<PAGE> 1
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, 1998
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 incorporation (I.R.S. Employer
or organization) Identification No.)
450 WEST 33rd STREET
NEW YORK, NY
(Address of principal executive offices)
10001
(Zip Code)
212-716-6600
(Registrant's telephone number, including area code)
N/A
(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 31,
1998, was 22,331,776.
<PAGE> 2
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
APPLIED GRAPHICS TECHNOLOGIES, INC.
CONSOLIDATED BALANCE SHEETS
(Unaudited)
(In thousands of dollars, except share amounts)
<TABLE>
<CAPTION>
June 30, December 31,
1998 1997
---------------- ----------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 12,913 $ 12,584
Marketable securities 514 90,150
Trade accounts receivable (net of allowances of $15,582 in 1998
and $3,989 in 1997) 82,044 43,025
Due from affiliates 4,872 5,561
Inventory - net 42,240 6,234
Prepaid expenses and other current assets 27,346 7,881
Deferred income taxes 19,281 3,016
---------------- ----------------
Total current assets 189,210 168,451
Property, plant, and equipment - net 80,765 31,020
Goodwill (net of accumulated amortization of $2,954 in 1998
and $1,289 in 1997) 409,909 22,229
Deferred income taxes 1,855 1,384
Other assets 7,757 1,709
---------------- ----------------
Total assets $ 689,496 $ 224,793
================ ================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses $ 62,590 $ 27,264
Current portion of long-term debt and obligations under capital leases 2,085 2,303
Due to affiliates 1,553 923
Other current liabilities 17,721 6,793
---------------- ----------------
Total current liabilities 83,949 37,283
Long-term debt 178,934 812
Obligations under capital leases 4,643 2,011
Other liabilities 4,990 1,190
---------------- ----------------
Total liabilities 272,516 41,296
---------------- ----------------
Commitments and contingencies
STOCKHOLDERS' EQUITY
Preferred stock (par value $0.01; 10,000,000 shares authorized; no shares
issued and outstanding)
Common stock (par value $0.01; shares authorized: 150,000,000 in 1998 and
40,000,000 in 1997; shares issued and outstanding: 22,331,776 in 1998
and 17,836,383 in 1997) 223 178
Additional paid-in capital 384,246 159,627
Accumulated other comprehensive income 16 (31)
Retained earnings 32,495 23,723
---------------- ----------------
Total stockholders' equity 416,980 183,497
---------------- ----------------
Total liabilities and stockholders' equity $ 689,496 $ 224,793
================ ================
</TABLE>
See Notes to Interim Consolidated Financial Statements
<PAGE> 3
APPLIED GRAPHICS TECHNOLOGIES, INC.
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
(In thousands, except per-share amounts)
<TABLE>
<CAPTION>
For the Six Months Ended For the Three Months Ended
June 30, June 30,
---------------------------------- ----------------------------------
1998 1997 1998 1997
-------------- ------------- -------------- --------------
<S> <C> <C> <C> <C>
Revenues 140,563 $ 81,072 $ 80,908 $ 41,311
Cost of revenues 88,676 52,871 50,117 26,050
-------------- ------------- -------------- --------------
Gross profit 51,887 28,201 30,791 15,261
Selling, general, and
administrative expenses 32,598 18,123 20,021 9,521
Restructuring charge 5,300 5,300
-------------- ------------- -------------- --------------
Operating income 13,989 10,078 5,470 5,740
Interest expense (1,228) (508) (1,092) (298)
Interest income 1,731 17 680 1
Other income (expense) - net 698 54 686 (61)
-------------- ------------- -------------- --------------
Income before provision for
income taxes 15,190 9,641 5,744 5,382
Provision for income taxes 6,418 3,760 2,545 2,099
-------------- ------------- -------------- --------------
Net income 8,772 $ 5,881 3,199 $ 3,283
============= ==============
Other comprehensive income 47 4
-------------- --------------
Comprehensive income $ 8,819 $ 3,203
============== ==============
Earnings per common share:
Basic $ 0.47 $ 0.41 $ 0.16 $ 0.23
Diluted $ 0.45 $ 0.39 $ 0.16 $ 0.21
Weighted average number of
common shares:
Basic 18,768 14,351 19,607 14,353
Diluted 19,678 15,244 20,495 15,304
</TABLE>
See Notes to Interim Consolidated Financial Statements
<PAGE> 4
APPLIED GRAPHICS TECHNOLOGIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(In thousands of dollars)
<TABLE>
<CAPTION>
For the Six Months Ended
June 30,
--------------------------------
1998 1997
------------- ------------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 8,772 $ 5,881
Adjustments to reconcile net income to net cash from
operating activities:
Depreciation and amortization 6,134 2,962
Deferred taxes (333) (437)
Restructuring charge 5,300
Other (1,165) (6)
Changes in Operating Assets and Liabilities, net of effects of acquisitions:
Trade accounts receivable (3,994) (5,234)
Due from/to affiliates 1,319 (3,298)
Inventory (4,196) (1,441)
Other assets (3,204) (2,068)
Accounts payable and accrued expenses (2,638) (1,999)
Other liabilities (1,563) (830)
------------- ------------
Net cash provided by (used in) operating activities 4,432 (6,470)
------------- ------------
Cash flows from investing activities:
Investment in available-for-sale securities (178,433)
Proceeds from sale of available-for-sale securities 283,265
Proceeds from maturities of held-to-maturity securities 1,600
Property, plant, and equipment expenditures (17,463) (3,902)
Proceeds from sale of fixed assets 425
Entities purchased, net of cash acquired (252,598) (1,179)
Other investing activities (4,395) 12
------------- ------------
Net cash used in investing activities (169,199) (3,469)
------------- ------------
Cash flows from financing activities:
Proceeds from sale/leaseback transactions 3,391 2,140
Repayment of notes and capital lease obligations (13,955) (1,078)
Borrowings under credit lines 175,660 9,877
Repayment of Applied Printing Note (1,600)
Proceeds from exercise of stock options 72
------------- ------------
Net cash provided by financing activities 165,096 9,411
------------- ------------
Net increase (decrease) in cash and cash equivalents 329 (528)
Cash and cash equivalents at beginning of period 12,584 2,567
------------- ------------
Cash and cash equivalents at end of period $ 12,913 $ 2,039
============= ============
</TABLE>
See Notes to Interim Consolidated Financial Statements
<PAGE> 5
APPLIED GRAPHICS TECHNOLOGIES, INC.
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
(Unaudited)
(In thousands of dollars except share and per-share amounts)
<TABLE>
<CAPTION>
For the six months ended June 30, 1998
Accumulated
Additional other
Common Paid-in comprehensive Retained
Stock Capital income Earnings
-------------- -------------- ----------------- --------------
<S> <C> <C> <C> <C>
Balance at January 1, 1998 $ 178 $ 159,627 $ (31) $ 23,723
Issuance of 68,103 common shares in
Flying Color Graphics acquisition at
$48.46 per share 1 3,299
Issuance of 4,427,290 common shares in
Devon merger at $50 per share 44 221,320
Other comprehensive income 47
Net income 8,772
-------------- -------------- ----------------- --------------
Balance at June 30, 1998 $ 223 $ 384,246 $ 16 $ 32,495
============== ============== ================= ==============
</TABLE>
See Notes to Interim Consolidated Financial Statements
<PAGE> 6
APPLIED GRAPHICS TECHNOLOGIES, INC.
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements of
Applied Graphics Technologies, Inc. and its subsidiaries (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 consolidated financial statements contained in the
Company's 1997 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.
The Company obtained stockholder approval on May 27, 1998, at the Special
Meeting in lieu of annual meeting of stockholders to increase the number of
authorized shares of its common stock to 150,000,000 shares from 40,000,000
shares.
Certain prior-period amounts in the accompanying financial statements have
been reclassified to conform with the 1998 presentation.
2. ACQUISITIONS
In January 1998, the Company acquired the operations of Flying Color
Graphics, Inc. ("Flying Color"), a prepress company with five facilities
throughout the midwest, for approximately $18.3 million in cash from working
capital, 68,103 shares of the Company's common stock valued at approximately
$3.3 million, and the assumption of certain liabilities.
On May 27, 1998, the Company, through a wholly-owned subsidiary, merged
with Devon Group, Inc. ("Devon"), a digital prepress and publishing company. The
Company paid $30 per share in cash and distributed 0.6 share of the Company's
common stock in exchange for each outstanding share of Devon common stock. The
total consideration paid was $452.7 million including transaction costs. To fund
the cash portion of the merger consideration, the Company used approximately
$86.4 million in cash from working capital, including cash acquired from Devon,
and borrowed $135.0 million under its lines of credit.
In May 1998, the Company acquired the operations of Tint Masters, Inc., a
prepress company with a facility in New Jersey, for approximately $2.8 million
in cash from working capital.
In June 1998, the Company acquired the stock of Color Control, Inc.
("CCI"), a prepress company with operations in Redmond, WA, for approximately
$23.1 million in cash plus the assumption of certain liabilities, including
approximately $11.9 million of long-term debt that was paid in full by the
Company at closing. The Company funded the acquisition of CCI, including the
repayment of long-term debt, with approximately $35.0 million in borrowings
under its lines of credit.
The acquisitions were accounted for using the purchase method of
accounting. Accordingly, the assets and liabilities have been recorded at their
estimated fair values at the date of the respective acquisitions, subject to
adjustments based on the completion of appraisals and other analyses. The
Company does not expect such adjustments to be material. The excess of the
purchase price over the fair value of assets acquired was approximately $387.1
million, which is being amortized over periods ranging from 30 to 40 years. The
results of operations of these acquisitions have been included in the
Consolidated Statements of Income subsequent to the respective dates of
acquisition.
The following unaudited pro forma information (in thousands of dollars)
combines the results of operations of the Company and the acquisitions for the
six months ended June 30, 1998 and 1997, calculated as if the acquisitions had
occurred on January 1, 1997. The pro forma information has been prepared for
comparative purposes only and does not purport to be indicative of the results
2
<PAGE> 7
of operations that would have occurred had the acquisitions been consummated at
the beginning of 1997 or of results that may occur in the future.
<TABLE>
<CAPTION>
For the six months ended June 30,
---------------------------------
1998 1997
---- ----
<S> <C> <C>
Total revenues $236,602 $213,340
Income before provision for income taxes $ 14,749 $ 13,933
Net income $ 8,517 $ 6,730
Earnings per common share:
Basic $ 0.38 $ 0.36
Diluted $ 0.36 $ 0.34
</TABLE>
3. ACCOUNTING PRONOUNCEMENTS
The Company adopted Statement of Financial Accounting Standards (SFAS) No.
130, "Reporting of Comprehensive Income," in January 1998. SFAS No. 130
establishes standards for reporting and display of comprehensive income and its
components. Other comprehensive income and accumulated other comprehensive
income as of and for the three and six months ended June 30, 1998, are comprised
of unrealized holding gains and losses on available-for-sale securities and
unrealized gains and losses from foreign currency translation adjustments. There
were no items of other comprehensive income as of and for the three and six
months ended June 30, 1997.
Statement of Position (SOP) 98-1, "Accounting for the Costs of Computer
Software Developed or Obtained for Internal Use," was issued in March 1998 and
is effective for financial statements for fiscal years beginning after December
15, 1998. This statement establishes standards for capitalizing and expensing
costs incurred in connection with internal use software and applies to costs
incurred subsequent to adoption of SOP 98-1. The Company does not expect the
adoption of SOP 98-1 to have a material adverse effect on its financial position
or results of operations.
Statement of Position (SOP) 98-5, "Reporting on the Costs of Start-Up
Activities," was issued in April 1998 and is effective for financial statements
for fiscal years beginning after December 15, 1998. This statement establishes
standards for the treatment of costs incurred in connection with start-up
activities and requires the effect on prior periods to be reported as a
cumulative effect of a change in accounting principle. The Company does not
expect the adoption of SOP 98-5 to have a material adverse effect on its
financial position or results of operations.
Statement of Financial Accounting Standards (SFAS) No. 133, "Accounting for
Derivative Instruments and Hedging Activities," was issued in June 1998 and is
effective for fiscal quarters beginning after June 15, 1999. This statement
establishes accounting and reporting standards for derivative instruments and
for hedging activities and requires that entities recognize derivative
instruments as either assets or liabilities in the statement of financial
position and measure those instruments at fair value. The accounting for the
change in fair value of a derivative instrument will depend on the intended use
of the instrument. Although the Company did not have any derivative instruments
as of June 30, 1998, it entered into two interest rate swap agreements in August
1998. The impact of the adoption of SFAS No. 133 on the Company's financial
position and results of operations is not determinable at this time.
<PAGE> 8
4. INVENTORY
The components of inventory (in thousands of dollars) were as follows:
<TABLE>
<CAPTION>
June 30, December 31,
1998 1997
------- -------
<S> <C> <C>
Finished goods $ 1,926
Work-in-process 34,474 $ 2,721
Raw materials 5,840 3,513
------- -------
Total $42,240 $ 6,234
======= =======
</TABLE>
5. RESTRUCTURING
During the second quarter of 1998, the Company commenced a plan to
restructure its operations to achieve certain operating efficiencies associated
with the growth of the prepress operations, primarily resulting from the merger
with Devon and the acquisition of Color Control as well as other recent
acquisitions. As part of this restructuring plan approved by management with
requisite authority, the Company will terminate certain employees and shutdown
facilities in Carlstadt, NJ, and Chicago, IL, and integrate the work
historically performed at these facilities into its other metropolitan New York
and Midwest facilities, respectively. In addition, the Company will terminate
certain employees and consolidate facilities by moving work currently performed
in certain of its West Coast facilities, resulting in the closure of one of its
California facilities. The Company does not anticipate any adverse effect on its
future results of operations from such facility closings since all work
currently performed will continue at other locations. The results of operations
for the second quarter of 1998 include a charge of $5.3 million for this
restructuring, comprised primarily of severance and benefits for employees to be
terminated, facility closure costs, and assets no longer utilized as a result of
the restructuring. Of the total restructuring charge, approximately $1.0 million
represents severance for approximately 100 employees to be terminated,
principally prepress production workers and administrative support staff. As
of June 30, 1998, approximately $3.2 million was included in Other Current
Liabilities in the consolidated balance sheet for the future costs of the
restructuring. The Company expects to complete this restructuring plan by
June 1999. It is the Company's intention to continue to pursue other operating
efficiencies and synergies associated with acquisitions and as a result it
may incur additional restructuring charges in the future.
6. LONG TERM DEBT
On May 27, 1998 (the "Closing Date"), the Company entered into a credit
agreement (the "Credit Agreement") to be used to finance the Devon merger, to
provide working capital for the Company, and to finance certain future
acquisitions. The total borrowing capacity under the Credit Agreement is $250
million, comprised of a $175 million revolving line of credit (the "Revolver")
and a $75 million acquisition line of credit (the "Acquisition Line"). In July
1998, the Company increased the borrowing capacity under the Credit Agreement to
$300 million, increasing the Revolver and the Acquisition Line to $195 million
and $105 million, respectively. The Acquisition Line and the Revolver have terms
that extend through March 2003 and May 2003, respectively. Interest rates on
funds borrowed under the Revolver and the Acquisition Line vary from LIBOR to
the prime rate in effect at the time of the borrowing. At June 30, 1998, $175.7
million was outstanding under the Credit Agreement, of which $140.6 million was
outstanding under the Revolver and $35.1 million was outstanding under the
Acquisition Line. The average variable rate on borrowings under the Credit
Agreement during the 1998 period was 7.18%. Under the terms of the Credit
Agreement, the Company must comply with certain covenants related to total
funded debt to EBITDA ratios, interest coverage ratios, and minimum net worth.
At June 30, 1998, the Company was in compliance with all covenants. In addition,
under the terms of the Credit Agreement, the Company is obligated to enter into
hedge arrangements within 180 days of the Closing Date for a minimum of two
years covering at least 30% of the amount borrowed on the Closing Date. The
Company is prohibited from paying dividends under the terms of the Credit
Agreement.
In August 1998, the Company entered into two interest rate swap agreements
that expire in August 2003. Under each swap agreement, the Company will pay a
fixed rate of 5.798% per annum on a quarterly basis and be paid a floating rate
based on the three month LIBOR rate in effect at the beginning of each quarterly
payment period. The notional amounts of the two swaps are $35 million and $15
million, respectively. The counterparties to both swaps are major financial
institutions. The Company believes the credit risk associated with
nonperformance will not be significant.
7. EARNINGS PER SHARE
The Company adopted the provisions of Statement of Financial Accounting
Standards (SFAS) No. 128, "Earnings per Share," in December 1997. SFAS No. 128
requires the presentation of both basic and diluted earnings per share as
opposed to primary and fully diluted earnings per share, which were required
under the previous standard, Accounting Principles Board Opinion No. 15. In
accordance with the provisions of SFAS No.128, prior period earnings per share
data has been restated.
<PAGE> 9
Basic earnings per share of common stock are computed by dividing income
available to common stockholders by the weighted-average number of common shares
outstanding. Diluted earnings per share of common stock are computed by giving
effect to all dilutive potential shares. There were no reconciling items to net
income to arrive at income available to common stockholders for the three and
six months ended June 30, 1998 and 1997.
8. RELATED PARTY TRANSACTIONS
Sales to, purchases from, and administrative charges incurred with related
parties during the three and six months ended June 30, 1998 and 1997 (in
thousands of dollars) were as follows:
<TABLE>
<CAPTION>
Six months ended June 30, Three months ended June 30,
------------------------------------ ------------------------------------
1998 1997 1998 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
Affiliate sales $ 14,581 $ 6,236 $ 6,055 $ 2,679
Affiliate purchases $ 3,366 $ 2,306 $ 1,681 $ 1,144
Administrative charges $ 514 $ 532 $ 219 $ 267
</TABLE>
Administrative charges include charges for certain legal and computer
services provided by affiliates and for rent incurred for leases with
affiliates.
9. SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Payments of interest and income taxes for the six months ended June 30,
1998 and 1997 (in thousands of dollars) were as follows:
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
Interest paid $ 724 $ 496
Income taxes paid $ 5,264 $ 4,044
</TABLE>
Noncash investing and financing activities for the six months ended June
30, 1998 and 1997 (in thousands of dollars) were as follows:
<TABLE>
<CAPTION>
1998 1997
---------------- ---------------
<S> <C> <C>
Reduction of goodwill from
amortization of excess
tax deductible goodwill $ 21
Notes payable issued in
connection with an
acquisition $ 488
Acquisitions:
Fair value of assets
acquired 560,986 $ 4,253
Cash paid (265,578) (1,185)
Fair value of common stock
and warrants issued (224,664) (330)
------------------- ------------------
Liabilities assumed $ 70,744 $ 2,738
=================== ==================
</TABLE>
<PAGE> 10
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
facilities management contracts; the growth of the market for advanced digital
imaging services; the ability to enter into acquisitions; the rate and level of
capital expenditures; the rate and level of business from significant customers;
or the ability to obtain additional credit or financing sources.
RESULTS OF OPERATIONS
Six months ended June 30, 1998, compared with 1997
Revenues in the first six months of 1998 were $59.5 million or 73.4% higher
than in the comparable period in 1997. This increase resulted from $21.9 million
of revenue from additional business generated internally and $37.6 million of
revenue from operations acquired subsequent to June 30, 1997. Revenues generated
in the traditional prepress business increased during the 1998 period by $43.9
million resulting from the operations of the prepress business of Devon Group,
Inc. ("Devon"), which was merged with a wholly-owned subsidiary of the Company
on May 27, 1998, in addition to other operations acquired subsequent to the 1997
period, including the prepress operations of Flying Color Graphics, Inc.
("Flying Color"), and Color Control, Inc. ("Color Control"), which were acquired
in January 1998 and June 1998, respectively, and an overall increase in business
at various facilities. Revenues during the 1998 period also increased by $9.1
million from the operations of the publishing business of Devon, $3.6 million
from the broadcast media distribution business from operations that have been
acquired since the 1997 period and internally generated growth, $1.8 million
from additional revenues generated from facilities management contracts
resulting from new contracts entered into since the 1997 period, and $4.5
million from the digital business. These increases were partially offset by the
receipt of a nonrefundable payment of $2.0 million from one of the Company's
major suppliers during the 1997 period with no corresponding receipt during the
1998 period and a $1.4 million reduction in revenue from a facilities management
contract that was renegotiated in connection with a customer bankruptcy in 1997.
The gross profit percentage in the first six months of 1998 was 36.9% as
compared to 34.8% in the 1997 period. Gross profit increased $23.7 million in
the first six months of 1998 as a result of the additional revenues for the
period as discussed above and increased business in higher margin work,
including that from recently acquired operations. Such improvements were
partially offset by additional costs incurred at a New York City facility
resulting from operating inefficiencies caused by delays experienced in the
reallocation of General Motors work.
Selling, general, and administrative expenses in the first six months of
1998 were $14.5 million higher than in the first six months of 1997, and as a
percent of revenue increased slightly to 23.2% in the 1998 period from 22.4% in
the 1997 period. Such expenses grew at a greater rate than revenue due primarily
to higher costs incurred at recently acquired operations that have not been
fully integrated and additional expenses incurred from the Company's expansion
of its sales force in the latter half of 1997 to better market its services.
During the second quarter of 1998, the Company commenced a plan to
restructure its operations to achieve certain operating efficiencies associated
with the growth of the prepress business, primarily resulting from the merger
with Devon and the acquisition of Color Control as well as other recent
acquisitions. As part of this restructuring plan approved by management with the
requisite authority, the Company will terminate certain employees and shutdown
facilities in Carlstadt, NJ, and Chicago, IL, and integrate the work
historically performed at these facilities into its other metropolitan New York
and Midwest facilities, respectively. In addition, the Company will terminate
certain employees and consolidate facilities by moving work currently performed
in certain of its West Coast facilities, resulting in the closure of one of its
California facilities. The results of operations in the 1998 period include a
<PAGE> 11
charge of $5.3 million, or $0.16 per diluted share, for this restructuring,
comprised primarily of severance and benefits for employees to be terminated,
facility closure costs, and assets no longer utilized as a result of the
restructuring.
Interest expense for the first six months of 1998 was $0.7 million higher
than during the 1997 period due primarily to the interest on borrowings to
finance the Devon merger and the Color Control acquisition.
Interest income for the first six months of 1998 was $1.7 million higher
than in the 1997 period due to the investment of proceeds from an offering of
the Company's common stock in September 1997.
The effective rate of the provision for income taxes increased in the 1998
period due to the permanent item related to the nondeductible goodwill
associated with the Devon merger and the Color Control acquisition and a lower
effective tax rate in 1997 due to the reversal of deferred tax asset valuation
allowances in that period.
Revenues from business transacted with affiliates for the six months ended
June 30, 1998 and 1997, totaled $14.6 million and $6.2 million, respectively,
representing 10.4% and 7.7%, respectively, of the Company's revenues.
Three months ended June 30, 1998, compared with 1997
Revenues in the second quarter of 1998 were $39.6 million higher or almost
double the amount in the comparable period in 1997. This increase resulted from
$10.7 million of revenue from additional business generated internally and $28.9
million of revenue from operations acquired subsequent to the second quarter of
1997. Revenues generated in the traditional prepress business increased $28.1
million resulting from the operations of the prepress business of Devon in
addition to other operations acquired subsequent to the 1997 period, including
the prepress operations of Flying Color and Color Control, and an overall
increase in business at various facilities. Revenues during the 1998 period also
increased by $9.1 million from the operations of the publishing business of
Devon, $1.8 million from the broadcast media distribution business primarily
from operations that have been acquired since the 1997 period, and $1.5 million
from the digital business. These increases were partially offset by a $0.9
million reduction in revenue from a facilities management contract that was
renegotiated in connection with a customer bankruptcy in 1997.
The gross profit percentage in the second quarter of 1998 was 38.1% as
compared to 36.9% in the 1997 period. Gross profit increased $15.5 million in
the second quarter of 1998 as a result of the additional revenues for the period
as discussed above and increased business in higher margin work, including that
from recently acquired operations. Such improvements were partially offset by
additional costs incurred at a New York City facility resulting from operating
inefficiencies caused by delays experienced in the reallocation of General
Motors work.
Selling, general, and administrative expenses in the second quarter of 1998
were $10.5 million higher than in the second quarter of 1997, and as a percent
of revenue increased to 24.7% in the 1998 period from 23.0% in the 1997 period.
Such expenses grew at a greater rate than revenue due primarily to higher costs
incurred at recently acquired operations that have not been fully integrated and
additional expenses incurred from the Company's expansion of its sales force in
the latter half of 1997 to better market its services.
During the second quarter of 1998, the Company commenced a plan to
restructure its operations to achieve certain operating efficiencies associated
with the growth of the prepress business, primarily resulting from the merger
with Devon and the acquisition of Color Control as well as other recent
acquisitions. As part of this restructuring plan approved by management with the
requisite authority, the Company will terminate certain employees and shutdown
facilities in Carlstadt, NJ, and Chicago, IL, and integrate the work
historically performed at these facilities into its other metropolitan New York
and Midwest facilities, respectively. In addition, the Company will terminate
certain employees and consolidate facilities by moving work currently performed
in certain of its West Coast facilities, resulting in the closure of one of its
California facilities. The results of operations in the 1998 period include a
charge of $5.3 million, or $0.15 per diluted share, for this restructuring,
comprised primarily of severance and benefits for employees to be terminated,
facility closure costs, and assets no longer utilized as a result of the
restructuring.
<PAGE> 12
Interest expense for the second quarter of 1998 was $0.8 million higher
than during the 1997 period due primarily to the interest on borrowings to
finance the Devon merger and the Color Control acquisition.
Interest income for the second quarter of 1998 was $0.7 million higher than
in the 1997 period due to the investment of proceeds from an offering of the
Company's common stock in September 1997.
The effective rate of the provision for income taxes increased in the 1998
period due to the permanent item related to the nondeductible goodwill
associated with the Devon merger and the Color Control acquisition and a lower
effective rate in 1997 due to the reversal of deferred tax asset valuation
allowances in that period.
Revenues from business transacted with affiliates for the three months ended
June 30, 1998 and 1997, totaled $6.1 million and $2.7 million, respectively,
representing 7.5% and 6.5%, respectively, of the Company's revenues.
FINANCIAL CONDITION
In May 1998, the Company entered into a Credit Agreement (the "Credit
Agreement") to be used, in part, to finance the Devon merger, to provide working
capital for the Company, and to finance certain future acquisitions. The total
borrowing capacity under the Credit Agreement is $250 million, comprised of a
$175 million revolving line of credit (the "Revolver") and a $75 million
acquisition line of credit (the "Acquisition Line"). In July 1998, the Company
increased the borrowing capacity under the Credit Agreement to $300 million,
increasing the Revolver and the Acquisition Line to $195 million and $105
million, respectively. The Acquisition Line and the Revolver have terms that
extend through March 2003 and May 2003, respectively.
In August 1998, the Company entered into two interest rate swap agreements
that expire in August 2003. Under each swap agreement, the Company will pay a
fixed rate of 5.798% per annum on a quarterly basis and be paid a floating rate
based on the three month LIBOR rate in effect at the beginning of each quarterly
payment period. The notional amounts of the two swaps are $35 million and $15
million, respectively.
During the first six months of 1998, the Company borrowed a total of $175.7
million under the Credit Agreement. To finance the Devon merger, the Company
borrowed approximately $135.0 million, paid approximately $86.4 million in cash
from working capital, including amounts acquired from Devon, and issued
4,427,290 shares of the Company's common stock valued at approximately
$221.4 million. To finance the acquisition of Color Control in June 1998, the
Company borrowed approximately $35.0 million. In addition, to finance the
acquisition of the operations of Flying Color in January 1998, the Company paid
approximately $18.3 million in cash from working capital and issued 68,103
shares of the Company's common stock valued at approximately $3.3 million.
During the six months ended June 30, 1998, the Company entered into four
sale and leaseback arrangements that generated proceeds of $3.4 million and are
accounted for as capital leases. Such arrangements resulted in immaterial gains,
which have been deferred and are being recognized in income as a credit against
future amortization of the leased assets.
Cash flows from operating activities during the first six months of 1998
increased by $10.9 million as compared to the comparable period in 1997 due
primarily to cash generated from additional income. In addition to the amounts
expended for the acquisitions described above, during the first six months of
1998 the Company invested $17.5 million in new equipment and repaid $14.0
million of debt and capital lease obligations, including obligations assumed in
acquisitions, with the cash generated from operations, the proceeds from sale
and leaseback arrangements, and the use of investments in marketable securities.
The Company expects to spend approximately $15.0 million over the course of
the next twelve months for capital improvements, essentially all of which is for
modernization and growth. The Company intends to finance a substantial portion
of these expenditures under operating or capital leases, sale and leaseback
arrangements, or with working capital.
Marketable securities as of June 30, 1998, decreased $89.6 million from
December 31, 1997, due to the use of funds for acquisitions, primarily the Devon
merger and the acquisition of Flying Color. Long-term debt increased $178.1
million due primarily to borrowings to finance acquisitions, principally the
Devon merger and the acquisition of Color Control. In addition, all other major
asset and liability categories increased significantly due to acquisitions
during the 1998 period.
Statement of Position (SOP) 98-1, "Accounting for the Costs of Computer
Software Developed or Obtained for Internal Use," was issued in March 1998 and
is effective for financial statements for fiscal years beginning after
<PAGE> 13
December 15, 1998. This statement establishes standards for capitalizing and
expensing costs incurred in connection with internal use software and applies to
costs incurred subsequent to adoption of SOP 98-1. The Company does not expect
the adoption of SOP 98-1 to have a material adverse effect on its financial
position or results of operations.
Statement of Position (SOP) 98-5, "Reporting on the Costs of Start-Up
Activities," was issued in April 1998 and is effective for financial statements
for fiscal years beginning after December 15, 1998. This statement establishes
standards for the treatment of costs incurred in connection with start-up
activities and requires the effect on prior periods to be reported as a
cumulative effect of a change in accounting principle. The Company does not
expect the adoption of SOP 98-5 to have a material adverse effect on its
financial position or results of operations.
Statement of Financial Accounting Standards (SFAS) No. 133, "Accounting for
Derivative Instruments and Hedging Activities," was issued in June 1998 and is
effective for fiscal quarters beginning after June 15, 1999. This statement
establishes accounting and reporting standards for derivative instruments and
for hedging activities and requires that entities recognize derivative
instruments as either assets or liabilities in the statement of financial
position and measure those instruments at fair value. The accounting for the
change in fair value of a derivative instrument will depend on the intended use
of the instrument. Although the Company did not have any derivative instruments
as of June 30, 1998, it entered into two interest rate swap agreements in
August 1998. The impact of the adoption of SFAS No. 133 on the Company's
financial position and results of operations is not determinable at this time.
The Company believes that the cash flow from operations, borrowings under
the Credit Agreement, 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> 14
PART II. - OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders.
The special meeting in lieu of the 1998 annual meeting of the stockholders
of Applied Graphics Technologies, Inc., was held on May 27, 1998. The
stockholders voted on the following matters:
1. Issuance of 4,427,290 shares of the Company's common stock in
connection with the merger of Devon Group, Inc., with and into AGT
Acquisition Corp., a wholly-owned subsidiary of the Company, upon
the terms and subject to the conditions set forth in the Agreement
and Plan of Merger dated as of February 13, 1998.
<TABLE>
<CAPTION>
Shares Shares Shares
Voted For Voted Against Abstained
--------- ------------- ---------
<S> <C> <C> <C>
15,573,587 70,490 2,050
</TABLE>
2. Increase in the number of authorized shares of the Company's
common stock from 40,000,000 to 150,000,000 shares.
<TABLE>
<CAPTION>
Shares Shares Shares
Voted For Voted Against Abstained
--------- ------------- ---------
<S> <C> <C> <C>
11,495,170 4,948,045 3,740
</TABLE>
3. The adoption of the 1998 Incentive Compensation Plan.
<TABLE>
<CAPTION>
Shares Shares Shares
Voted For Voted Against Abstained
--------- ------------- ---------
<S> <C> <C> <C>
8,734,163 6,906,935 5,029
</TABLE>
4. The election of the following ten directors of the Company for
terms expiring at the 1999 annual meeting of stockholders:
<TABLE>
<CAPTION>
Shares Shares
Voted For Withheld
--------- --------
<S> <C> <C>
Mortimer B. Zuckerman 16,441,167 5,788
Fred Drasner 16,441,395 5,560
Martin D. Krall 16,441,395 5,560
John R. Harris 16,441,830 5,125
Edwin H. Linde 16,441,830 5,125
Howard Stringer 16,441,685 5,270
Linda J. Wachner 16,441,250 5,705
John Zuccotti 16,441,747 5,208
Marne Obernauer, Jr. 16,441,212 5,743
David R. Parker 16,441,632 5,323
</TABLE>
<PAGE> 15
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
2.1 Asset Purchase Agreement by and among Applied
Graphics Technologies, Inc., and Flying Color
Graphics, Inc. and its Shareholders dated January 16,
1998 (Incorporated by reference to Exhibit No. 2.1
forming part of the Registrant's Report on Form 8-K
(File No. 0-28208) filed with the Securities and
Exchange Commission under the Securities Exchange Act
of 1934, as amended, on January 30, 1998).
2.2 Agreement and Plan of Merger, dated as of February
13, 1998, by and among Devon Group, Inc., Applied
Graphics Technologies, Inc., and AGT Acquisition
Corp. (Incorporated by reference to Exhibit No. 2.2
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, 1997).
3.1(a) First Restated 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).
3.1(b) Certificate of Amendment of First Restated
Certificate of Incorporation.
3.2(a) 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).
3.2(b) Amendment to Amended and Restated By-Laws of Applied
Graphics Technologies, Inc. (Incorporated by
reference to Exhibit No. 3.3 forming part of the
Registrant's Registration Statement on Form S-4 (File
No. 333-51135) 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).
<PAGE> 16
10.4* Loan and Purchase Agreement, dated January 8,
1992, as amended (Incorporated by reference to
Exhibit No. 10.4 forming part of Registrant's
Report on Form 10-K/A (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).
10.4(a)* Second Amendment to Loan and Purchase Agreement
dated April 19, 1996 (Incorporated by reference
to Exhibit No. 10.4(a) forming part of the
Registrant's Report on Form 10-K/A (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).
10.4(b)* Third Amendment to Loan and Purchase Agreement
dated June 30, 1997 (Incorporated by reference to
Exhibit No. 10.4(b) 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
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)(i) 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(a)(ii) Employment Agreement Extension dated March 23,
1998, between the Company and Diane Romano
(Incorporated by reference to Exhibit No. 10.6
(a)(ii) forming part of the Registrant's
Registration Statement on Form S-4 (File No.
333-51135) filed with the Securities and Exchange
Commission under the Securities Act of 1933, as
amended).
10.6(b)(i) 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(b)(ii) Employment Agreement Extension dated March 23,
1998, between the Company and Georgia L. McCabe
(Incorporated by reference to Exhibit No. 10.6
(b)(ii) forming part of the Registrant's
Registration Statement on Form S-4 (File No.
333-51135) filed with the Securities and Exchange
Commission under the Securities Act of 1933, as
amended).
<PAGE> 17
10.6(d)(i) 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(d)(ii) Employment Agreement Extension dated March 23,
1998, between the Company and Scott Brownstein
(Incorporated by reference to Exhibit No. 10.6
(d)(ii) forming part of the Registrant's
Registration Statement on Form S-4 (File No.
333-51135) 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).
10.6(e)(iii) Employment Agreement Extension dated March 23,
1998, between the Company and Louis Salamone, Jr.
(Incorporated by reference to Exhibit No.
10.6(e)(iii) forming part of the Registrant's
Registration Statement on Form S-4 (File No.
333-51135) filed with the Securities and Exchange
Commission under the Securities Act of 1933, as
amended).
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).
10.8(a) Applied Graphics Technologies, Inc., 1998
Incentive Compensation Plan (Incorporated by
reference to Exhibit E of the Proxy Statement/
Prospectus forming part of the Registrant's
Registration Statement on Form S-4 (File No.
333-51135) filed with the Securities and Exchange
Commission under the Securities Act of 1933, as
amended).
10.8(b) First Amendment to the Applied Graphics
Technologies, Inc., 1998 Incentive Compensation
Plan.
10.9(a) Credit Agreement, dated as of May 27, 1998, among
Applied Graphics Technologies, Inc., Other
Institutional Lenders as Initial Lenders, Fleet
Bank, N.A., First Union National Bank, and
BankBoston, N.A. (Incorporated by reference to
Exhibit 4.1 of the Registrant's Report on Form
8-K (File No. 0-28208) filed with the Securities
and Exchange Commission under the Securities
Exchange Act of 1934, as amended, on June 10,
1998).
<PAGE> 18
10.9(b) Amendment No. 1, dated as of July 31, 1998, to
the Credit Agreement among Applied Graphics
Technologies, Inc., Other Institutional Lenders
as Initial Lenders, Fleet Bank, N.A., First Union
National Bank, and BankBoston, N.A.
27 Financial Data Schedule (EDGAR filing only).
* Confidential portions omitted and supplied separately to the Securities and
Exchange Commission.
(b) The Registrant filed the following reports on Form 8-K during the quarter
ended June 30, 1998:
Form 8-K/A filed on April 1, 1998, regarding the acquisition of Flying
Color Graphics, Inc.
Form 8-K filed on June 10, 1998, regarding the merger with Devon Group,
Inc.
<PAGE> 19
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/ Martin D.Krall
Date: August 14, 1998
Martin D.Krall
Executive Vice President,
Chief Legal Officer,
and Secretary
(Duly authorized officer)
/s/ Louis Salamone, Jr.
Date: August 14, 1998
Louis Salamone, Jr.
Senior Vice President and Chief Financial Officer
(Principal Financial Officer)
<PAGE> 1
Exhibit 3.1(b)
CERTIFICATE OF AMENDMENT
OF
FIRST RESTATED CERTIFICATE OF INCORPORATION
OF
APPLIED GRAPHICS TECHNOLOGIES, INC.
Applied Graphics Technologies, Inc., a corporation organized
and existing under and by virtue of the Delaware General Corporation Law
("DGCL") (the "Corporation"), does hereby certify pursuant to Section 242 of the
DGCL:
FIRST: That, at a Special Meeting of the Board of Directors of
the Corporation held on February 13, 1998, the Board of Directors of the
Corporation duly adopted a resolution setting forth a proposed amendment to the
First Restated Certificate of Incorporation of the Corporation, as amended,
declaring such amendment advisable, and submitted the amendment to the
stockholders of the Corporation for consideration thereof. The resolution
setting forth the proposed amendment is as follows:
RESOLVED, that the First Restated Certificate of
Incorporation, as amended, of the Corporation be, and the same hereby
is, amended as follows:
1. By amending Article FOURTH thereof so that, as amended, it
reads in its entirety as follows:
"ARTICLE FOURTH
CAPITAL STOCK
The Corporation shall have the authority to issue a
total of 160,000,000 shares of capital stock, each with a par
value of $0.01, consisting of 150,000,000 shares of Common
Stock and 10,000,000 shares of Preferred Stock."
SECOND: That, at a Special Meeting in Lieu of an Annual
Meeting of the Stockholders of the Corporation held on May 27, 1998,
the holders of a majority of the outstanding common stock entitled to
vote thereon, and a majority of the holders of each class of stock
entitled to vote thereon as a class, voted in favor of the amendment.
<PAGE> 2
IN WITNESS WHEREOF, APPLIED GRAPHICS TECHNOLOGIES, INC. has
caused this Certificate of Amendment to be signed by its Senior Vice President
and Chief Financial Officer on this 27th day of May, 1998.
APPLIED GRAPHICS TECHNOLOGIES, INC.
By:_________________________________
Louis Salamone, Jr.
Senior Vice President and
Chief Financial Officer
<PAGE> 1
Exhibit 10.8(b)
FIRST AMENDMENT TO THE
APPLIED GRAPHICS TECHNOLOGIES, INC.
1998 INCENTIVE COMPENSATION PLAN
WHEREAS, Applied Graphics Technologies, Inc., a
Delaware corporation (the "Company"), adopted the Applied Graphics
Technologies, Inc. 1998 Incentive Compensation Plan (the "Plan")
effective as of May 27, 1998;
WHEREAS, the Company desires to amend the Plan to
specify the number and vesting of Options that may be granted to
Non-Employee Directors; and
WHEREAS, Section 16.2 of the Plan provides that, in
certain circumstances, the Board may amend the plan at any time;
NOW, THEREFORE, the plan is hereby amended effective
as of May 27, 1998 as follows:
1. A new Section 7.9 is added to the Plan to
read as follows:
7.9 Grants to Non-Employee
Directors. Upon being elected a Director,
each Non-Employee Director shall be granted
a Non-Qualified Stock Option to purchase
25,000 (twenty-five thousand) shares of
Common Stock, which Stock Option shall be
50% (fifty percent) Vested on the first
anniversary date of the date of grant of
such Stock Option and shall be 100% (one
hundred percent) Vested on the second
anniversary date of the date of grant of
such Stock Option. In addition, on each
anniversary date of the Non-Employee
Director's commencement of service as a
Director, the Non-Employee Director will be
granted a Non-Qualified Stock Option to
purchase 5,000 (five thousand) shares of
Common Stock, provided that he or she
continues to serve as a Director on such
date, which Stock Option shall immediately
vest on the respective date of such grant.
2. In all other respects, the Plan is hereby
ratified and confirmed.
3. Capitalized terms used herein but not
otherwise defined herein shall have the
meanings set forth in the Plan.
<PAGE> 1
Exhibit 10.9(b)
AMENDMENT NO. 1 TO
CREDIT AGREEMENT
THIS AMENDMENT NO. 1 (this "Amendment No. 1"), dated as of July 31,
1998, to the CREDIT AGREEMENT (as defined below), is entered into among APPLIED
GRAPHICS TECHNOLOGIES, INC., a Delaware corporation (the "Borrower"), the banks,
financial institutions and other institutional lenders that are parties to the
Credit Agreement (each called a "Lender" and collectively called the "Lenders"),
FIRST UNION NATIONAL BANK ("First Union"), as Syndication Agent, BANKBOSTON,
N.A.("BankBoston"), as Documentation Agent, FLEET BANK, N.A., as a Lender,
Initial Issuing Bank, Swing Line Bank and Administrative Agent ("Fleet" and, in
its capacity as administrative agent, the "Administrative Agent") and each of
the Guarantors (as defined herein).
W I T N E S S E T H:
WHEREAS, the Borrower, the Lenders, First Union, BankBoston and Fleet
are parties to that certain Credit Agreement (the "Credit Agreement"), dated as
of May 27, 1998;
WHEREAS, (i) Portal Publications, Ltd., The Winn Art Group, Inc., Black
Dot Graphics, Inc., Orent GraphicArts, Inc., Typo-Graphics, Inc., Ambrosi &
Associates, Inc., West Coast Creative, Inc., ABD Group, Inc., Meridian Retail,
Inc., Taproot Interactive, Inc., Proof Positive/Farrowlyne Associates, Inc., and
One 2 One Inc. (the "Devon Subsidiary Guarantors") executed and delivered in
favor of the Lender Parties, Fleet, as Initial Issuing Bank, Swing Line Bank and
Administrative Agent and Hedge Banks (collectively, the "Guaranteed Parties") a
guaranty dated as of May 27, 1998 (the "Devon Guaranty") and (ii) Devon Group,
Inc. (formerly known as AGT Acquisition Corp.), AmuseMatte Corp., Miramar
Equipment, Inc., and Color Control, Inc. (the "AGT Subsidiary Guarantors")
executed and delivered in favor of the Guaranteed Parties a guaranty dated as of
May 27, 1998 and supplemented as of June 18, 1998 (the "AGT Guaranty", and,
together with the Devon Guaranty, the "Guaranties"). The AGT Subsidiary
Guarantors and the Devon Subsidiary Guarantors are hereinafter collectively
referred to as the "Guarantors";
WHEREAS, the Borrower and Lenders desire to amend the Credit Agreement
in order to increase the Revolving Credit Commitment and the Acquisition Line
Commitment and to provide for certain related changes under the Credit
Agreement;
WHEREAS, in connection with the increase in the Revolving Credit
Commitment and the Acquisition Line Commitment contemplated by this Amendment
No. 1, the Guarantors desire to confirm and reaffirm each of the Guaranties; and
WHEREAS, terms not otherwise defined herein shall have the respective
meanings ascribed thereto in the Credit Agreement,
NOW, THEREFORE, in consideration of the mutual agreements herein
contained, and of the loans or other extensions of credit now or hereafter made
to, or for the benefit of, the Borrower by the Lenders, the parties hereto agree
as follows:
SECTION 1 AMENDMENTS TO CREDIT AGREEMENT.
1.01 AMENDMENT TO RECITALS. Paragraph numbered (2) of the Preliminary
Statements of the Credit Agreement is hereby amended by deleting the reference
to "Two Hundred Fifty Million Dollars ($250,000,000)" in the third line of such
paragraph and replacing it with "Three Hundred Million Dollars ($300,000,000)".
1.02 AMENDMENTS TO SECTION 1.01.Section 1.01 of the Credit Agreement is
hereby amended by (i) deleting the last sentence of the definition of
"Acquisition Line Commitment" in its entirety, (ii) deleting the last sentence
of the definition of "Revolving Credit Commitment" in its entirety and (iii)
inserting "(as any of the foregoing may hereafter be amended, restated,
supplemented, replaced or otherwise modified from time to time)" at the end of
definitions of each of Acquisition Line Note, Revolving Credit Note and Swing
Line Note.
<PAGE> 2
1.03 AMENDMENTS TO SECTION 5.02.
A. Clause (ii) of Section 5.02(b) is hereby amended by
deleting such clause (ii) in its entirety and replacing it with the following:
"(ii) unsecured Debt (w) of the Borrower to any of its
Subsidiaries, (x) of any Domestic Subsidiary of the
Borrower to the Borrower or any other Domestic
Subsidiary of the Borrower, (y) of any Foreign
Subsidiary of the Borrower to the Borrower or any
Domestic Subsidiary of the Borrower; provided,
however, that the aggregate of all unsecured Debt of
a Foreign Subsidiary of the Borrower to the Borrower
or any Domestic Subsidiary of the Borrower and
Investments by the Borrower or any Domestic
Subsidiary of the Borrower in any Person organized
under the laws of any jurisdiction other than the
United States of America or any state thereof as
permitted pursuant to Section 5.02(f)(i) herein shall
not exceed $7,500,000 outstanding at any time and (z)
of any Foreign Subsidiary of the Borrower to any
other Foreign Subsidiary;"
B. Clause (i) of Section 5.02(f) is hereby amended by deleting
such clause (i) in its entirety and replacing it with the following:
"(i) Investments by the Borrower or any of its
Subsidiaries in their respective Subsidiaries;
provided, however, that the aggregate of all
unsecured Debt permitted pursuant to Section
5.02(b)(ii)(y) and Investments from the Closing Date
by the Borrower or any Domestic Subsidiary of the
Borrower in any Person organized under the laws of
any jurisdiction other than the United States of
America or any state thereof shall not exceed
$7,500,000 outstanding at any time; and provided,
further, that, with respect to Investments by the
Borrower or any of its Subsidiaries in any newly
acquired or created wholly-owned Subsidiary of the
Borrower or such Subsidiary that is a Domestic
Subsidiary of the Borrower, any such Subsidiary shall
become a Guarantor pursuant to the provisions of
Section 5.01(k);"
1.04 AMENDMENT TO SCHEDULE I. Schedule I of the Credit Agreement is
hereby deleted in its entirety and replaced with the Schedule I attached hereto
as Annex A.
SECTION 2 REPRESENTATIONS AND WARRANTIES.
The Borrower hereby represents and warrants that:
2.01 NO DEFAULT. There exists no Default or Event of Default under the
Credit Agreement, as amended hereby, as of the date hereof.
2.02 REPRESENTATIONS AND WARRANTIES TRUE AND CORRECT. Each of the
representations and warranties contained in the Credit Agreement is true and
correct in all material respects on, and as though made as of the date hereof
(except for any representation or warranty which by its terms is made on or as
of a specified date, in which case such representation or warranty shall be
true, correct and complete in all material respects only as of such specified
date).
2.03 CORPORATE POWER, ETC. The Borrower and each of the Guarantors (i)
has all requisite corporate power and authority to execute and deliver this
Amendment No. 1 and the Replacement Notes (as defined herein) and to consummate
the transactions contemplated hereby and thereby and (ii) has taken all action,
corporate or otherwise, necessary to authorize the execution and delivery of
this Amendment No. 1 and the Replacement Notes and the consummation of the
transactions contemplated hereby and thereby.
-24-
<PAGE> 3
2.04 NO CONFLICT. Neither the execution and delivery of this Amendment
No. 1 and the Replacement Notes (as defined herein) nor consummation of the
transactions contemplated hereby and thereby will (i) conflict with or result in
any breach or violation of any provision of the certificate of incorporation or
by-laws of the Borrower, (ii) result in any breach or violation of, or
constitute a default (or an event which, with notice or lapse of time or both,
would constitute a default) under, or result in the termination of, or
accelerate the performance required by, or result in the creation of a Lien upon
any of the properties or assets of the Borrower under, any of the terms,
conditions or provisions of any note, bond, mortgage, indenture, deed of trust,
license, lease agreement or other instrument or obligation to which the Borrower
is a party or to which any of its properties or assets are subject, (iii)
require any consent, approval, authorization or permit of, or filing with or
notification to, any third party or any governmental, judicial, administrative
or regulatory authority of the United States of America or of any state, local
or foreign government or subdivision thereof (a "Governmental Entity") or (iv)
violate any order, writ, injunction, decree, judgment, ruling, law, statute,
rule or regulation of any Governmental Entity.
2.05 BINDING EFFECT. This Amendment No. 1 and the Replacement Notes
have been duly executed and delivered by the Borrower and constitute the valid
and legally binding obligation of the Borrower enforceable in accordance with
their respective terms, except as such enforceability may be limited by (i)
applicable bankruptcy, insolvency, reorganization, moratorium or other similar
laws, now or hereafter in effect, relating to or affecting the enforcement of
creditors' rights generally, and (ii) the application of general principles of
equity (regardless of whether such enforceability is considered in a proceeding
in equity or at law).
SECTION 3 CONDITIONS.
The effectiveness of the amendments set forth in Section 1 of this
Amendment No. 1 shall be subject to the fulfillment by the Borrower, in a manner
satisfactory to the Administrative Agent and the Lenders, of all of the
following conditions precedent set forth in this Section 3:
3.01 REPRESENTATIONS AND WARRANTIES TRUE AND CORRECT. The
representations and warranties contained herein and in each other agreement,
instrument, certificate or other writing delivered to the Administrative Agent
or any Lender pursuant hereto or to the Credit Agreement shall be correct in all
material respects on and as of the date hereof after giving effect to this
Amendment No. 1 as though made on and as of such date (except for any
representation or warranty which by its terms is made on or as of a specified
date, in which case such representation or warranty shall be true, correct and
complete in all material respects only as of such specified date) except to the
extent modified hereby.
3.02 EXECUTION OF AMENDMENT NO. 1. Each of the parties hereto shall
have executed and delivered an original counterpart of this Amendment No. 1 to
the Administrative Agent.
3.03 COMPLIANCE WITH TERMS. The Borrower and each Guarantor shall have
complied in all respects with the terms hereof and of any other agreement,
document, instrument or other writing to be delivered by the Borrower or such
Guarantor in connection herewith.
3.04 DELIVERY OF DOCUMENTS. The Administrative Agent shall have
received all of the following, each duly executed and dated the date hereof, in
form and substance reasonably satisfactory to the Administrative Agent:
(i) Replacement Notes. Replacement Acquisition Line Notes
substantially in the form of Exhibit A and
Replacement Revolving Credit Notes substantially in
the form of Exhibit B (collectively called the
"Replacement Notes") for each of the Lenders,
delivered to the Administrative Agent for the account
of each such Lender in the applicable amounts equal
to the amounts set forth opposite such Lender's name
on the revised Schedule I attached hereto.
(ii) Resolutions of the Borrower and each Guarantor.
Copies, duly certified by the secretary or assistant
secretary of the Borrower and each Guarantor of (i)
resolutions of the Board of Directors of the Borrower
and the Guarantors authorizing or ratifying the
execution and delivery of this Amendment No.1, (ii)
resolutions of the Board of Directors of the
-25-
<PAGE> 4
Borrower authorizing or ratifying the execution and
delivery of the Replacement Notes, (iii) all
documents evidencing other necessary corporate
action, and (iv) all approvals or consents, if any,
with respect to this Amendment No. 1 and the
Replacement Notes.
(iii) Incumbency Certificates. Certificates of the
secretary or assistant secretary of the Borrower and
each Guarantor certifying the names of the respective
officers of the Borrower and each Guarantor
authorized to sign this Amendment No. 1, the
Replacement Notes and all other documents or
certificates to be delivered hereunder or in
connection herewith, together with the true
signatures of such officers.
(iv) Opinion. An opinion of counsel to the Borrower
addressed to the Administrative Agent and Lenders, in
substantially the form of Exhibit C hereto.
(v) Other. All other such instruments, documents and
agreements as Administrative Agent may reasonably
request.
3.05 FEES. The Borrower shall have paid (x) to the Administrative Agent
for the benefit of the Lenders a closing fee in the amount of $75,000 and (y) to
the Administrative Agent for its sole account, all reasonable fees and expenses,
including reasonable attorneys' fees, incurred by the Administrative Agent in
connection with the preparation, negotiation, execution and delivery of this
Amendment No.1.
3.06 OTHER PROCEEDINGS. All proceedings in connection with the
transactions contemplated by this Amendment No. 1 and all documents incidental
hereto shall be satisfactory to the Administrative Agent, the Lenders and their
respective counsel.
SECTION 4 GENERAL CONFIRMATIONS AND AMENDMENTS.
4.01 CONTINUING EFFECT. The Credit Agreement, the other Loan Documents
and the other agreements to which the Borrower or any Guarantor is a party
delivered in connection herewith or with the Credit Agreement are, and shall
continue to be, in full force and effect, and are hereby ratified and confirmed
in all respects except that on and after the date hereof (i) all references in
the Credit Agreement to "this Agreement", "hereto", "hereof", "hereunder" or
words of like import referring to the Credit Agreement shall mean the Credit
Agreement as amended hereby, (ii) all references in the Credit Agreement, the
other Loan Documents or any other agreement, instrument or document executed and
delivered in connection therewith to the "Credit Agreement", "thereto",
"thereof", "thereunder" or words of like import referring to the Credit
Agreement shall mean the Credit Agreement as amended hereby.
4.02 DEFINITION OF CERTAIN TERMS. The terms "Obligations" or
"Guaranteed Obligations" as used in the Loan Documents (or any other term used
therein to refer to the Debt, liabilities and obligations of the Borrower to the
Lenders) include, without limitation, Debt, liabilities and obligations to the
Lenders under the Credit Agreement as amended by this Amendment No. 1.
4.03 FURTHER AMENDMENTS; INCORPORATION BY REFERENCE. The Credit
Agreement, the other Loan Documents and all agreements, instruments and
documents executed and delivered in connection with any of the foregoing shall
each be deemed amended hereby to the extent necessary, if any, to give effect to
the provisions of this Amendment No. 1. All of the terms and provisions of this
Amendment No. 1 are hereby incorporated by reference into the Credit Agreement
as if such terms and provisions were set forth in full therein.
-26-
<PAGE> 5
SECTION 5 MISCELLANEOUS.
5.01 GOVERNING LAW. This Amendment No. 1, the Replacement Notes and the
confirmation attached hereto shall be governed by and construed in accordance
with the laws of the State of New York (without giving affect to conflicts of
law principles).
5.02 SEVERABILITY. The provisions of this Amendment No. 1 are
severable, and if any clause or provision shall be held invalid or unenforceable
in whole or in part in any jurisdiction, then such invalidity or
unenforceability shall affect only such clause or provision, or part thereof, in
such jurisdiction and shall not in any manner affect such clause or provision in
any other jurisdiction, or any other clause or provision in this Amendment No. 1
in any jurisdiction.
5.03 COUNTERPARTS. This Amendment No. 1 and the confirmation attached
to the signature page hereto may be signed in any number of counterparts with
the same effect as if the signatures thereto and hereto were upon the same
instrument.
5.04 BINDING EFFECT; ASSIGNMENT. This Amendment No. 1 shall be binding
upon and inure to the benefit of the Borrower, each Guarantor and their
respective successors and to the benefit of the Administrative Agent and the
Lenders and their respective successors and assigns. The rights and obligations
of the Borrower under this Amendment No. 1 shall not be assigned or delegated
without the prior written consent of the Lenders.
5.05 EXPENSES. The Borrower agrees to pay the Administrative Agent upon
demand for all reasonable expenses, including reasonable fees of attorneys and
paralegals for the Administrative Agent (who may be employees of the
Administrative Agent), incurred by the Administrative Agent in connection with
the preparation, negotiation and execution of this Amendment No. 1 and any
document required to be furnished herewith.
5.06 CONTINUING EFFECT. Except as specifically provided herein, the
Credit Agreement and the other Loan Documents shall remain in full force and
effect in accordance with their respective terms.
SECTION 6 CONFIRMATION AND REAFFIRMATION OF GUARANTIES.
6.01 REAFFIRMATION AND CONFIRMATION. Each Guarantor hereby agrees that
its respective Guaranty shall remain in full force and effect and that such
Guaranty is hereby ratified and confirmed in all respects.
-27-
<PAGE> 6
IN WITNESS WHEREOF, the parties hereto have caused this Amendment No. 1
to be executed by their respective officers thereunto duly authorized, on the
date first above written.
APPLIED GRAPHICS TECHNOLOGIES, INC.
By: ______________________________________
Name:
Title:
PORTAL PUBLICATIONS, LTD.
THE WINN ART GROUP, INC.
BLACK DOT GRAPHICS, INC.
ORENT GRAPHICARTS, INC.
TYPO-GRAPHICS, INC.
AMBROSI & ASSOCIATES, INC.
WEST COAST CREATIVE, INC.
ABD GROUP, INC.
MERIDIAN RETAIL, INC.
TAPROOT INTERACTIVE, INC.
PROOF POSITIVE/FARROWLYNE
ASSOCIATES, INC.
ONE 2 ONE INC.
By:____________________________________
Name:
Title:
[Signature page to Amendment No. 1]
<PAGE> 7
DEVON GROUP, INC. (FORMERLY KNOWN AS AGT
ACQUISITION CORP.),
By:____________________________________
Name:
Title:
AMUSEMATTE CORPORATION
By:____________________________________
Name:
Title:
COLOR CONTROL, INC.
By:____________________________________
Name:
Title:
[Signature page to Amendment No. 1]
<PAGE> 8
MIRAMAR EQUIPMENT, INC.
By:____________________________________
Name:
Title:
FLEET BANK, N.A. AS INITIAL ISSUING
BANK, SWING LINE BANK, ADMINISTRATIVE AGENT
AND LENDER
By:______________________________________
Name:
Title:
[Signature page to Amendment No. 1]
<PAGE> 9
THE BANK OF NEW YORK, AS A LENDER
By:________________________________
Name:
Title:
[Signature page to Amendment No. 1]
<PAGE> 10
MELLON BANK, N.A., AS A LENDER
By:______________________________________
Name:
Title:
[Signature page to Amendment No. 1]
<PAGE> 11
THE CHASE MANHATTAN BANK,
AS A LENDER
By:______________________________________
Name:
Title:
[Signature page to Amendment No. 1]
<PAGE> 12
FIRST UNION NATIONAL BANK,
AS SYNDICATION AGENT AND AS A LENDER
By:______________________________________
Name:
Title:
[Signature page to Amendment No. 1]
<PAGE> 13
STATE STREET BANK AND TRUST COMPANY,
AS A LENDER
By:______________________________________
Name:
Title:
[Signature page to Amendment No. 1]
<PAGE> 14
KEYBANK NATIONAL ASSOCIATION,
AS A LENDER
By:______________________________________
Name:
Title:
[Signature page to Amendment No. 1]
<PAGE> 15
BANKBOSTON, N.A.,
AS DOCUMENTATION AGENT AND AS A LENDER
By:______________________________________
Name:
Title:
[Signature page to Amendment No. 1]
<PAGE> 16
DEUTSCHE BANK AG NEW YORK AND/OR
CAYMAN ISLANDS BRANCH,
AS A LENDER
By:______________________________________
Name:
Title:
By:______________________________________
Name:
Title:
[Signature page to Amendment No. 1]
<PAGE> 17
BANK OF AMERICA NATIONAL TRUST &
SAVINGS ASSOCIATION,
AS A LENDER
By:______________________________________
Name:
Title:
[Signature page to Amendment No. 1]
<PAGE> 18
SUNTRUST BANK, ATLANTA,
AS A LENDER
By:______________________________________
Name:
Title:
By:______________________________________
Name:
Title:
[Signature page to Amendment No. 1]
<PAGE> 19
COMERICA BANK,
AS A LENDER
By:______________________________________
Name:
Title:
[Signature page to Amendment No. 1]
<PAGE> 20
EUROPEAN AMERICAN BANK,
AS A LENDER
By:______________________________________
Name:
Title:
[Signature page to Amendment No. 1]
<PAGE> 21
BANK OF TOKYO- MITSUBISHI TRUST
COMPANY,
AS A LENDER
By:______________________________________
Name:
Title:
[Signature page to Amendment No. 1]
<PAGE> 22
EXHIBIT A
TO AMENDMENT NO. 1
FORM OF REPLACEMENT ACQUISITION LINE PROMISSORY NOTE
$_________________ Dated: ______, __, ____
FOR VALUE RECEIVED, the undersigned, Applied Graphics
Technologies, Inc., a Delaware corporation (the "Borrower"), HEREBY PROMISES TO
PAY to the order of ________________________ (the "Lender") for the account of
its Applicable Lending Office (as defined in the Credit Agreement referred to
below) the principal sum of ________________ DOLLARS AND _______ CENTS
($__________________) or, if less, the aggregate unpaid principal amount of the
Acquisition Line Advances owing to the Lender by the Borrower pursuant to the
Credit Agreement, dated as of May 27, 1998 (as amended, supplemented, restated
or otherwise modified, the "Credit Agreement"; terms defined therein being used
herein as therein defined), among the Borrower, the Lender and certain other
Lender Parties thereto, First Union National Bank, as Syndication Agent,
BankBoston, N.A., as Documentation Agent and Fleet Bank, N.A., as Initial
Issuing Bank, Fleet Bank, N.A., as Swing Line Bank, and Fleet Bank, N.A., as
Administrative Agent for the Lender and the other Lender Parties, on the dates
and in the amounts specified in the Credit Agreement.
The Borrower further promises to pay interest on the unpaid
principal amount of each Acquisition Line Advance from the date of such
Acquisition Line Advance until such principal amount is paid in full, at such
interest rates and at such times as are specified in the Credit Agreement.
Both principal and interest are payable in lawful money of the
United States of America to Fleet Bank, N.A., as Administrative Agent for the
Lender Parties, at ___________ _________________________________________,
Account No.____________, Attention: Loan Administration, in same day funds. Each
Acquisition Line Advance owing to the Lender by the Borrower and the maturity
thereof, and all payments made on account of principal thereof, shall be
recorded by the Lender and, prior to any transfer hereof, endorsed on the grid
attached hereto or any continuation thereof, which is part of this Promissory
Note; provided, however, that the failure of such Lender to so record any such
information or any error in so recording any such information shall not limit or
otherwise affect the obligations of the Borrower hereunder or under any other
Loan Document.
This Promissory Note is one of the Notes referred to in, and
is entitled to the benefits of, the Credit Agreement. The Credit Agreement,
among other things, (i) provides for the making of Acquisition Line Advances by
the Lender to the Borrower from time to time in an aggregate amount not to
exceed at any time outstanding the U.S. dollar amount first above mentioned, the
indebtedness of the Borrower resulting from each such Acquisition Line Advance
being evidenced by this Promissory Note, and (ii) contains provisions for
acceleration of the maturity hereof upon the happening of certain stated events
and also for prepayments on account of principal hereof prior to the maturity
hereof upon the terms and conditions therein specified.
This Promissory Note shall be deemed to be in substitution for
and replacement of, and not a repayment of, the Acquisition Line Promissory Note
dated May 27, 1998 made by the Borrower to the Lender (the "Prior Note"),
provided that all principal and interest accrued and unpaid under such Prior
Note shall be deemed evidenced by this Promissory Note and payable hereunder
from and after the date of accrual thereof. The execution and delivery of this
Promissory Note shall not be construed to have constituted repayment of any
amount of principal or interest on the Prior Note.
This Promissory Note shall be governed by and construed in
accordance with the laws of the State of New York.
APPLIED GRAPHICS TECHNOLOGIES, INC.
<PAGE> 23
By:_____________________________________
Name: __________________________________
Title: _________________________________
<PAGE> 24
<TABLE>
<CAPTION>
ACQUISITION LINE ADVANCES AND PAYMENTS OF PRINCIPAL
- ------------------------ ---------------------- ---------------------- ---------------------- ----------------------
AMOUNT OF AMOUNT OF UNPAID PRINCIPAL NOTATION MADE BY
DATE ACQUISITION LINE PRINCIPAL PAID OR BALANCE
ADVANCE PREPAID
- ------------------------ ---------------------- ---------------------- ---------------------- ----------------------
<S> <C> <C> <C> <C>
</TABLE>
<PAGE> 25
EXHIBIT B
TO AMENDMENT NO. 1
FORM OF REPLACEMENT REVOLVING CREDIT PROMISSORY NOTE
$_________________ Dated: ______ __, _____
FOR VALUE RECEIVED, the undersigned, Applied Graphics
Technologies, Inc., a Delaware corporation (the "Borrower"), HEREBY PROMISES TO
PAY to the order of ________________________ (the "Lender") for the account of
its Applicable Lending Office (as defined in the Credit Agreement referred to
below) the principal sum of __________ DOLLARS AND ___ CENTS ($___________) or,
if less, the aggregate unpaid principal amount of the Revolving Credit Advances
owing to the Lender by the Borrower pursuant to the Credit Agreement, dated as
of May 27, 1998 (as amended, supplemented, restated or otherwise modified, the
"Credit Agreement"; terms defined therein being used herein as therein defined),
among the Borrower, the Lender and certain other Lender Parties thereto, First
Union National Bank, as Syndication Agent, BankBoston, N.A., as Documentation
Agent and Fleet Bank, N.A., as Initial Issuing Bank, Fleet Bank, N.A., as Swing
Line Bank, and Fleet Bank, N.A., as Administrative Agent for the Lender and the
other Lender Parties, on the Revolving Credit Termination Date.
The Borrower further promises to pay interest on the unpaid
principal amount of each Revolving Credit Advance from the date of such
Revolving Credit Advance until such principal amount is paid in full, at such
interest rates and at such times as are specified in the Credit Agreement.
Both principal and interest are payable in lawful money of the
United States of America to Fleet Bank, N.A., as Administrative Agent for the
Lender Parties, at ___________________________, ________________________,
Account No.____________, Attention: Loan Administration, in same day funds. Each
Revolving Credit Advance owing to the Lender by the Borrower and the maturity
thereof, and all payments made on account of principal thereof, shall be
recorded by the Lender and, prior to any transfer hereof, endorsed on the grid
attached hereto or any continuation thereof, which is part of this Promissory
Note; provided, however, that the failure of such Lender to so record any such
information or any error in so recording any such information shall not limit or
otherwise affect the obligations of the Borrower hereunder or under any other
Loan Document.
This Promissory Note is one of the Notes referred to in, and
is entitled to the benefits of, the Credit Agreement. The Credit Agreement,
among other things, (i) provides for the making of Revolving Credit Advances by
the Lender to the Borrower from time to time in an aggregate amount not to
exceed at any time outstanding the U.S. dollar amount first above mentioned, the
indebtedness of the Borrower resulting from each such Revolving Credit Advance
being evidenced by this Promissory Note, and (ii) contains provisions for
acceleration of the maturity hereof upon the happening of certain stated events
and also for prepayments on account of principal hereof prior to the maturity
hereof upon the terms and conditions therein specified.
This Promissory Note shall be deemed to be in substitution for
and replacement of, and not a repayment of, the Revolving Credit Promissory Note
dated May 27, 1998 made by the Borrower payable to the Lender (the "Prior
Note"), provided that all principal and interest accrued and unpaid under such
Prior Note shall be deemed evidenced by this Promissory Note and payable
hereunder from and after the date of accrual thereof. The execution and delivery
of this Promissory Note shall not be construed to have constituted repayment of
any amount of principal or interest on the Prior Note.
This Promissory Note shall be governed by and construed in
accordance with the laws of the State of New York.
APPLIED GRAPHICS TECHNOLOGIES, INC.
<PAGE> 26
By:_____________________________________
Name: __________________________________
Title: _________________________________
<PAGE> 27
<TABLE>
<CAPTION>
REVOLVING CREDIT ADVANCES AND PAYMENTS OF PRINCIPAL
- ------------------------ ---------------------- ---------------------- ---------------------- ----------------------
AMOUNT OF REVOLVING AMOUNT OF UNPAID PRINCIPAL NOTATION MADE BY
DATE CREDIT ADVANCE PRINCIPAL PAID OR BALANCE
PREPAID
- ------------------------ ---------------------- ---------------------- ---------------------- ----------------------
<S> <C> <C> <C> <C>
</TABLE>
<PAGE> 28
EXHIBIT C
FORM OF OPINION
July __,1998
To the Lenders to the Credit Agreement
referred to below, Fleet Bank, N.A.
as Issuing Bank and Swing Line Bank, and
Fleet Bank, N.A.
as Administrative Agent for such Lenders
Ladies and Gentlemen:
I have acted as counsel to Applied Graphics Technologies,
Inc.(the "Borrower"), a Delaware corporation, in connection with the
preparation, authorization, execution and delivery of, and the consummation of
the transactions contemplated by, Amendment No. 1 ("Amendment No. 1"), dated as
of the date hereof, to the Credit Agreement dated as of May 27, 1998, among the
Borrower, the banks, financial institutions and other institutional lenders
named therein, First Union National Bank, as Syndication Agent, BankBoston,
N.A., as Documentation Agent and Fleet Bank, N.A., as Initial Issuing Bank,
Swing Line Bank and Administrative Agent (the "Credit Agreement"). Capitalized
terms defined in the Credit Agreement or Amendment No. 1 and used but not
otherwise defined herein are as so defined.
In so acting, I have examined originals or copies, certified
or otherwise identified to my satisfaction, of Amendment No. 1, the Credit
Agreement, the Replacement Notes, and such corporate records, agreements,
documents and other instruments, and such certificates or comparable documents
of public officials and of officers and representatives of the Borrower, and
have made such inquiries of such officers and representatives, as I have deemed
relevant and necessary as a basis for the opinions hereinafter set forth.
In such examination, I have assumed the genuineness of all
signatures, the legal capacity of natural persons, the authenticity of all
documents submitted to me as originals, the conformity to original documents of
all documents submitted to me as certified, conformed or photostatic copies, and
the authenticity of the originals of such latter documents. As to all questions
of fact material to this opinion that have not been independently established, I
have relied upon certificates or comparable documents of officers and
representatives of the Borrower and upon the representations and warranties of
the Borrower contained in the Loan Documents.
Based on the foregoing, and subject to the qualifications
stated herein, I am of the opinion that:
1. The Borrower is incorporated, validly existing and in good
standing under the laws of Delaware and has all requisite corporate power and
authority to own, lease and operate its properties and to carry on its business
as now being conducted. The Borrower is duly qualified to transact business and
is in good standing as a foreign corporation in each jurisdiction where the
character of its activities requires such qualification, except where the
failure of the Borrower to be so qualified would not have a Material Adverse
Effect.
2. The execution, delivery and performance of the Credit
Agreement as amended by Amendment No. 1 and each of the Replacement Notes by the
Borrower and the consummation by the Borrower of the transactions contemplated
thereby have been duly authorized by all necessary corporate action on the part
of the Borrower. Amendment No. 1 and each of the Replacement Notes has been duly
and validly executed and delivered by the Borrower thereto.
3. The execution, delivery and performance of the Credit
Agreement as amended by Amendment No. 1 and each of the Replacement Notes, the
consummation of the transactions contemplated thereby
<PAGE> 29
and compliance by the Borrower with the provisions thereof will not conflict
with, constitute a default under or violate any of the terms, conditions or
provisions of the certificate of incorporation or by-laws of the Borrower.
4. No consent, approval, waiver, license or authorization or
other action by or filing with any Governmental Authority is required in
connection with the execution and delivery by the Borrower of the Credit
Agreement as amended by Amendment No. 1 and each of the Replacement Notes or the
consummation by the Borrower of the transactions contemplated thereby, except
for the filings and other actions required pursuant to state securities or blue
sky laws, as to which I express no opinion, and those already obtained.
The opinions set forth above are subject to the following
qualifications:
I am a member of the Bar of the District of Columbia, and I
express no opinion as to the laws of any jurisdiction other than the laws of the
District of Columbia, the corporate laws of Delaware and the Federal laws of the
United States of America.
The opinions expressed herein are rendered solely for your
benefit in connection with the transactions described herein. Those opinions may
not be used or relied upon by any other person, nor may this letter or any
copies thereof be furnished to a third party, filed with a governmental agency,
quoted, cited or otherwise referred to without my prior written consent, or as
required by law, other than to bank regulatory authorities or permitted assigns
of any Lender Party.
Very truly yours,
<PAGE> 30
ANNEX A
<PAGE> 31
SCHEDULE I
COMMITMENTS AND APPLICABLE LENDING OFFICES
<TABLE>
<CAPTION>
- ------------------------- ---------------- ----------------- ---------------- -----------------
REVOLVING ACQUISITION SWING LETTER OF CREDIT
CREDIT LINE COMMITMENT LINE COMMITMENT
NAME OF INITIAL LENDER COMMITMENT COMMITMENT
- ------------------------- ---------------- ----------------- ---------------- -----------------
<S> <C> <C> <C> <C>
Fleet Bank, N.A.,as $5,000,000
Initial Issuing Bank
- ------------------------- ---------------- ----------------- ---------------- -----------------
Fleet Bank, N.A., as $5,000,000
Swing Line Bank
- ------------------------- ---------------- ----------------- ---------------- -----------------
Fleet Bank, N.A. $27,300,000 $14,700,000
- ------------------------- ---------------- ----------------- ---------------- -----------------
The Bank of New York $15,600,000 $8,400,000
- ------------------------- ---------------- ----------------- ---------------- -----------------
First Union National $21,450,000 $11,550,000
Bank
- ------------------------- ---------------- ----------------- ---------------- -----------------
Mellon Bank, N.A.
</TABLE>
<TABLE>
<CAPTION>
- ------------------------------------ ---------------------------------------
DOMESTIC EURODOLLAR
LENDING LENDING
OFFICE OFFICE
- ------------------------------------ ---------------------------------------
<S> <C>
1185 Avenue of the Americas
New York, NY 10036
Fax: (212) 819-4120
Phone: (212) 819-5735
- ------------------------------------ ---------------------------------------
1185 Avenue of the Americas
New York, NY 10036
Fax: (212) 819-4120
Phone: (212) 819-5735
- ------------------------------------ ---------------------------------------
1185 Avenue of the Americas 1185 Avenue of the Americas
New York, NY 10036 New York, NY 10036
Fax: (212) 819-4120 Fax: (212) 819-4120
Phone: (212) 819-5735 Phone: (212) 819-5735
- ------------------------------------ ---------------------------------------
530 Fifth Avenue, 3rd Floor 530 Fifth Avenue, 3rd Floor
Manhattan Commercial Building Manhattan Commercial Building
Division Division
New York, New York 10036 New York, New York 10036
Fax: (212) 852-4292 Fax: (212) 852-4292
Phone: (212) 852-4157 Phone: (212) 852-4157
- ------------------------------------ ---------------------------------------
- ------------------------------------ ---------------------------------------
1735 Market Street 1735 Market Street
</TABLE>
<PAGE> 32
<TABLE>
<CAPTION>
- ------------------------- ---------------- ----------------- ---------------- -----------------
REVOLVING ACQUISITION SWING LETTER OF CREDIT
CREDIT LINE COMMITMENT LINE COMMITMENT
NAME OF INITIAL LENDER COMMITMENT COMMITMENT
- ------------------------- ---------------- ----------------- ---------------- -----------------
<S> <C> <C> <C> <C>
$ 9,750,000 $ 5,250,000
- ------------------------- ---------------- ----------------- ---------------- -----------------
BankBoston, N.A. $21,450,000 $11,550,000
- ------------------------- ---------------- ----------------- ---------------- -----------------
Comerica Bank $11,700,000 $6,300,000
- ------------------------- ---------------- ----------------- ---------------- -----------------
$7,800,000 $4,200,000
European American Bank
- ------------------------- ---------------- ----------------- ---------------- -----------------
SunTrust Bank, Atlanta $11,700,000 $6,300,000
- ------------------------- ---------------- ----------------- ---------------- -----------------
State Street Bank and $11,700,000 $6,300,000
Trust Company
- ------------------------- ---------------- ----------------- ---------------- -----------------
Bank of America $11,700,000 $6,300,000
National Trust and
Savings Association
</TABLE>
<TABLE>
<CAPTION>
- ------------------------------------ ---------------------------------------
DOMESTIC EURODOLLAR
LENDING LENDING
OFFICE OFFICE
- ------------------------------------ ---------------------------------------
<S> <C>
Philadelphia, Pennsylvania 19101 Philadelphia, Pennsylvania 19101
Fax: (212) 553-4789 Fax: (212) 553-4789
Phone: (215) 553-3414 Phone: (215) 553-3414
- ------------------------------------ ---------------------------------------
100 Federal Street 100 Federal Street
MS-01-08-08 MS-01-08-08
Boston, MA 02110 Boston, MA 02110
Fax: (617) 434-6757 Fax: (617) 434-9627
Phone: (617) 434-3401 Phone: (617) 434-9820
- ------------------------------------ ---------------------------------------
500 Woodward Avenue 500 Woodward Avenue
Detroit, Michigan 48275-3280 Detroit, Michigan 48275-3280
Fax: (313) 222-3330 Fax: (313) 222-3330
Phone: (313) 222-3678 Phone: (313) 222-3678
- ------------------------------------ ---------------------------------------
- ------------------------------------ ---------------------------------------
25 Park Place, 21st Floor, 25 Park Place, 21st Floor,
Center 112 Center 112
Atlanta, Georgia 30303 Atlanta, Georgia 30303
Fax: (404) 230-5413 Fax: (404) 230-5413
Phone: (404) 575-2730 Phone: (404) 575-2730
- ------------------------------------ ---------------------------------------
225 Franklin Street 225 Franklin Street
Boston, MA 02110 Boston, MA 02110
Contact: Christopher E. DelSignore Contact: Christopher E. DelSignore
Fax: (617) 664-6527 Fax: (617) 664-6527
Phone: (617) 664-8751 Phone: (617) 664-8751
- ------------------------------------ ---------------------------------------
231 S. LaSalle Street 231 S. LaSalle Street
Chicago, Illinois 60697 Chicago, Illinois 60697
Contact: Cheryl Varner Contact: Cheryl Varner
</TABLE>
<PAGE> 33
<TABLE>
<CAPTION>
- ------------------------- ---------------- ----------------- ---------------- -----------------
REVOLVING ACQUISITION SWING LETTER OF CREDIT
CREDIT LINE COMMITMENT LINE COMMITMENT
NAME OF INITIAL LENDER COMMITMENT COMMITMENT
- ------------------------- ---------------- ----------------- ---------------- -----------------
<S> <C> <C> <C> <C>
- ------------------------- ---------------- ----------------- ---------------- -----------------
Deutsche Bank AG New $11,700,000 $6,300,000
York and Cayman Island
Branches
- ------------------------- ---------------- ----------------- ---------------- -----------------
Keybank National $11,700,000 $6,300,000
Association
- ------------------------- ---------------- ----------------- ---------------- -----------------
Bank of Tokyo- $9,750,000 $5,250,000
Mitsubishi Trust Company
- ------------------------- ---------------- ----------------- ---------------- -----------------
The Chase Manhattan Bank $11,700,000 $6,300,000
- ------------------------- ---------------- ----------------- ---------------- -----------------
TOTAL $195,000,000 $105,000,000
- ------------------------- ---------------- ----------------- ---------------- -----------------
</TABLE>
<TABLE>
<CAPTION>
- ------------------------------------ ---------------------------------------
DOMESTIC EURODOLLAR
LENDING LENDING
OFFICE OFFICE
- ------------------------------------ ---------------------------------------
<S> <C>
Fax: (312) 974-1624 Fax: (312) 974-1624
Phone: (312) 828-6427 Phone: (312) 828-6427
- ------------------------------------ ---------------------------------------
Deutsche Bank AG Deutsche Bank AG Cayman islands
New York Branch Branch c/o
31 West 52nd Street New York Branch
New York, New York, 10019 31 West 52nd Street
Fax: (212) 469-8675 New York, New York, 10019
Phone: (212) 469-8212 Fax: (212) 469-8675
Phone: (212) 469-8212
- ------------------------------------ ---------------------------------------
127 Public Square 127 Public Square
OH-01-27-0606 OH-01-27-0606
Cleveland, Ohio 44114 Cleveland, Ohio 44114
Fax: (216) 689-4981 Fax: (216) 689-4981
Phone: (216) 689-0206 Phone: (216) 689-0206
- ------------------------------------ ---------------------------------------
BTM Information Services, Inc. BTM Information Services, Inc.
Harborside, New Jersey 07311 Harborside, New Jersey 07311
Fax: (212) 782-5635/5636 Fax: (212) 782-5635/5636
Phone: (212) 782-5637 Phone: (212) 782-5637
Contact: Mr. Rolando Uy, Contact: Mr. Rolando Uy,
Operations Officer Operations Officer
- ------------------------------------ ---------------------------------------
270 Park Avenue 270 Park Avenue
New York, New York 10017 New York, New York 10017
Fax: (914) 993-7938 Fax: (914) 993-7938
Phone: (914) 993-7955 Phone: (914) 993-7955
- ------------------------------------ ---------------------------------------
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEET AND CONSOLIDATED STATEMENT OF INCOME OF THE COMPANY
AS OF AND FOR THE SIX MONTHS ENDED JUNE 30, 1998, AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> JUN-30-1998
<CASH> 12,913
<SECURITIES> 514
<RECEIVABLES> 97,626
<ALLOWANCES> 15,582
<INVENTORY> 42,240
<CURRENT-ASSETS> 189,210
<PP&E> 110,309
<DEPRECIATION> 29,544
<TOTAL-ASSETS> 689,496
<CURRENT-LIABILITIES> 83,949
<BONDS> 183,577
0
0
<COMMON> 223
<OTHER-SE> 416,757
<TOTAL-LIABILITY-AND-EQUITY> 689,496
<SALES> 140,563
<TOTAL-REVENUES> 140,563
<CGS> 88,676
<TOTAL-COSTS> 88,676
<OTHER-EXPENSES> 5,300
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,228
<INCOME-PRETAX> 15,190
<INCOME-TAX> 6,418
<INCOME-CONTINUING> 8,772
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 8,772
<EPS-PRIMARY> 0.47
<EPS-DILUTED> 0.45
</TABLE>
