter)
DELAWARE 13-3864004
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
28 WEST 23RD STREET
NEW YORK, NY
(Address of principal executive offices)
10010
(Zip Code)
212-929-4111
(Registrant's telephone number, including area code)
NOT APPLICABLE
(Former name, former address and former fiscal year,
if changed since last report)
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 (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes[X] No[ ]
The number of shares of the registrant's common stock outstanding as of
July 21, 1997, was 14,355,683.
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
APPLIED GRAPHICS TECHNOLOGIES, INC.
BALANCE SHEETS
(Unaudited)
(In thousands of dollars, except share amounts)
June 30, December 31,
1997 1996
--------- ------------
ASSETS
Current assets:
Cash and cash equivalents .......................... $ 2,039 $ 2,567
Marketable securities at cost ...................... 1,600
Trade accounts receivable (net of
allowances of $526 in 1997 and $472 in 1996) .... 34,824 29,584
Due from affiliates ................................ 3,837
Inventory .......................................... 6,194 4,639
Deferred income taxes .............................. 811 705
Prepaid expenses and other current assets .......... 4,077 2,485
------- -------
Total current assets ..................... 51,782 41,580
Property, plant, and equipment - net ............... 20,274 20,544
Goodwill ........................................... 10,364 7,121
Deferred income taxes .............................. 2,023 1,644
Other assets ....................................... 1,712 1,258
------- -------
Total assets ............................. $86,155 $72,147
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses .............. $19,328 $19,630
Applied Printing Note .............................. 1,600
Current portion of long-term debt .................. 435 507
Current portion of obligations under
capital leases .................................. 1,018 1,354
Due to affiliates .................................. 893 354
Other current liabilities .......................... 2,123 2,407
------- -------
Total current liabilities ................ 23,797 25,852
Long-term debt ..................................... 16,482 6,005
Obligations under capital leases ................... 921 1,265
Other liabilities .................................. 2,741 3,142
------- -------
Total liabilities ........................ 43,941 36,264
------- -------
Commitments and contingencies
Stockholders' equity
Preferred stock (no par value,
10,000,000 shares authorized; no shares
issued and outstanding)
Common stock (par value $0.01; 40,000,000
shares authorized; shares issued and
outstanding: 14,355,683 in 1997 and 14,349,683
in 1996) ....................................... 144 143
Additional paid-in capital ......................... 26,033 25,584
Retained earnings .................................. 16,037 10,156
------- -------
Total stockholders' equity ...................... 42,214 35,883
------- -------
Total liabilities and stockholders' equity ...... $86,155 $72,147
======= =======
See Notes to Interim Financial Statements
<PAGE>
<TABLE>
APPLIED GRAPHICS TECHNOLOGIES, INC.
STATEMENTS OF OPERATIONS
(Unaudited)
(In thousands, except per-share amounts)
<CAPTION>
For the Six Months Ended For the Three Months Ended
June 30, June 30,
------------------------- -------------------------
1997 1996 1997 1996
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Revenues ....................................................... $ 81,072 $ 61,586 $ 41,311 $ 30,988
Cost of revenues ............................................... 52,871 43,965 26,050 21,636
-------- -------- -------- --------
Gross profit ................................................... 28,201 17,621 15,261 9,352
Selling, general, and
administrative expenses .................................... 18,123 14,311 9,521 7,255
-------- -------- -------- --------
Operating income ............................................... 10,078 3,310 5,740 2,097
Interest expense ............................................... (508) (1,343) (298) (439)
Other income (expense) - net ................................... 71 275 (60) 438
-------- -------- -------- --------
Income before provision for
income taxes ............................................... 9,641 2,242 5,382 2,096
Provision for income taxes ..................................... 3,760 63 2,099 63
-------- -------- -------- --------
Net income ..................................................... $ 5,881 $ 2,179 $ 3,283 $ 2,033
======== ======== ======== ========
Earnings per common share (pro forma in 1996):
Primary ................................................... $ 0.39 $ 0.19 $ 0.21 $ 0.16
Fully Diluted ............................................. $ 0.38 $ 0.19 $ 0.21 $ 0.16
Weighted average number of
common shares (pro forma
in 1996):
Primary .................................................... 15,244 11,425 15,305 13,075
Fully Diluted .............................................. 15,374 11,425 15,375 13,075
</TABLE>
See Notes to Interim Financial Statements
<PAGE>
APPLIED GRAPHICS TECHNOLOGIES, INC.
STATEMENTS OF CASH FLOWS
(Unaudited)
(In thousands of dollars)
For the Six Months Ended
June 30,
----------------------
---------- ----------
1997 1996
---------- ----------
Cash flows from operating activities:
Net income ........................................... $ 5,881 $ 2,179
Adjustments to reconcile net income to net cash from
operating activities:
Depreciation and amortization .................. 2,962 2,690
Deferred taxes ................................. (437)
Other .......................................... (6) 124
Management of Changes in Operating Assets and
Liabilities, net of effects of acquisitions:
Trade accounts receivable ...................... (5,234) (2,538)
Due from/to affiliates ......................... (3,298) 180
Inventory ...................................... (1,441) 235
Other assets ................................... (2,068) 1,134
Accounts payable and accrued expenses .......... (1,999) (2,108)
Other liabilities .............................. (830) (970)
-------- --------
Net cash provided by (used in) operating activities .. (6,470) 926
-------- --------
Cash flows from investing activities:
Proceeds from the sale of marketable securities 1,600
Investment in marketable securities ............ (16,244)
Property, plant, and equipment expenditures .... (3,902) (3,591)
Entities purchased, net of cash acquired ....... (1,179)
Other investing activities ..................... 12 537
-------- --------
Net cash used in investing activities ................ (3,469) (19,298)
-------- --------
Cash flows from financing activities:
Proceeds from sale of common stock ............. 46,659
Borrowings under revolving credit line ......... 9,877
Proceeds from sale/leaseback transactions ...... 2,140
Repayment of Applied Printing Note ............. (1,600)
Repayment of notes and capital lease obligations (1,078) (1,355)
Proceeds from exercise of stock options ........ 72
Repayment of intercompany borrowings - net ..... (18,000)
Net distributions to Applied Printing .......... (4,653)
-------- --------
Net cash provided by financing activities ............ 9,411 22,651
-------- --------
Net increase (decrease) in cash and cash equivalents . (528) 4,279
Cash and cash equivalents at beginning of period ..... 2,567 666
-------- --------
Cash and cash equivalents at end of period ........... $ 2,039 $ 4,945
======== ========
See Notes to Interim Financial Statements
<PAGE>
APPLIED GRAPHICS TECHNOLOGIES, INC.
NOTES TO INTERIM FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
The accompanying unaudited condensed financial statements of Applied
Graphics Technologies, Inc. (the "Company"), which have been prepared in
accordance with the instructions to Form 10-Q and, therefore, do not include all
information and footnotes necessary for a fair presentation of financial
position, results of operations, and cash flows in conformity with generally
accepted accounting principles, should be read in conjunction with the notes to
financial statements contained in the Company's 1996 Form 10-K. In the opinion
of the management of the Company, all adjustments (consisting primarily of
normal recurring accruals) necessary for a fair presentation have been included
in the financial statements. The operating results of any quarter are not
necessarily indicative of results for any future period.
On April 16, 1996 (the "Offering Date"), the Company's Registration
Statement on Form S-1 under the Securities Act of 1933, as amended, relating to
the initial public offering (the "Offering") of the Company's Common Stock, was
declared effective. Upon the Offering being declared effective, the Company
acquired substantially all of the assets and certain related liabilities
relating to the prepress, digital imaging services, and related businesses
(collectively, the "Prepress Business") of Applied Printing Technologies, L.P.
("Applied Printing"), an entity beneficially owned by the Chairman of the Board
of Directors of the Company and the Chief Executive Officer of the Company. The
Prepress Business was acquired in exchange for 9,309,900 shares of the Company's
Common Stock and $37.0 million of additional consideration comprised of (i) the
assumption by the Company of the principal amount of collateralized senior
indebtedness to Applied Printing's primary institutional lender (the
"Institutional Senior Indebtedness") of $21.0 million and (ii) the issuance of a
promissory note by the Company to Applied Printing (the "Applied Printing Note")
of $16.0 million. The Company received net proceeds of $46.1 million from the
Offering, of which $21.0 million was used to repay Institutional Senior
Indebtedness and $16.0 million was used to invest in short-term investments to
support a standby letter of credit that collateralized the Applied Printing
Note.
The acquisition of the Prepress Business was accounted for in a manner
similar to a pooling of interests. Accordingly, the financial statements of the
Company reflect the combined results of operations of the Prepress Business
through the Offering Date and the results of the Company thereafter. The
statements of operations and the statement of cash flows covering periods
through the Offering Date have been prepared by combining the results of
operations and cash flows of the specific divisions that comprised the Prepress
Business. Prior to the Offering Date, these divisions operated as separate
business units and maintained their own books and records. Through the Offering
Date, Applied Printing managed the cash and financing requirements of all of its
divisions centrally and, as such, the interest expense and related intercompany
borrowing up until that date represents an allocation of Applied Printing's
interest expense and the related debt. Additionally, prior to the Offering Date,
Applied Printing and other related parties had provided certain corporate,
general, and administrative services to the Prepress Business including general
management, treasury, financial reporting, and legal services. Accordingly, the
financial statements prior to the Offering Date include an allocation of
expenses for such services. The results of operations and cash flows for the
periods ended June 30, 1996, may have differed had the Company operated as an
independent entity during the entire period.
In May 1997, the Company completed the purchase of certain assets of Star
Graphic Arts Co., Inc., a prepress company in Northern California. In June 1997,
the Company acquired certain assets of Digital Imagination, Inc., a digital
events photography business. Also in June 1997, the Company acquired certain
rights from a former joint venture partner, including the right to terminate the
original arrangement and relocate certain print operations to its Los Angeles
facility. For such acquisitions, the Company paid an aggregate of $1.2 million
from amounts borrowed under its line of credit, assumed $2.7 million of
liabilities, and granted rights to a minimum of 19,000 warrants to purchase its
Common Stock with an approximate value of $0.3 million. These acquisitions were
accounted for using the purchase method of accounting. Accordingly, the assets
and liabilities acquired have been recorded at their estimated fair values at
the dates of acquisition. The excess of the purchase price over the fair value
of the net assets acquired was $3.2 million and has been recorded as goodwill.
The effects on revenues, income before provision for income taxes, net income,
and earnings per share from these acquisitions, either individually or in the
aggregate, are not material.
Certain prior-period amounts in the accompanying financial statements have
been reclassified to conform with the 1997 presentation.
2. ACCOUNTING PRONOUNCEMENTS
Statement of Financial Accounting Standards (SFAS) No. 128, "Earnings per
Share," was issued in February 1997 and is effective for interim and annual
periods ending after December 15, 1997. This statement, which supersedes
Accounting Principles Board Opinion No. 15, "Earnings per Share," establishes
standards for computing and presenting earnings per share and will require the
restatement of all prior-period earnings per share data. The implementation of
SFAS No. 128 will not have a material impact on the Company's earnings per share
data.
Statement of Financial Accounting Standards (SFAS) No. 129, "Disclosure of
Information about Capital Structure," was issued in February 1997 and is
effective for periods ending after December 15, 1997. This statement establishes
standards for disclosing information about an entity's capital structure by
superseding and consolidating previously issued accounting standards. The
financial statements of the Company are prepared in accordance with the
requirements of SFAS No. 129.
3. INVENTORY
The components of inventory (in thousands of dollars) were as follows:
June 30, December 31,
1997 1996
------ ------
Work-in-process $3,688 $2,596
Raw materials .. 2,506 2,043
------ ------
Total .......... $6,194 $4,639
====== ======
4. INCOME TAXES
The Prepress Business was treated as a partnership for Federal and state
income tax purposes prior to the Offering Date and was not subject to tax.
Concurrently with the acquisition, the Company recorded the applicable deferred
tax assets related to the differences between financial statement and tax basis
of the assets and liabilities of the Prepress Business. These deferred tax
assets were entirely offset by a valuation allowance. A provision for income
taxes is included in the Company's Statement of Operations only for the periods
subsequent to the Offering Date. Had the Company been subject to income taxes
prior to the Offering Date, the provision for income taxes, net income, and
earnings per share for the six months ended June 30, 1996, would have been
$92,000, $2,150,000, and $0.19, respectively. There would have been no change to
the provision for income taxes for the three months ended June 30, 1996. The
effective rate of the provision for income taxes in 1996 was lower than would
ordinarily be expected due primarily to the reversal of both Federal and state
deferred tax asset valuation allowances.
5. EARNINGS PER SHARE
Earnings per share of common stock are computed by dividing net income by
the weighted average of the number of shares of common stock and common stock
equivalents, where dilutive, outstanding. For the 1996 periods, earnings per
share of common stock represent a pro forma calculation and include the number
of shares of common stock issued and issuable to Applied Printing prior to the
Offering Date.
6. RELATED PARTY TRANSACTIONS
Sales to, purchases from, and administrative charges incurred with related
parties (in thousands of dollars) were as follows:
Six months ended Three months ended
June 30, June 30,
--------------- ------------------
1997 1996 1997 1996
------ ------ ------ ------
Affiliate sales ...... $6,326 $5,502 $2,679 $2,482
Affiliate purchases .. $2,306 $1,410 $1,144 $ 919
Administrative charges $ 532 $1,849 $ 267 $ 547
Administrative charges include charges for certain legal and computer
services provided by affiliates and for rent incurred for leases with
affiliates. Administrative charges incurred for the six and three months ended
June 30, 1996, also include $1.5 million and $0.3 million, respectively, of
costs allocated from Applied Printing for general management, treasury,
financial reporting, and legal services. Such administrative charges are
included in selling and administrative expenses in the Statements of Operations.
7. SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Payments of interest and income taxes for the six months ended June 30,
1997 and 1996, were as follows:
1997 1996
------ ------
Interest paid ....... $ 496 $ 444
Income taxes paid.... $4,044
Noncash investing and financing activities for the six months ended June
30, 1997 and 1996, were as follows:
1997 1996
-------- ---------
Notes payable issued in connection with an acquisition $ 488
Conversion of intercompany borrowing into
Applied Printing Note ............................. $ 16,000
Distribution to Applied Printing in the form
of increased intercompany borrowing .............. $ 3,819
Common stock issued in exchange for
the Prepress Business ............................ $ 93
Acquisitions:
Fair value of assets acquired ........................ $ 4,253
Cash paid ............................................ (1,185)
Value of stock warrants issued ....................... (330)
--------
Liabilities assumed .................................. $ 2,738
========
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
Certain statements made in this Quarterly Report on Form 10-Q are
"forward-looking" statements (within the meaning of the Private Securities
Litigation Reform Act of 1995). Such statements involve known and unknown risks,
uncertainties, and other factors that may cause actual results, performance, or
achievements of the Company to be materially different from any future results,
performance, or achievements expressed or implied by such forward-looking
statements. Although the Company believes that the expectations reflected in
such forward-looking statements are based upon reasonable assumptions, the
Company's actual results could differ materially from those set forth in the
forward-looking statements. Certain factors that might cause such a difference
include the following: the securing of additional, or the renewal of existing,
on-site arrangements; the rate of expansion of services under the new agreement
with General Motors; an expansion of services provided by the digital division;
obtaining efficiencies from combining certain facilities; the rate and level of
capital expenditures; or obtaining additional credit or financing sources.
On April 16, 1996 (the "Offering Date"), the Company commenced the initial
public offering (the "Offering") of its Common Stock. Concurrent with the
Offering, the Company acquired substantially all of the assets and certain
liabilities relating to the prepress, digital imaging services, and related
businesses of Applied Printing Technologies, L.P. (collectively, the "Prepress
Business"). The acquisition of the Prepress Business has been accounted for in a
manner similar to a pooling of interests. Accordingly, the financial statements
of the Company reflect the combined results of operations of the Prepress
Business through the Offering Date and the results of the Company thereafter.
Results of Operations
Six months ended June 30, 1997, compared with 1996
Revenues in the first six months of 1997 were $19.5 million or 31.6% higher
than in the comparable period in 1996. This increase was primarily due to $7.1
million of revenues generated from the operations of additional on-site
facilities management contracts during the 1997 period that were in effect for
none or only a portion of the 1996 period, $3.3 million of revenues from the
SpotLink division whose dub and ship operations were acquired in December 1996,
increased revenues of $1.6 million in the digital imaging services division from
equipment sales and archiving services, $6.8 million of additional revenue
generated in certain divisions of the traditional prepress business, primarily
from increased business at the Carlstadt, NJ, facility and a New York City
facility, and receipt of a nonrefundable payment of $2.0 million related to an
agreement with one of the Company's major suppliers. These revenue increases
were slightly offset by a decrease in revenues of $1.3 million at the Los
Angeles and Burbank facilities as a result of combining these operations as
discussed below.
In March 1997, the Company signed a contract to be the primary provider of
digital prepress production services and distribution and storage of radio and
television commercials for General Motors. Under this long-term contract, which
initially runs through August 2000 and is renewable for an additional two years
at General Motors' option, the Company will consolidate all activities relating
to the use of General Motors' visual content, including photographic images and
audio and video commercials. The Company expects to begin providing significant
services under this contract in the second half of 1997.
The gross profit percentage in the first six months of 1997 was 34.8% as
compared to 28.6% in the 1996 period. Gross profit increased $10.6 million or
60.0% in the first six months of 1997 as a result of the additional revenues for
the period as discussed above and from reduced costs resulting from more
favorable pricing negotiated with certain suppliers. This increase was partially
offset by the lower gross profit at the Los Angeles and Burbank facilities
resulting from decreased traditional prepress business along with expenses
incurred and inefficiencies encountered during the transition period to combine
the Burbank facility into the Los Angeles facility. The Company expects that
combining these two facilities will provide greater capacity and more efficient
operating results in the future.
Selling, general, and administrative expenses in the first six months of
1997 were $3.8 million higher than in the first six months of 1996, but as a
percent of revenue decreased to 22.4% in the 1997 period from 23.2% in the 1996
period. This improvement is primarily due to the increase in revenues discussed
above and increased business from on-site facilities management contracts, which
require less sales support than the traditional prepress business. Such
improvements were partially offset by additional corporate expenses incurred
related to being a publicly-traded company and from expanded business at certain
operations as well as expenses incurred to combine the operations of the Los
Angeles and Burbank facilities.
Interest expense in the first six months of 1997 was $0.8 million less than
in the 1996 period primarily due to the repayment of debt in April 1996 with the
proceeds from the Offering.
The Prepress Business was treated as a partnership for Federal and state
income tax purposes prior to the Offering Date and was not subject to tax.
Concurrently with the acquisition, the Company recorded the applicable deferred
tax assets related to the differences between financial statement and tax basis
of the assets and liabilities of the Prepress Business. These deferred tax
assets were entirely offset by a valuation allowance. A provision for income
taxes is included in the Company's Statements of Operations only for the periods
subsequent to the Offering Date. Had the Company been subject to income taxes
prior to the Offering Date, there would have been no change to the provision for
income taxes for the three months ended June 30, 1996. The provision for income
taxes, net income, and earnings per share for the six months ended June 30,
1996, would have been $92,000, $2,150,000, and $0.19, respectively. The
effective rate of the provision for income taxes in 1996 was lower than would
ordinarily be expected due primarily to the reversal of both Federal and state
deferred tax asset valuation allowances.
Three months ended June 30, 1997, compared with 1996
Revenues in the second quarter of 1997 were $10.3 million or 33.3% higher
than in the comparable period in 1996. This increase was primarily due to $4.3
million of additional revenues generated from the operations of on-site
facilities management contracts principally related to contracts that were in
effect for none or only a portion of the 1996 period, $1.7 million of revenues
from the SpotLink division whose dub and ship operations were acquired in
December 1996, increased revenues of $1.0 million in the digital imaging
services division from archiving services, and $3.3 million of additional
revenue generated in certain divisions of the traditional prepress business,
primarily from increased business at the Carlstadt, NJ, facility and a New York
City facility and from additional revenues at the San Francisco metropolitan
area facility resulting from a nonmaterial acquisition.
The gross profit percentage in the second quarter of 1997 was 36.9% as
compared to 30.2% in the 1996 period. Gross profit increased $5.9 million or
63.2% in the second quarter of 1997 as a result of the additional revenues for
the period as discussed above and from reduced costs resulting from more
favorable pricing negotiated with certain suppliers.
Selling, general, and administrative expenses in the second quarter of 1997
were $2.3 million higher than in the second quarter of 1996, but as a percent of
revenue decreased slightly to 23.0% in the 1997 period from 23.4% in the 1996
period. This improvement is primarily due to the increase in revenues discussed
above and increased business from on-site facilities management contracts, which
require less sales support than the traditional prepress business. Such
improvements were partially offset by additional corporate expenses incurred
related to being a publicly-traded company and from expanded business at certain
operations.
The effective rate of the provision for income taxes in 1996 was lower than
would ordinarily be expected due primarily to the reversal of both Federal and
state deferred tax asset valuation allowances.
Statement of Financial Accounting Standards (SFAS) No. 128, "Earnings per
Share," was issued in February 1997 and is effective for interim and annual
periods ending after December 15, 1997. This statement, which supersedes
Accounting Principles Board Opinion No. 15, "Earnings per Share," establishes
standards for computing and presenting earnings per share and will require the
restatement of all prior-period earnings per share data. The implementation of
SFAS No. 128 will not have a material impact on the Company's earnings per share
data.
Statement of Financial Accounting Standards (SFAS) No. 129, "Disclosure of
Information about Capital Structure," was issued in February 1997 and is
effective for periods ending after December 15, 1997. This statement establishes
standards for disclosing information about an entity's capital structure by
superseding and consolidating previously issued accounting standards. The
financial statements of the Company are prepared in accordance with the
requirements of SFAS No. 129.
Financial Condition
During the first six months of 1997, the Company repaid the remaining $1.6
million of the Applied Printing Note with the proceeds from the sale of
marketable securities. In March 1997 and June 1997, the Company entered into
sale and leaseback arrangements that generated proceeds of $1.0 million and $1.1
million, respectively. Such arrangements resulted in immaterial gains that have
been deferred and are being recognized in income as a credit against future
rental expense. In May 1997, the Company renegotiated the terms under its
revolving line of credit. The revised line of credit is a $25 million
variable-rate facility with a term that runs through May 2000. Under the revised
facility, interest on funds borrowed is either prime less 0.75% or LIBOR plus
1.50%. As of June 30, 1997, $15.5 million were borrowed under this line of
credit.
In July 1997, the Company filed a Registration Statement on Form S-3 under
the Securities Act of 1933 relating to an offering of 5,000,000 shares of Common
Stock, of which 3,000,000 are to be offered by the Company.
Cash flows from operating activities during the first six months of 1997
decreased by $7.4 million as compared to the comparable period in 1996 due
primarily to increased accounts receivable resulting from additional business
and increased inventory levels associated with timing of purchases from
suppliers. In addition to funding such working capital needs, during the first
six months of 1997 the Company invested $3.9 million in equipment, paid $1.2
million related to nonmaterial acquisitions, and repaid $0.7 million of debt and
lease obligations with the proceeds from two sale and leaseback transactions and
additional borrowings under its line of credit.
Working capital increased $12.3 million during the first six months of 1997
primarily from increased receivables, including amounts due from affiliates,
resulting from additional business at existing facilities and from acquired
operations, including SpotLink and other nonmaterial acquisitions. The increase
in working capital was also partially attributable to an increase in amounts for
rebates due from suppliers. Goodwill increased $3.2 million due primarily to
several nonmaterial acquisitions during the first six months of 1997. Long-term
debt increased $10.5 million due primarily to additional borrowings under the
Company's revised line of credit.
At June 30, 1997, capital commitments, which the Company expects to expend
over the course of the next eighteen months, amounted to approximately $14.8
million, essentially all of which is for modernization and growth, including an
$8.8 million capital investment the Company expects to make in connection with
the General Motors contract. The Company intends to finance a substantial
portion of these expenditures under operating leases, sale and leaseback
arrangements, or with working capital, including the proceeds from the sale of
additional shares of Common Stock.
The Company believes that the cash flow from operations, proceeds from the
sale of additional shares of Common Stock, its revolving credit facility, and
its potential ability to obtain funding from other financing sources will be
sufficient to fund its cash needs for the foreseeable future.
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
Not applicable.
<PAGE>
PART II. - OTHER INFORMATION
Item 2. Changes in Securities
In June 1997, the Registrant acquired certain assets of Digital
Imagination, Inc., a digital events photography company ("Digital
Imagination"). As part of the consideration for the transaction, the
Registrant issued warrants to purchase 10,000 shares of Common Stock
(the "Warrants") to a former stockholder of Digital Imagination. The
warrants are exercisable beginning June 6, 1999, for a period of three
years at an exercise price of $39.25 per share. The sale and issuance
of such securities by the Registrant were effected in reliance upon
the exemption from registration provided by Section 4(2) of the
Securities Act.
Item 4. Submission of Matters to a Vote of Security Holders.
The annual meeting of stockholders of Applied Graphics Technologies,
Inc., was held on May 19, 1997. The stockholders elected the eight
directors set forth below for a one-year term to expire at the 1998
annual meeting of stockholders and until their successors are elected
and qualified or until their earlier resignation or removal. The
numbers of shares voted for or withheld were as follows:
Name Shares Voted For Shares Withheld
----------------------- ---------------- ---------------
Mortimer B. Zuckerman 13,081,505 10,750
Fred Drasner 13,081,205 11,050
Melvin A. Ettinger 13,081,505 10,750
Martin D. Krall 13,081,505 10,750
John R. Harris 13,091,905 350
Edward H. Linde 13,091,905 350
Howard Stringer 13,091,905 350
Linda J. Wachner 13,091,905 350
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
3.1 Certificate of Incorporation (Incorporated by reference
to Exhibit No. 3.1 forming part of the Registrant's
Registration Statement on Form S-1 (File No. 333-00478)
filed with the Securities and Exchange Commission under
the Securities Act of 1933, as amended).
3.2 Amended and Restated By-Laws of Applied Graphics
Technologies, Inc. (Incorporated by reference to Exhibit
No. 3.2 forming part of Amendment No. 3 to the
Registrant's Registration Statement on Form S-1 (File
No. 333-00478) filed with the Securities and Exchange
Commission under the Securities Act of 1933, as
amended).
4 Specimen Stock Certificate (Incorporated by reference to
Exhibit No. 4 forming part of Amendment No. 3 to the
Registrant's Registration Statement on Form S-1 (File
No. 333-00478) filed with the Securities and Exchange
Commission under the Securities Act of 1933, as
amended).
10.2 Applied Graphics Technologies, Inc. 1996 Stock Option
Plan (Incorporated by reference to Exhibit No. 10.2
forming part of Amendment No. 3 to the Registrant's
Registration Statement on Form S-1 (File No. 333-00478)
filed with the Securities and Exchange Commission under
the Securities Act of 1933, as amended).
10.3 Applied Graphics Technologies, Inc. Non-Employee
Directors Nonqualified Stock Option Plan (Incorporated
by reference to Exhibit No. 10.3 forming part of
Amendment No. 3 to the Registrant's Registration
Statement on Form S-1 (File No. 333-00478) filed with
the Securities and Exchange Commission under the
Securities Act of 1933, as amended).
10.4* Loan and Purchase Agreement, dated January 8, 1992, as
amended (Incorporated by reference to Exhibit No. 10.4
forming part of Amendment No. 3 to the Registrant's
Registration Statement on Form S-1 (File No. 333-00478)
filed with the Securities and Exchange Commission under
the Securities Act of 1933, as amended).
10.4(a)* Second Amendment to Loan and Purchase Agreement dated
April 19, 1996 (Incorporated by reference to Exhibit No.
10.1 forming part of the Registrant's Report on Form
10-Q/A (File No. 0-28208) filed with the Securities and
Exchange Commission under the Securities Exchange Act of
1934, as amended, for the quarterly period ended March
31, 1996).
10.4(b)* Third Amendment to Loan and Purchase Agreement dated
June 30, 1997.
10.5 Agreement, dated May 1, 1979, between WAMM Associates
and Publisher Phototype International, L.P., as amended
(Incorporated by reference to Exhibit No. 10.5 forming
part of Amendment No. 1 to the Registrant's Registration
Statement on Form S-1 (File No. 333-00478) filed with
the Securities and Exchange Commission under the
Securities Act of 1933, as amended).
10.6(a) Employment Agreement, effective as of April 1, 1996,
between the Company and Diane Romano (Incorporated by
reference to Exhibit No. 10.6 forming part of Amendment
No. 3 to the Registrant's Registration Statement on Form
S-1 (File No. 333-00478) filed with the Securities and
Exchange Commission under the Securities Act of 1933, as
amended).
10.6(b) Employment Agreement, effective as of April 1, 1996,
between the Company and Georgia L. McCabe (Incorporated
by reference to Exhibit No. 10.6 forming part of
Amendment No. 3 to the Registrant's Registration
Statement on Form S-1 (File No. 333-00478) filed with
the Securities and Exchange Commission under the
Securities Act of 1933, as amended).
10.6(c) Employment Agreement, effective as of March 13, 1996,
between the Company and Melvin A. Ettinger (Incorporated
by reference to Exhibit No. 10.6 forming part of
Amendment No. 3 to the Registrant's Registration
Statement on Form S-1 (File No. 333-00478) filed with
the Securities and Exchange Commission under the
Securities Act of 1933, as amended).
10.6(d) Employment Agreement, effective as of April 1, 1996,
between the Company and Scott A. Brownstein
(Incorporated by reference to Exhibit No. 10.6 forming
part of Amendment No. 3 to the Registrant's Registration
Statement on Form S-1 (File No. 333-00478) filed with
the Securities and Exchange Commission under the
Securities Act of 1933, as amended).
10.6(e)(i) Employment Agreement, effective as of June 1, 1996,
between the Company and Louis Salamone, Jr.
(Incorporated by reference to Exhibit No. 10.6(e)
forming part of the Registrant's Report on Form 10-Q
(File No. 0-28208) filed with the Securities and
Exchange Commission under the Securities Exchange Act of
1934, as amended, for the quarterly period ended March
31, 1997).
10.6(e)(ii) Noncompetition, Nonsolicitation, and Confidentiality
Agreement, effective as of June 1, 1996, between the
Company and Louis Salamone, Jr. (Incorporated by
reference to Exhibit No. 10.6(e) forming part of the
Registrant's Report on Form 10-K (File No. 0-28208)
filed with the Securities and Exchange Commission under
the Securities Exchange Act of 1934, as amended, for the
fiscal year ended December 31, 1996).
10.7 Form of Registration Rights Agreement (Incorporated by
reference to Exhibit No. 10.7 forming part of Amendment
No. 3 to the Registrant's Registration Statement on Form
S-1 (File No. 333-00478) filed with the Securities and
Exchange Commission under the Securities Act of 1933, as
amended).
27 Financial Data Schedule (EDGAR filing only).
- ---------------------------------------
* Confidential portions omitted and supplied separately to the Securities and
Exchange Commission.
(b) The Registrant did not file any reports on Form 8-K during the quarter
ended June 30, 1997.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
APPLIED GRAPHICS TECHNOLOGIES, INC.
(Registrant)
By: /s/ Melvin A. Ettinger
Date: August 1, 1997
- ------------------------
Melvin A. Ettinger
Vice Chairman, Chief Operating Officer and Director
(Duly authorized officer)
/s/ Louis Salamone, Jr.
Date: August 1, 1997
- ------------------------
Louis Salamone, Jr.
Senior Vice President and Chief Financial Officer
(Principal Financial Officer)
Exhibit 10.4(b)
THIRD AMENDMENT TO LOAN AND PURCHASE AGREEMENT
This Third Amendment to Loan and Purchase Agreement ("Third Amendment")
is entered into as of this 30th day of June, 1997, by and among *
*
*
*
*
* , Applied Printing Technologies, L.P., a Delaware limited partnership with its
principal place of business at 563 Barell, Carlstadt, New Jersey 07072 ("AGT"),
Applied Graphics Technologies, Inc., a Delaware corporation with its principal
place of business at 28 West 23rd Street, New York, New York 10010 ("New AGT"),
Mortimer B. Zuckerman, an individual residing at
* * ("Mr. Zuckerman"), Daily News, L.P., a Delaware limited partnership
with its principal place of business at 450 West 33rd Street, New York, New York
10001, and U.S. News & World Report, L.P., a Delaware limited partnership with
its principal place of business at 2400 N Street N.W., Washington, D.C. 20037
(the Daily News and U.S. News and World Report are collectively referred to as
the "Zuckerman/Drasner Properties").
Preliminary Statements
(1) * , Mr. Zuckerman, AGT, New AGT and Zuckerman/Drasner Properties are
parties to a Loan and Purchase Agreement dated as of January 8, 1992 (the
"Agreement") as amended by a First Amendment to Loan and Purchase Agreement
dated as of September 18, 1995 and a Second Amendment to Loan and Purchase
Agreement dated as of April 19, 1996 (the "First Amendment and "Second
Amendment" and collectively with the Agreement, the "Purchase Agreement")
pursuant to which * has extended certain Loans to Mr. Zuckerman, and * and AGT,
New AGT and Zuckerman/Drasner Properties have entered into certain
supply/purchase arrangements (capitalized terms not otherwise defined shall have
the meanings attributable to them in the Purchase Agreement).
(2) The parties desire to extend the supply/purchase arrangements in the
Purchase Agreement through December 31, 2000 and to change the Rebate rates, the
value of the Prebate and the terms of Prebate repayments through such date.
(3) Mr. Zuckerman has agreed to further extend the term of his Amended and
Restated Guaranty Agreement until such time as all indebtedness including the
Initial Loan as represented by the First Note, the Additional Loan as
represented by the Second Note, any Term Loan into which such Notes may be
converted has been repaid to * by Mr. Zuckerman and the Prebate has been repaid
to * by AGT and New AGT, jointly and severally.
(4) There is to be no other change in the obligations to pay the First and
Second Notes or any Term Loan in which they are converted or * right to
repayment of any such indebtedness as a consequence of the extension of the
supply/purchase arrangement except for additions to Events of Default under the
Notes contemplated by Sections 10, 10A, 10C and 11; nor is there any change in
Rebate rates, the value of the Prebate and the Prebate repayments; and * right
to repayment of the Prebate except as specifically set forth herein.
* Text deleted pursuant to application for Confidential Treatment under Rule
24b-2 of the Securities Exchange Act of 1934 and filed separately with the
Securities and Exchange Commission
(5) AGT, New AGT, Mr. Zuckerman and Zuckerman/Drasner Properties
specifically acknowledge that the rebate levels set forth herein are significant
concessions on * part and are highly confidential in all respects, and that they
will not receive further increases in such levels or further enhancements to the
program during the term hereof.
Now Therefore, in consideration of the mutual covenants and agreements set
forth herein and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties agree as follows:
Section 1. Amendments to Purchase Agreement. The Purchase Agreement is amended
as of January 1, 1997 as follows:
(a) Section 10 and 10A are restated in their entirety and new Sections 10B
and 10C are added as follows:
10. Purchase and Use of * Products. So long as the Initial Loan, the
Additional Loan, the Term Loan, the Prebate or any other indebtedness is
outstanding by Mr. Zuckerman or by AGT or New AGT to * and/or * under the terms
of this Purchase Agreement and in any event through December 31, 2000, AGT and
New AGT agree to make * during each consecutive twelve-month period commencing
on January 1, 1997 in an amount sufficient to cause the * during each such
twelve-month period to equal at least * . AGT, New AGT and Mr. Zuckerman
represent and warrant to * and * that (i) AGT and New AGT currently purchase no
* products from any * or supplier other than * and those * and suppliers
identified in AGT's and New AGT's most recent quarterly purchase reports to * ,
(ii) except for one existing agreement between AGT and New AGT and another * ,
which agreement is terminable by AGT and/or New AGT at will at any time without
penalty or liability of any kind, there is no contract or other agreement
between AGT, New AGT or Mr. Zuckerman and any person, except for the Purchase
Agreement, as amended, pursuant to which AGT or New AGT is obligated to purchase
* products or * products, and (iii) the obligations to purchase * products or *
products from * pursuant to this Agreement will not result in a breach of, or
create a default under, any existing agreement between AGT or New AGT and any
other * * and/or * product * , or Mr. Zuckerman and any other * * and/or *
product * , or among any combination of AGT, New AGT, Mr. Zuckerman and any
other * or * , or result in a breach of, or create a default under, or interfere
with or otherwise affect any other existing contract or other agreement to which
AGT, New AGT or Mr. Zuckerman is a party or by which either of them is bound.
AGT, New AGT and Mr. Zuckerman acknowledge that the breach of AGT's and/or New
AGT's obligations under Sections 10, 10A, 10C and 11 will constitute an Event of
Default under the Notes and will entitle * to accelerate payment of the Loans
and will entitle * to require immediate repayment of the Prebate as provided for
herein and to enforce Mr. Zuckerman's Second Amended and Restated Guaranty.
* Text deleted pursuant to application for Confidential Treatment under Rule
24b-2 of the Securities Exchange Act of 1934 and filed separately with the
Securities and Exchange Commission
10A. Purchases and Use of * Products. So long as the Initial Loan, the
Additional Loan, the Term Loan, the Prebate or any other indebtedness is
outstanding and in any event through December 31, 2000, AGT and New AGT will
make commercially reasonable efforts to purchase * Products for its * Products
requirements rather than similar products from other suppliers so long as the *
Products are consistent with AGT's and New AGT's technical and quality
specifications and are price competitive.
So long as Mr. Zuckerman is indebted to * and/or Mr. Zuckerman's Guaranty
Agreement is in effect, he will cause AGT and Zuckerman/Drasner Properties to
make and Zuckerman/Drasner Properties will make commercially reasonable efforts
to purchase * * Products and * Products for their respective * products and *
product requirements rather than similar products from other suppliers provided
that, in the case of Zuckerman/Drasner Properties, it is Zuckerman/Drasner
Properties' reasonable judgment, that the * Products and * Products are
consistent with the Zuckerman/Drasner Properties' technical and quality
specifications and are price competitive.
Purchase Tracking. AGT and New AGT at their expense will arrange for AGT
and New AGT or All Star Purchasing, Inc. to track and provide purchase data for
all * Products and * Products purchased by AGT, New AGT and the
Zuckerman/Drasner Properties and will provide * with these calculations within
30 days of the end of the relevant quarter.
Section 10B Limited Price Increases on * Products.
As additional consideration for the extension of the obligation to purchase
* Products by AGT and New AGT, * agrees that during the period May 1, 1997
through December 31, 1997 prices charged to AGT and New AGT for * Products will
not increase during such period over those charged on April 30, 1997. * further
agrees that prices for * Products during each of 1998, 1999 and 2000 will not
increase by more than * over those charged on the last day of the year prior to
each of such years, and in no event shall the increases be greater than any
overall price increase implemented by * on such products for the whole or any
portion of each such year.
AGT's and New AGT's only remedy for any breach of this paragraph 10B shall
be to recover any amounts charged by * in prices in excess of those provided for
in this paragraph 10B less applicable rebate paid on account of such excess
amounts, and such breach shall not otherwise operate to cancel, amend or offset
any obligation of AGT, New AGT or Mr. Zuckerman under the Purchase Agreement
including without limitation the repayment of the Initial Loan, or the
Additional Loan, or any Term Loan, or the Prebate, or interest due on any of the
foregoing, or Mr. Zuckerman's Guaranty or the obligations imposed by Sections
10, 10A, 10C and 11.
* Text deleted pursuant to application for Confidential Treatment under Rule
24b-2 of the Securities Exchange Act of 1934 and filed separately with the
Securities and Exchange Commission
<PAGE>
10C Purchase of * . As additional consideration for the extension of terms,
changes in rebate schedules, and other matters set forth in this Third
Amendment, AGT and New AGT jointly and severally agree on or before December 31,
1997 to purchase and pay for * at a price of * per unit plus applicable taxes.
The other terms and conditions of each such purchase shall be as set forth on
the standard * purchase order form attached hereto as Exhibit A.
It is understood and agreed that the immediate purchase of that certain * *
presently at * shall be counted as one of the * units required to be purchased
and paid for before December 31, 1997, and that full payment for such unit will
be due on or before September 30, 1997. It is further understood and agreed that
a failure to meet the obligations under this Section 10C will be an Event of
Default under the Notes and will entitle * to require immediate repayment of the
Prebate provided for herein and to enforce Mr. Zuckerman's Second Amended and
Restated Guaranty.
(b) Section 11 is restated in its entirety as follows:
11. Payment of Rebates and Prebate
(a) The parties acknowledge and agree that:
(i) Subject only to an audit of the records maintained by * and
AGT/All Star Purchasing, Inc., all rebates due from
inception of the Purchase Agreement through December 31,
1996 have been properly paid to AGT, New AGT and
Zuckerman/Drasner Properties.
(ii) * has paid and AGT and New AGT have received the initial
prebate of * * which at January 1, 1997 had a present value
of * * . In consideration of the extension of payment time
provided hereunder and other changed terms including changes
in the rebate percentage set forth below, the parties agree
now that such sum at January 1, 1997 has a value of * * and
such latter sum is hereinafter referred to as "the Prebate"
for the purpose of the Agreement, as amended hereby and for
the purposes of the Second Amended and Restated Personal
Guarantee of Mr. Zuckerman.
(b) Payment of Rebates. At the end of each calendar quarter commencing
during the term of this Purchase Agreement, and provided that (x) no Event
of Default shall have occurred and be continuing under the First or Second
Note or the Term Loan (if in place), or (y) there is no default in the
obligation respecting repayment of the Prebate, or (z) there has been no
* Text deleted pursuant to application for Confidential Treatment under Rule
24b-2 of the Securities Exchange Act of 1934 and filed separately with the
Securities and Exchange Commission
<PAGE>
other breach of the obligation to purchase * Products or * Products under
Section 10, 10A, and Section 11 and under Section 10C respecting * of the
Purchase Agreement, then AGT, New AGT and Zuckerman/Drasner Properties will
each be entitled to receive a rebate from * on its * during such quarter.
The rebates will each be equal to a percentage of AGT's, New AGT's and
Zuckerman Drasner's * during the applicable quarter. The percentage used
for these purposes will be determined on the basis of the combined
annualized amount of (i) Zuckerman/Drasner Properties' Actual
Zuckerman/Drasner Purchases; (ii) AGT's and New AGT's * * ; and (iii) AGT's
and New AGT's and Zuckerman/Drasner Properties' * * (the amounts described
in clauses (i), (ii) and (iii) hereafter called the "Rebate Purchases")
during the quarter in question, as set forth in the following table:
*
* * *
*
* * *
* * *
*
* *
*
* *
* *
* *
* *
*
* *
*
* *
* *
* *
* *
* Text deleted pursuant to application for Confidential Treatment under Rule
24b-2 of the Securities Exchange Act of 1934 and filed separately with the
Securities and Exchange Commission
<PAGE>
While * are used in computing total volume, no rebate is to be paid on such
purchases. For the purposes of determining the applicable rebate percentage
rate, the Rebate Purchases will be annualized as of the end of each of the first
three calendar quarters of each calendar year, with each such calculation being
based solely on the volume of the Rebate Purchases during the quarter in
question, not for the period from the beginning of the year through the end of
such quarter. For example, if in the third quarter of 1997 the Rebate Purchases
of * totaled * , then the rebate on such purchases would be equal to * (i.e., *
in purchases equates to an annualized rate of * ; accordingly, the rebate would
be equal to * of * ). If, on the other hand, the Rebate Purchases of * in such
quarter totaled * , then the rebate on such purchases would be equal to * (i.e.,
* in purchases equate to an annualized rate of * ; accordingly, the rebate would
be equal to * of * ). At the end of each fourth quarter, the Rebate Purchases
for the year will be totaled, and, in the event of any discrepancy between the
annualized rates used during any of the preceding three quarters and the actual
year-end results, the rebate rates will be recalculated for such quarters and
the fourth quarter rebate adjusted accordingly. Each rebate on * to which AGT,
New AGT and Zuckerman/Drasner Properties are entitled under this Agreement will
be paid by * within thirty days following * receipt of a properly completed
Claims for Payment executed respectively by (x) the General Partner on behalf of
AGT, (y) the Chief Financial Officer of New AGT, and (z) the Chief Financial
Officer of Zuckerman/Drasner Properties, in each case setting forth the volume
of Rebate Purchase.
It is understood that Purchases of * Products or * Products outside the
United States shall not be taken into account for these purposes. At AGT's and
New AGT's request, * will consider entering into a separate arrangement with
respect to AGT's and New AGT's overseas business, but * shall have no rebate
obligations with respect thereto absent a written agreement to the contrary
signed by both parties.
It is understood and agreed that Rebate Purchases by each of AGT, New AGT
and Zuckerman/Drasner Properties during 1997 will be consistent with and not
exceed historic, usual and customary order flow so as to prevent and limit any
purchases in 1997 for actual use in 1998 or thereafter and to prevent purchases
by any one of them for resale to or use by any party except the ordering party
and a breach of the foregoing shall also be deemed an Event of Default under the
Notes.
* Text deleted pursuant to application for Confidential Treatment under Rule
24b-2 of the Securities Exchange Act of 1934 and filed separately with the
Securities and Exchange Commission
From January 1, 1997 through December 31, 1997 * agrees to pay AGT and New
AGT their rebate on their * and Zuckerman/Drasner Properties on Actual
Zuckerman/Drasner Purchases, on a monthly basis using an estimate of purchases
that equate to an aggregate * month rebate provided, however, that for each
Quarter of 1997 * will retain * of the amount of the total rebate earned by each
of AGT, New AGT and Zuckerman/Drasner Properties on account of * and apply that
amount to reduce the Prebate. Quarterly rebate Claims for Payment filings will
be submitted by AGT, New AGT and Zuckerman/Drasner Properties or All Star
Purchasing as provided hereinabove and at that time any adjustments based on the
actual volumes will be made, the monthly rebates already paid to AGT, New AGT
and Zuckerman/Drasner Properties will be offset against the actual rebate owed,
and any additional rebates owed (which in the case of * by AGT, New AGT and
Zuckerman/Drasner Properties will be net of the applications to reduce the
Prebate) will be paid to AGT, New AGT and Zuckerman/Drasner Properties as
provided above. If * overpaid AGT, New AGT or Zuckerman/Drasner Properties for
the quarter, the overpaid parties will reimburse * for the amount overpaid
within thirty days of receiving written notice of such overpayment. The Parties
agree that all rebate payments shall be made by * to each of AGT, New AGT and
Zuckerman/Drasner Properties on account of its pro rata share thereof, said
payments to be delivered to AGT, New AGT and Zuckerman/Drasner Properties, or in
the aggregate to All Star Purchasing, Inc. for its distribution to AGT, New AGT
and Zuckerman/Drasner Properties and such payment to All Star shall be deemed to
satisfy * payment obligation. * shall provide a record of all reductions in the
amount of the Prebate owed by AGT and New AGT through December 31, 1997 and
provide a statement of the outstanding Prebate on January 1, 1998.
Starting the first quarter of 1998 through the fourth quarter of 2000, the
rebates due to AGT, and New AGT under this Section 11 will be reconciled on a
quarterly basis against the value of the outstanding Prebate at January 1, 1998.
This will be done in the following manner. The amount of rebate earned by AGT
and New AGT for the quarter will be determined. If the amount of rebate earned
by AGT and New AGT during the quarter is in excess of * * of the outstanding
Prebate, * will pay AGT and New AGT the excess rebate for that quarter within 30
days of the end of the quarter. If AGT and New AGT earn less than * * of the
outstanding Prebate on January 1, 1998, AGT and New AGT, jointly and severally,
must pay * the difference between the earned rebate and such * of the
outstanding Prebate. * will invoice AGT and New AGT for the difference and AGT
and New AGT are jointly and severally obligated to pay the invoice within 30
days. * and AGT/All Star will keep the appropriate records and will determine
the appropriate rebate. It is the intent and purpose of this paragraph to reduce
the outstanding Prebate on January 1, 1998 by * during each of the twelve
quarters during the period January 1, 1998 through December 31, 2000.
Should AGT or New AGT or Zuckerman/Drasner Properties at any time breach
its obligation to purchase * and * as provided in Sections 10, 10A and Section
11 and under Section 10C respecting * , * may, at its option, require that AGT
and New AGT, jointly and severally, immediately pay to * the Adjusted Balance
(as defined below) of the Prebate, together with interest on the Adjusted
Balance at * computed from the date of the breach through the actual date of the
payment of the Adjusted Balance. For purposes of this Section (i) the Adjusted
Balance shall be calculated by adding to the balance of the Prebate on the date
of breach an amount equal to the "unearned" portion of any reduction in the
Prebate credited during 1997 (such reduction, the "1997 Reduction"), and (ii)
the "unearned" portion of the 1997 Reduction shall be computed by multiplying
the 1997 Reduction by a fraction, which shall be determined in accordance with
the following schedule:
* Text deleted pursuant to application for Confidential Treatment under Rule
24b-2 of the Securities Exchange Act of 1934 and filed separately with the
Securities and Exchange Commission
*
*
* *
* *
* *
* *
* *
* *
* *
* *
* *
* *
* *
* *
If * exercises its option to require payment of the Adjusted Balance, then
such sum shall become "the Prebate" for the purposes of Mr. Zuckerman's Guaranty
Agreement and Mr. Zuckerman acknowledges he has individually guaranteed such
payment. In such event, AGT and New AGT waive any and all defenses (including,
without limit demands for payment, notice and presentment) to such payment
except those defenses which factually dispute any alleged non-compliance with
Section 10 and 10A.
Section 2. Amendment to Guaranty Agreement. Mr. Zuckerman shall deliver
concurrently with his execution of this Third Amendment an executed copy of the
Second Amended and Restated Guaranty Agreement attached hereto as Exhibit B
which acknowledges and agrees to the changes in the value of the Prebate and the
terms of the repayment of the Prebate.
Section 3. Confirmation of Agreement. Except as expressly amended herein, the
Purchase Agreement is ratified and confirmed in all respects and shall remain in
full force and effect in accordance with its terms. Mr. Zuckerman and AGT and
New AGT and each of them represent and confirm each and every representation and
warranty previously made is true and correct and continuing as of the date of
this Third Amendment and that there has been no breach thereof by any of them as
of the date of this Third Amendment. It is expressly understood and agreed that
no term, condition or change set forth in this Third Amendment shall operate to
extend or change the maturity or any other term or condition of the First or
Second Note and Mr. Zuckerman's absolute obligation to repay such Notes except
the additions to Events of Default under such Notes contemplated by Sections 10,
10A, 10C and 11; nor shall it effect the absolute obligation
* Text deleted pursuant to application for Confidential Treatment under Rule
24b-2 of the Securities Exchange Act of 1934 and filed separately with the
Securities and Exchange Commission
<PAGE>
to repay the Prebate except in so far as this Third Amendment changes the amount
of such Prebate and the time for repayment of such Prebate, nor shall it effect
the absolute guarantee of Mr. Zuckerman for the repayment of the Prebate except
as expressly set forth in the Second Amended and Restated Guaranty Agreement. It
is the intention of the parties that at all times from inception of the Prebate
through its final payment that Mr. Zuckerman's guaranty thereof be continuous
and uninterrupted.
Section 4. Execution in Counterparts. This Third Amendment may be executed in
counterparts, each of which shall be deemed an original, and all of which taken
together shall constitute one and the same instrument.
Section 5. Governing Law. The interpretation and construction of this Third
Amendment to the Loan and Purchase Agreement, and all matters in connection
herewith, shall be governed by the substantive laws of the State of New York,
without regard to the choice of law principles.
Section 6. Effectiveness. This Third Amendment, together with the amendments to
the Purchase Agreement incorporated in this Third Amendment, and the Second
Amended and Restated Guaranty Agreement (the form of which is attached hereto as
Exhibit B) shall be effective as of January 1, 1997 upon receipt by * and * of
the last signed counterpart and the signed Second Amended and Restated Guaranty
Agreement.
(The remainder of this page is intentionally blank)
* Text deleted pursuant to application for Confidential Treatment under Rule
24b-2 of the Securities Exchange Act of 1934 and filed separately with the
Securities and Exchange Commission
<PAGE>
Witness the following signatures:
* *
By: * By:*
(signature) (signature)
* *
(title) (title)
Date: July 24, 1997 Date: July 24,
1997
Mortimer B. Zuckerman Daily News, L.P.
By: /s/ Mortimer B. Zuckerman By: /s/ Fred
Drasner
(signature) (signature)
Chief Executive Officer
(title)
Date: July 22, 1997 Date: July 22,
1997
U.S. News & World Report, L.P. Applied Printing Technologies, L.P.
By: /s/ Fred Drasner By: /s/ Fred
Drasner
(signature) (signature)
Chief Executive Officer Chairman and Chief Executive Officer
(title) (title)
Date: : July 22, 1997 Date:: July 22,
1997
Applied Graphics Technologies, Inc.
By: /s/ Fred Drasner
(signature)
Chairman and Chief Executive Officer
(title)
Date: : July 22,
1997
* Text deleted pursuant to application for Confidential Treatment under Rule
24b-2 of the Securities Exchange Act of 1934 and filed separately with the
Securities and Exchange Commission
<PAGE>
EXHIBIT B OF THIRD AMENDMENT TO LOAN & PURCHASE AGREEMENT
Second Amended and Restated Guaranty Agreement
June 30, 1997
*
*
*
Gentlemen:
For value received and in order to induce * , with its principal place of
business at * , to have originally provided a prebate ("Prebate") to Applied
Graphics Technologies, L.P., a/k/a/ Applied Printing Technologies, L.P. with its
principal place of business at 463 Barell, Carlstadt, New Jersey 07072 ("AGT")
and Applied Graphic Technologies, Inc. a Delaware corporation with its principal
place of business at 28 West 23rd Street, New York, New York 10010 ("New AGT"),
and to extend the time for repayment of the Prebate and an increase in the
rebate percentages, to change certain terms, including the value of the Prebate
and the amount of Prebate to be paid during 1997 and thereafter and relating to
purchases to be made by AGT, New AGT and Zuckerman/Drasner Properties from * ,
and to execute the Third Amendment of Loan and Purchase Agreement of even date
herewith among * , * * , AGT, New AGT Mortimer B. Zuckerman ("Guarantor"), Daily
News, L.P, and U.S. News & World Report, L.P., known collectively as
Zuckerman/Drasner Properties (the "Third Amendment"), Guarantor, an individual
residing at * * hereby, absolutely, irrevocably and unconditionally, guarantees
unto * , its successors and assigns, the payment of the Prebate in the aggregate
amount of * * with applicable interest, to * pursuant to and under the First
Amendment of Loan and Purchase Agreement dated September l8, 1995 between * ,
AGT and Guarantor, and the Second Amendment thereto between * and AGT, New AGT
and Zuckerman Properties dated April 19, 1996 and the Third Amendment thereto
and as amended from time to time (including but not limited to as amended by the
Third Amendment), and including any extensions and renewals thereof or part
thereof, together with interest, fees, charges, expenses and costs of collection
or enforcement, including attorneys fees (collectively, the "Liabilities").
* Text deleted pursuant to application for Confidential Treatment under Rule
24b-2 of the Securities Exchange Act of 1934 and filed separately with the
Securities and Exchange Commission
Guarantor acknowledges and agrees that the Liabilities shall not be reduced
by any "unearned" portion of any reduction in the Prebate credited during 1997
as such "unearned" portion is calculated under the terms of Section 11 of the
Loan and Purchase Agreement respecting the "Adjusted Balance." Thus in the event
that there is any breach by AGT or New AGT or Zuckerman/Drasner Properties of
any obligation set forth in Section 10, 10A, 10C or 11 of the Loan and Purchase
Agreement as amended, then the Liabilities shall include the Adjusted Balance of
the Prebate together with interest, fees, charges, expenses and costs of
collections and enforcement.
* may without notice or demand of any kind grant any extensions of time to
or make any compromise with or release and discharge AGT or New AGT, or any
other party or parties liable with AGT or New AGT upon any instrument,
indebtedness or obligation, or any other guarantor thereof, and * may release or
omit to collect or enforce or may compromise any collateral security held by it
without regard to any demands or requests by Guarantor and without thereby
releasing Guarantor hereunder or incurring any liability to Guarantor.
* may without notice or demand of any kind realize on and apply any
collateral held by * , whether or not deposited by Guarantor, to such obligation
or obligations as * may elect, whether guaranteed hereby or not, without regard
to any rights of Guarantor in respect to the application thereof. All sums at
any time to the credit of the Guarantor and any property of the Guarantor in *
possession shall be deemed held by * as security for any and all of Guarantor's
obligations hereunder.
If AGT or New AGT fail to pay all or any part of the Liabilities when due,
whether by acceleration or otherwise, Guarantor, immediately upon written demand
of * , will pay to * all Liabilities then due and unpaid by AGT or New AGT as if
such Liabilities constituted direct and primary obligations of Guarantor.
This instrument shall be deemed to be a continuing guaranty of payment and
not of collectability and shall remain in full force and effect until full
performance and payment of all of the Liabilities, whether absolute or
contingent, and any renewals or extensions thereof. * and AGT and/or New AGT may
agree to subsequent changes on the applicable interest rate without impairing
any of * right under this Guaranty. * may release Guarantor without in way
affecting or terminating the obligations of any other guarantors as to then
existing or future Liabilities and notice by Guarantor shall in no way offer or
terminate the obligation of Guarantor or any of the Guarantors as to then
existing or future Liabilities. Guarantor's liability hereunder is in no way
conditional or contingent upon any attempt to collect from AGT or New AGT or
realize upon any collateral security for the Liabilities. Guarantor shall have
no right of subrogation, reimbursement or indemnity whatsoever and no right of
recourse to or with respect to any assets or property of AGT or New AGT or to
any collateral for the Liabilities, unless and until all the Liabilities have
been paid and performed in full.
* Text deleted pursuant to application for Confidential Treatment under Rule
24b-2 of the Securities Exchange Act of 1934 and filed separately with the
Securities and Exchange Commission
Guarantor agrees to pay its obligations hereunder without deduction by
reason of any set-off, defense or counterclaim of AGT or New AGT, and without
requiring protest, presentment or notice of dishonor or notice of default or
non-payment. Guarantor's obligation shall not be affected by any invalidity or
unenforceability of the Liabilities against AGT and/or New AGT or any other
person or entity, all of which are hereby waived.
Guarantor represents and warrants that the execution, delivery and
performance hereof and of any term, covenant or condition herein provided for
are within his power and are not in conflict with any indenture, contract or
agreement to which Guarantor is a party or by which Guarantor is bound, or with
any statute, rule regulation, decree, judgment or order binding upon Guarantor.
Guarantor covenants that from the date hereof until all obligations owing
to * hereunder have been paid fully, Guarantor shall furnish to * annually,
promptly and as soon as available, but in no event more than 90 days after the
end of each calendar year, financial statements at the end of and for such
calendar year and, promptly after * request, such other financial information as
* may from time to time reasonably request.
Books and records showing the account and amounts outstanding between * on
the one hand and AGT and New AGT on the other shall be admissible in evidence in
any action or proceedings and shall constitute prima facie proof thereof.
Guarantor expressly waives any rights to notice of acceptance from * or to any
other notice or demand upon Guarantor or to any other actions or conditions
prior to * reliance upon or enforcement of this Guaranty. * may take or refrain
from taking any of the actions authorized under this Guaranty without notice of
any kind to Guarantor. Arrangements by and between AGT, New AGT and
Zuckerman/Drasner Properties respecting the Liabilities shall not operate to
waive, cancel or amend Guarantor's absolute and unconditional obligations under
this Guaranty.
This Guaranty shall be enforceable as to all of the Liabilities despite any
discharge of AGT or New AGT in bankruptcy and despite adjustment of all or any
part of the Liabilities in insolvency proceedings or pursuant to some other
compromise with creditors. If claim is ever made upon * for repayment or
recovery of any amount or amounts received by * in payment or on account of any
of the Liabilities, and * repays all or part of said amount by reason of (a) any
judgment, decree or order of any court or administrative body, or (b) any
settlement or compromise of any such claim effected by * with any such claimant
(including AGT or New AGT), then and in such event Guarantor agrees that any
such judgment, decree, order, settlement, or compromise shall be binding upon
Guarantor, notwithstanding any termination hereof or the cancellation of any
such Liabilities, and Guarantor shall be and remain liable hereunder for the
amounts so repaid or recovered to the same extent as if such amount had never
originally been received by * .
* Text deleted pursuant to application for Confidential Treatment under Rule
24b-2 of the Securities Exchange Act of 1934 and filed separately with the
Securities and Exchange Commission
Guarantor's liability hereunder is in addition to and independent of any
other liabilities such Guarantor has incurred or assumed, or may hereafter incur
or assume, by way of endorsement, separate guaranty agreement, or in any other
manner, with respect to all or any part of the Liabilities guaranteed hereby.
This Guaranty does not supersede or limit any such other liabilities of
Guarantor, and * rights and remedies under and pursuant to this Guaranty and any
such other liabilities are cumulative and may be exercised singly or
concurrently.
This instrument shall be binding upon Guarantor, and any heirs, personal
representatives or successors and assigns, and shall inure to * benefit. This
instrument contains the entire agreement between parties hereto and cannot be
changed orally. No failure by * to exercise any right hereunder shall be deemed
a waiver thereof, nor shall any single or partial exercise by * of any right
hereunder preclude any other or further exercise thereof, and no waiver by * of
any right hereunder shall operate as a waiver of any other right.
This Guaranty shall be governed by the laws of the State of New York
without regard to choice of law principles. Any provision of this Guaranty which
found to be prohibited by law will be ineffective to the extent to such
prohibition without invalidating the remaining provisions.
In Witness Whereof, Guarantor has executed this instrument as of the date
first set forth above.
Date: June 30, 1997 /s/ Mortimer B. Zuckerman
Mortimer B. Zuckerman
On this 30th day of June, 1997, before me personally appeared Mortimer B.
Zuckerman who, being by me duly sworn did depose and say that he resides at * *
and that he is the individual who executed the foregoing agreement.
Notary Public
My Commission Expires:
* Text deleted pursuant to application for Confidential Treatment under Rule
24b-2 of the Securities Exchange Act of 1934 and filed separately with the
Securities and Exchange Commission
<PAGE>
SECOND AMENDMENT TO PROMISSORY NOTE
This Second Amendment to Promissory Note ("Second Amendment") is made as of
the 30th day of June, 1997 by and between * ("Lender") and Mortimer B. Zuckerman
("Borrower") and amends the Promissory Note of Borrower to Lender, dated January
8, 1992, in the original principal amount of Twelve Million Dollars
($12,000,000) as amended by the First Amendment to Promissory Note between
Lender and Borrower, dated April 19, 1996 (the "Promissory Note"). Capitalized
terms used herein and not otherwise defined shall have the meaning ascribed
thereto in the Promissory Note.
The Promissory Note was issued in connection with the Loan and Purchase
Agreement, dated as of January 8, 1992, among * , Lender, Applied Print-ing
Technologies, L.P. ("AGT"), Borrower and Daily News, L.P. and was amended by a
First Amendment of Loan and Purchase Agreement among such parties dated as of
September 18, 1995, and further amended by a Second Amendment to Loan and
Purchase Agreement to, among other things, add Applied Graphics Technology, Inc.
("New AGT") and U.S. News & World Report, L.P. as parties (the Loan and Purchase
Agreement, as amended by the First and Second Amendments, the "Purchase
Agreement"). (Daily News, L.P. and U.S. News & World Report, L.P. are referred
to herein as the "Zuckerman/Drasner Properties"). The parties have agreed to
further amend the Purchase Agreement and have entered into a Third Amendment to
Loan and Purchase Agreement (the "Third Amendment"), dated as of June 30, 1997.
NOW, THEREFORE, in consideration of the mutual promises and agreements set
forth in the Purchase Agreement and the Third Amendment and the documents and
instruments issued by the parties in connection therewith and intending to be
legally bound, Lender and Borrower agree as follows:
1. The Events of Default set forth in the Promissory Note are hereby
amended and a new paragraph (e) is hereby added to replace the existing
paragraph (e) in its entirety as follows:
(e) Breach of Purchase Requirements; Termination of Purchase
Agreement or Guaranty.
(i) AGT and/or New AGT fail to make, at the times and in the
amounts specified, * , purchases of * Products, purchases of * *
and such other purchases of * products or otherwise fail to
comply with AGT's and/or New AGT's covenants as set forth in
Section 10, 10A, 10C and 11 of the Purchase Agreement, as amended
by the Third Amendment; or
(ii) Borrower fails to cause any of AGT, New AGT or the
Zuckerman/Drasner Properties to make the purchases required under
Sections 10, 10A or 10C of the Pur-chase Agreement, as amended by
the Third Amendment; or
* Text deleted pursuant to application for Confidential Treatment under Rule
24b-2 of the Securities Exchange Act of 1934 and filed separately with the
Securities and Exchange Commission
(iii) The Purchase Agreement, as amended by the Third Amendment,
or the Second Amended and Restated Guaranty Agreement of Borrower
to * , dated as of June 30, 1997 (the "Guaranty Agreement") shall
cease to be in full force and effect or shall be terminated or
the validity or enforceability thereof shall be contested by
Borrower or by any other person other than * or * .
2. All references to the Promissory Note in the Purchase Agreement or in
the Third Amendment shall be the Promissory Note as amended by this Second
Amendment to Promissory Note. An executed copy of this Second Amendment shall be
affixed to the Promissory Note.
3. This Second Amendment may be executed in one or more counterparts, each
of which shall be deemed an original and all of which, when taken together,
shall constitute one instrument.
4. Except as expressly amended hereby, all of the terms, covenants and
conditions of the Promissory Note shall continue in full force as effect in
accordance with its terms.
IN WITNESS WHEREOF, this Second Amendment has been executed as of the date
first above written.
BORROWER:
-------------------------------
Mortimer B. Zuckerman
LENDER:
*
By:________________________________
Title:_______________________________
* Text deleted pursuant to application for Confidential Treatment under Rule
24b-2 of the Securities Exchange Act of 1934 and filed separately with the
Securities and Exchange Commission
<PAGE>
SECOND AMENDMENT TO PROMISSORY NOTE
This Second Amendment to Promissory Note ("Second Amendment") is made as of
the 30th day of June, 1997 by and between * ("Lender") and Mortimer B. Zuckerman
("Borrower") and amends the Promissory Note of Borrower to Lender, dated June
23, 1993, in the original principal amount of Three Million Dollars ($3,000,000)
as amended by the First Amendment to Promissory Note between Lender and
Bor-rower, dated April 19, 1996 (the "Promissory Note"). Capitalized terms used
herein and not oth-erwise defined shall have the meaning ascribed thereto in the
Promissory Note.
The Promissory Note was issued in connection with the Loan and Purchase
Agreement, dated as of January 8, 1992, among * , Lender, Applied Print-ing
Technologies, L.P. ("AGT"), Borrower and Daily News, L.P. and was amended by a
First Amendment of Loan and Purchase Agreement among such parties, dated as of
September 18, 1995, and further amended by a Second Amendment to Loan and
Purchase Agreement to, among other things, add Applied Graphics Technology, Inc.
("New AGT") and U.S. News & World Report, L.P. as parties (the Loan and Purchase
Agreement, as amended by the First and Second Amendments, the "Purchase
Agreement"). (Daily News, L.P. and U.S. News & World Report, L.P. are referred
to herein as the "Zuckerman/Drasner Properties"). The parties have agreed to
further amend the Purchase Agreement and have entered into a Third Amendment to
Loan and Purchase Agreement (the "Third Amendment"), dated as of June 30, 1997.
NOW, THEREFORE, in consideration of the mutual promises and agreements set
forth in the Purchase Agreement and the Third Amendment and the documents and
instruments issued by the parties in connection therewith and intending to be
legally bound, Lender and Borrower agree as follows:
1. The Events of Default set forth in the Promissory Note are hereby
amended and a new paragraph (e) is hereby added to replace the existing
paragraph (e) in its entirety as follows:
(e) Breach of Purchase Requirements; Termination of Purchase
Agreement or Guaranty.
(i) AGT and/or New AGT fail to make, at the times and in the amounts
specified, * , purchases of * Products, purchases of * * and such
other purchases of * products or otherwise fail to comply with
AGT's and/or New AGT's covenants as set forth in Section 10, 10A,
10C and 11 of the Purchase Agreement, as amended by the Third
Amendment; or
* Text deleted pursuant to application for Confidential Treatment under Rule
24b-2 of the Securities Exchange Act of 1934 and filed separately with the
Securities and Exchange Commission
(ii) Borrower fails to cause any of AGT, New AGT or the
Zuckerman/Drasner Properties to make the purchases required under
Sections 10, 10A or 10C of the Pur-chase Agreement, as amended by
the Third Amendment; or
(iii)The Purchase Agreement, as amended by the Third Amendment, or
the Second Amended and Restated Guaranty Agreement of Borrower to
* , dated as of June 30, 1997 (the "Guaranty Agreement"), shall
cease to be in full force and effect or shall be terminated or
the validity or enforceability thereof shall be contested by
Borrower or by any other person other than * or * .
2. All references to the Promissory Note in the Purchase Agreement or in
the Third Amendment to shall be the Promissory Note as amended by this Second
Amendment to Promis-sory Note. An executed copy of this Second Amendment shall
be affixed to the Promissory Note.
3. This Second Amendment may be executed in one or more counterparts, each
of which shall be deemed an original and all of which, when taken together,
shall constitute one instrument.
4. Except as expressly amended hereby, all of the terms, covenants and
conditions of the Promissory Note shall continue in full force as effect in
accordance with its terms.
IN WITNESS WHEREOF, this Second Amendment has been executed as of the date
first above written.
BORROWER:
-------------------------------
Mortimer B. Zuckerman
LENDER:
*
By:________________________________
Title:_______________________________
* Text deleted pursuant to application for Confidential Treatment under Rule
24b-2 of the Securities Exchange Act of 1934 and filed separately with the
Securities and Exchange Commission
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
The schedule contains summary financial information extracted from the balance
sheet and statement of operations of the company as of and for six months ended
June 30, 1997, and is qualified in its entirety by reference to such financial
statements.
</LEGEND>
<CIK> 0001006030
<NAME> APPLIED GRAPHICS TECHNOLOGIES, INC.
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> Dec-31-1997
<PERIOD-START> Jan-01-1997
<PERIOD-END> Jun-30-1997
<CASH> 2,039
<SECURITIES> 0
<RECEIVABLES> 35,350
<ALLOWANCES> 526
<INVENTORY> 6,194
<CURRENT-ASSETS> 51,782
<PP&E> 44,564
<DEPRECIATION> 24,290
<TOTAL-ASSETS> 86,155
<CURRENT-LIABILITIES> 23,797
<BONDS> 17,403
0
0
<COMMON> 144
<OTHER-SE> 42,214
<TOTAL-LIABILITY-AND-EQUITY> 86,155
<SALES> 81,072
<TOTAL-REVENUES> 81,072
<CGS> 52,871
<TOTAL-COSTS> 52,871
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 508
<INCOME-PRETAX> 9,641
<INCOME-TAX> 3,760
<INCOME-CONTINUING> 5,881
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 5,881
<EPS-PRIMARY> 0.39
<EPS-DILUTED> 0.38
</TABLE>
