<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, 1999
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)
(Former name, former address and former fiscal year, if changed since last
report)
N/A
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, 1999, was 22,474,772.
<PAGE> 2
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
APPLIED GRAPHICS TECHNOLOGIES, INC.
CONSOLIDATED BALANCE SHEETS
(Unaudited)
(In thousands of dollars, except per-share amounts)
<TABLE>
<CAPTION>
June 30, December 31,
1999 1998
-----------------------------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 9,598 $ 20,909
Trade accounts receivable (net of allowances of $15,485 in 1999
and $15,823 in 1998) 127,699 93,552
Due from affiliates 8,434 6,561
Inventory 45,742 34,807
Income tax receivable 1,801 14,936
Prepaid expenses 20,725 4,991
Other current assets 26,824 9,485
Deferred income taxes 21,765 21,423
------------- ---------------
Total current assets 262,588 206,664
Property, plant, and equipment - net 122,335 83,262
Goodwill and other intangible assets (net of accumulated amortization
of $14,418 in 1999 and $8,546 in 1998) 538,353 414,508
Deferred income taxes 597 1,060
Other assets 6,978 7,049
------------- ---------------
Total assets $ 930,851 $ 712,543
============= ===============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses $ 82,699 $ 56,961
Current portion of long-term debt and obligations under capital leases 2,448 3,247
Due to affiliates 2,674 1,513
Other current liabilities 22,184 20,442
------------- ---------------
Total current liabilities 110,005 82,163
Long-term debt 303,424 203,830
Obligations under capital leases 5,207 3,475
Other liabilities 28,953 5,677
------------- ---------------
Total liabilities 447,589 295,145
------------- ---------------
Commitments and contingencies
Minority interest - Redeemable Preference Shares issued by subsidiary 62,733
-------------
Stockholders' Equity:
Preferred stock (no par value, 10,000,000 shares authorized; no
shares outstanding)
Common stock ($0.01 par value, 150,000,000 shares authorized;
shares issued and outstanding: 22,427,272 in 1999 and 22,379,127
in 1998) 224 224
Additional paid-in capital 385,964 385,279
Accumulated other comprehensive income 130 (4)
Retained earnings 34,211 31,899
------------- ---------------
Total stockholders' equity 420,529 417,398
------------- ---------------
Total liabilities and stockholders' equity $ 930,851 $ 712,543
============= ===============
</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,
---------------------------- -------------------------------
1999 1998 1999 1998
------------ ------------- ------------- -------------
<S> <C> <C> <C> <C>
Revenues $ 264,386 $ 140,563 $ 152,352 $ 80,908
Cost of revenues 175,517 90,080 100,994 51,040
------------ ------------- ------------- -------------
Gross profit 88,869 50,483 51,358 29,868
------------ ------------- ------------- -------------
Selling, general, and
administrative expenses 69,639 29,518 39,055 17,853
Amortization of intangibles 6,192 1,676 3,244 1,245
Restructuring charge 5,300 5,300
------------ ------------- ------------- -------------
Total operating expenses 75,831 36,494 42,299 24,398
------------ ------------- ------------- -------------
Operating income 13,038 13,989 9,059 5,470
Interest expense (7,744) (1,228) (4,354) (1,092)
Interest income 192 1,731 148 680
Other income - net 271 698 154 686
------------ ------------- ------------- -------------
Income before provision for
income taxes and minority interest 5,757 15,190 5,007 5,744
Provision for income taxes 2,879 6,418 2,504 2,545
------------ ------------- ------------- -------------
Income before minority interest 2,878 8,772 2,503 3,199
Minority interest (566) (566)
------------ ------------- ------------- -------------
Net income 2,312 8,772 1,937 3,199
Other comprehensive income 134 47 321 4
------------ ------------- ------------- -------------
Comprehensive income $ 2,446 $ 8,819 $ 2,258 $ 3,203
============ ============= ============= =============
Earnings per common share:
Basic $ 0.10 $ 0.47 $ 0.09 $ 0.16
Diluted $ 0.10 $ 0.45 $ 0.09 $ 0.16
Weighted average number of
common shares:
Basic 22,396 18,768 22,396 19,607
Diluted 22,397 19,678 22,400 20,495
</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,
----------------------------
1999 1998
------------- -------------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 2,878 $ 8,772
Adjustments to reconcile net income to net cash from
operating activities:
Depreciation and amortization 16,516 6,134
Deferred taxes (26) (333)
Restructuring charge 1,352
Other 2,088 (1,165)
Changes in Operating Assets and Liabilities, net of effects of acquisitions:
Trade accounts receivable 2,339 (3,994)
Due from/to affiliates (712) 1,319
Inventory (4,447) (4,196)
Other assets 6,219 (3,204)
Accounts payable and accrued expenses (14,116) (2,638)
Other liabilities (3,477) 2,385
----------- -----------
Net cash provided by operating activities 7,262 4,432
----------- -----------
Cash flows from investing activities:
Investment in available-for-sale securities (178,433)
Proceeds from sale of available-for-sale securities 283,265
Property, plant, and equipment expenditures (12,507) (17,463)
Proceeds from sale of fixed assets 425
Entities purchased, net of cash acquired (100,559) (252,598)
Other investing activities (5,066) (4,395)
----------- -----------
Net cash used in investing activities (118,132) (169,199)
----------- -----------
Cash flows from financing activities:
Proceeds from exercise of stock options 210
Proceeds from sale/leaseback transactions 1,496 3,391
Repayment of notes and capital lease obligations (671) (13,955)
Borrowings under credit lines 98,524 175,660
----------- -----------
Net cash provided by financing activities 99,559 165,096
----------- -----------
Net increase (decrease) in cash and cash equivalents (11,311) 329
Cash and cash equivalents at beginning of period 20,909 12,584
----------- -----------
Cash and cash equivalents at end of period $ 9,598 $ 12,913
=========== ===========
</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 amounts)
<TABLE>
<CAPTION>
For the six months ended June 30, 1999
--------------------------------------
Accumulated
Additional other
paid-in comprehensive Retained
Common stock capital income earnings
---------------- ------------- ----------------- -------------
<S> <C> <C> <C> <C>
Balance at January 1, 1999 $ 224 $ 385,279 $ (4) $ 31,899
Issuance of 15,645 common shares as
additional consideration in
connection with a 1997 acquisition 240
Exercise of stock options 390
Fair value of stock options issued to 55
non-employee
Other comprehensive income 134
Net income 2,312
---------------- ------------- ----------------- -------------
Balance at June 30, 1999 $ 224 $ 385,964 $ 130 $ 34,211
================ ============= ================= =============
</TABLE>
See Notes to Interim Consolidated Financial Statements
<PAGE> 6
APPLIED GRAPHICS TECHNOLOGIES, INC.
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
(In thousands except per-share amounts)
1. BASIS OF PRESENTATION
The accompanying unaudited consolidated condensed 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 1998 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.
Assets and liabilities of foreign operations are translated from the
functional currency into United States dollars using the exchange rate at the
balance sheet date. Revenues and expenses of foreign operations are translated
from the functional currency into United States dollars using the average
exchange rate for the period. Adjustments resulting from the translation into
United States dollars are included in other comprehensive income.
Certain prior-period amounts in the accompanying financial statements have
been reclassified to conform with the 1999 presentation.
2. ACQUISITION
On March 25, 1999, the Company tendered an offer to purchase all of the
outstanding shares of Wace Group Plc ("Wace") for 90 pence per share. On May
21, 1999, the Company's offer was declared unconditional in all respects and
Wace came under the control of the Company at that time. The total cash
consideration, based on the total number of Wace's ordinary shares outstanding
and stock options with an exercise price below 90 pence, is Pound
Sterling 73,957, or approximately $119,529, excluding transaction costs. As of
June 30, 1999, approximately 84.7% of the total potential shares had been
tendered, for which the Company paid $101,751. At June 30, 1999, the remaining
purchase consideration of approximately $17,778 is included in "Other noncurrent
liabilities" in the accompanying Consolidated Balance Sheet. The Company
entered into an amended and restated credit agreement with its lending
institutions to finance the acquisition (see Note 5).
The acquisition was 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 acquisition, 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 $130,797, which is being amortized
over a 35 year period. The results of operations of Wace have been included in
the Consolidated Statements of Income subsequent to the date of acquisition.
The following unaudited pro forma information combines the results of
operations of the Company, Wace, and acquisitions consummated in 1998 for the
six months ended June 30, 1999 and 1998, calculated as if the acquisitions had
occurred on January 1, 1998. The pro forma information has been prepared for
comparative purposes only and does not purport to be indicative of the results
of operations that would have occurred had the acquisitions been consummated at
the beginning of 1998 or of results that may occur in the future.
<PAGE> 7
<TABLE>
<CAPTION>
For the six months ended June 30,
--------------------------------
1999 1998
---- ----
<S> <C> <C>
Total revenues $333,226 $332,515
Income (loss) before provision for income taxes $ (4,705) $ 1,031
Net loss $ (4,169) $ (2,952)
Earnings per common share:
Basic $ (0.19) $ (0.13)
Diluted $ (0.19) $ (0.13)
</TABLE>
3. RESTRUCTURING
During 1998, the Company commenced two separate plans to restructure its
operations (the "Second Quarter Plan" and the "Fourth Quarter Plan",
respectively). As part of the Second Quarter Plan, the Company will close two
facilities in New Jersey and make the necessary modifications to its Carlstadt,
NJ, facility to accommodate the transfer of work performed at those locations
to the Carlstadt facility. The Company has experienced delays in renovating
the Carlstadt facility, which has caused the transfer of work and the closing
of facilities to be postponed. In addition, the Company vacated a portion of
one of its Chicago, IL, facilities and transferred a portion of the work
performed at that facility to its other Chicago metropolitan area facilities.
Also as part of the Second Quarter Plan, the Company terminated certain
employees and consolidated the work performed in its West Coast facilities,
resulting in the closure of one such facility. As part of the Fourth Quarter
Plan, the Company plans to close several facilities in Illinois and terminate
employees on a Company-wide basis. The work performed at each of the Illinois
facilities to be closed will be performed at the Company's other Midwest
facilities.
The Company does not anticipate any material adverse effect on its future
results of operations from the facility closings since all work performed at
such locations has been and will be transferred to other facilities. The
employees terminated and to be terminated under the restructuring plans are
principally production workers, sales people, and administrative support staff.
The Company expects to complete the Second Quarter Plan, which primarily
consists of completing the Carlstadt renovations and related transfer of work,
and the Fourth Quarter Plan by September 1999 and December 1999, respectively.
As of June 30, 1999, approximately $544 and $2,578 was included in "Other
current liabilities" in the accompanying Consolidated Balance Sheet for the
future costs of the Second Quarter Plan and the Fourth Quarter Plan,
respectively. During the first six months of 1999, approximately $961 was
charged against the Second Quarter Plan's restructuring reserve and $258 was
charged against the Fourth Quarter Plan's restructuring reserve. The charges
against the Second Quarter Plan's restructuring reserve were comprised of $347
for severance for 58 employees, $321 for facility closure costs, and $293
related to assets no longer utilized as a result of the restructuring. The
charges against the Fourth Quarter Plan's restructuring reserve were comprised
of $176 for severance for 39 employees and $82 for facility closure costs.
4. INVENTORY
The components of inventory were as follows:
<TABLE>
<CAPTION>
June 30, December 31,
1999 1998
---- ----
<S> <C> <C>
Finished goods $ 4,699 $ 5,068
Work-in-process 34,797 25,012
Raw materials 6,246 4,727
-------- -----------
Total $ 45,742 $ 34,807
======== ===========
</TABLE>
<PAGE> 8
5. LONG TERM DEBT
In March 1999, the Company entered into an amended and restated credit
agreement (the "1999 Credit Agreement") to finance the Wace acquisition. The
1999 Credit Agreement replaces the credit agreement entered into in May 1998
(the "1998 Credit Agreement"). On June 4, 1999 (the "Initial Funding Date"),
the Company borrowed $296,000, the proceeds of which were used to pay off
existing borrowings under the 1998 Credit Agreement and to finance the Wace
acquisition. The total borrowing capacity under the 1999 Credit Agreement is a
maximum of $350 million, comprised of a $100 million revolving line of credit
(the "Revolver") and three term loans totaling $250 million (the "Term Loans").
The Revolver extends through June 2005. The Term Loans are comprised of
tranches of $125,000, $75,000, and $50,000 that have terms extending through
June 2005, June 2006, and June 2007, respectively. Interest rates on funds
borrowed under the 1999 Credit Agreement vary from either LIBOR or the prime
rate in effect at the time of the borrowing, plus a factor based on EBITDA (as
defined in the 1999 Credit Agreement). At June 30, 1999, $299,874 was
outstanding under the 1999 Credit Agreement, of which $49,874 was outstanding
under the Revolver and $250,000 was outstanding under the Term Loans. The
average variable rate on borrowings under both the 1999 Credit Agreement and
the 1998 Credit Agreement for the six months ended June 30, 1999 was 6.98%.
Under the terms of the 1999 Credit Agreement, the Company must comply with
certain covenants related to leverage ratios, interest coverage ratios, fixed
charge coverage ratios, and minimum net worth. At June 30, 1999, the Company
was in compliance with all covenants. In addition, under the terms of the 1999
Credit Agreement, the Company is obligated to enter into hedge arrangements
within 180 days of the Initial Funding Date for a minimum of two years covering
at least 30% of the amount borrowed on the Initial Funding Date. The Company's
previously existing swap arrangements, which continue to be accounted for as
hedges against the variable interest rate component of the 1999 Credit
Agreement, cover approximately 25% of the amount borrowed on the Initial
Funding Date. The Company is prohibited from paying dividends on its capital
stock under the terms of the 1999 Credit Agreement.
6. MINORITY INTEREST
At June 30, 1999, Wace had Pound Sterling 39,164, or approximately $62,733,
of 8% Cumulative Convertible Redeemable Preference Shares (the "Preference
Shares") outstanding. The Preference Shares carry the right to a fixed
cumulative preferential dividend of 8% and are redeemable on July 31, 2005.
The Company accrued dividends of $566 on the Preference Shares for the period
ended June 30, 1999, which are reflected as "Minority interest" in the
Consolidated Statements of Income.
On July 5, 1999, the Company offered each holder of Preference Shares the
right to exchange such Preference Shares, at an equivalent nominal rate, for
subordinated notes to be issued by the Company (the "Subordinated Notes"). The
Subordinated Notes, if issued, will bear interest at a fixed rate of 10%
annually and will mature on October 31, 2005. The Subordinated Notes will be
subject to redemption by the Company at any time after July 31, 2000. The
initial redemption premium is 4% and decreases in 0.5% increments every six
months until July 31, 2005, at which time the Subordinated Notes are redeemable
at par.
7. RELATED PARTY TRANSACTIONS
Sales to, purchases from, and administrative charges incurred with related
parties during the three and six months ended June 30, 1999 and 1998, were as
follows:
<TABLE>
<CAPTION>
Six months ended June 30, Three months ended June 30,
1999 1998 1999 1998
-------------------------- ---------------------------
<S> <C> <C> <C> <C>
Affiliate sales $ 6,460 $ 14,581 $ 3,718 $ 6,055
Affiliate purchases $ 2,252 $ 3,336 $ 1,441 $ 1,681
Administrative charges $ 832 $ 514 $ 510 $ 219
</TABLE>
<PAGE> 9
Administrative charges include charges for certain legal and computer
services provided by affiliates and for rent incurred for leases with
affiliates.
8. SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Payments of interest and income taxes for the six months ended June 30,
1999 and 1998, were as follows:
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
Interest paid $ 7,651 $ 724
Income taxes paid $ 1,831 $ 5,264
</TABLE>
Noncash investing and financing activities for the six months ended June
30, 1999 and 1998, were as follows:
<TABLE>
<CAPTION>
1999 1998
------------- ------------
<S> <C> <C>
Reduction of goodwill from amortization of excess tax
deductible goodwill $ 17 $ 39
Write off of building against capital lease obligation
upon lease termination $ 273
Accrual of dividends on Preference Shares of subsidiary $ 566
Common stock issued as additional consideration for
1997 acquisition $ 240
Fair value of stock options issued to non-employee $ 55
Acquisitions:
Fair value of assets acquired $ 244,900 $ 560,986
Cash paid (105,777) (265,578)
Non-contingent future payments (17,778)
Fair value of common stock issued (224,664)
------------- ------------
Liabilities assumed $ 121,345 $ 70,744
============= ============
</TABLE>
<PAGE> 10
9. SEGMENT INFORMATION
Segment information relating to results of operations for the three and six
months ended June 30, 1999 and 1998, was as follows:
<TABLE>
<CAPTION>
Six months ended June 30 Three months ended June 30
1999 1998 1999 1998
----------- ----------- --------- ------------
<S> <C> <C> <C> <C>
Revenue:
Content Management Services $ 206,311 $ 115,273 $ 120,823 $ 64,808
Publishing 39,730 9,113 21,642 9,113
Other operating segments 18,345 16,177 9,887 6,987
----------- ----------- --------- ------------
Total $ 264,386 $ 140,563 $ 152,352 $ 80,908
=========== =========== ========= ============
Operating Income:
Content Management Services $ 25,995 $ 20,797 $ 15,126 $ 12,221
Publishing 1,355 1,826 1,471 1,826
Other operating segments 3,053 1,697 2,012 576
----------- ----------- --------- ------------
Total 30,403 24,320 18,609 14,623
Other business activities (11,385) (3,545) (6,404) (2,715)
Amortization of intangibles (6,192) (1,676) (3,244) (1,245)
Interest expense (7,532) (1,038) (4,256) (985)
Interest income 192 1,731 148 680
Other income 271 698 154 686
Restructuring charge (5,300) (5,300)
----------- ----------- --------- ------------
Consolidated income before
provision for income taxes $ 5,757 $ 15,190 $ 5,007 $ 5,744
=========== =========== ========= ============
</TABLE>
Segment information relating to the Company's assets as of June 30, 1999,
was as follows:
<TABLE>
<CAPTION>
1999
-----------
<S> <C>
Total Assets:
Content Management Services $ 718,545
Publishing 134,663
Other operating segments 28,172
Other business activities 49,471
-----------
Total $ 930,851
===========
</TABLE>
<PAGE> 11
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
timing of completion and the success of the Second Quarter Plan and the Fourth
Quarter Plan; the rate and level of capital expenditures; the adequacy of the
Company's lines of credit and cash flows to fund cash needs; the ability to
sell certain properties and non-core businesses; successful integration of the
Wace operations; the success of the integration and restructuring efforts in
generating additional operating cash flows and EBITDA; the ability to maintain
compliance with covenants under the 1999 Credit Agreement; and the ability to
obtain Y2K compliance for various systems, equipment, and software.
RESULTS OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 1999, COMPARED WITH 1998
Revenues in the first six months of 1999 were $123,823,000 higher than in
the comparable period in 1998. The increase in revenues of $132,960,000 from
facilities operated for none or only a portion of the 1998 period was comprised
primarily of $27,278,000 in revenues from Wace Group Plc ("Wace") and
$95,996,000 in revenues from Devon Group, Inc. ("Devon"), for the comparable
1999 period not operated in 1998. The acquisition of Wace and the merger with
Devon were consummated on May 21, 1999, and May 27, 1998, respectively. This
increase in revenues from acquired operations was offset by a decrease in
revenues of $9,137,000 at facilities operated during the comparable 1998
period. This decrease at existing facilities was caused primarily by the loss
of certain customers and reduced business from other customers, principally
those in the entertainment industry.
Revenues increased by $91,037,000 from content management services,
$30,617,000 from publishing operations, and $2,662,000 from broadcast media
distribution services. Increased revenues from content management services
resulted from revenues of $101,962,000 associated with acquired operations,
primarily the content management businesses acquired in the merger with Devon
and the acquisitions of Wace and Color Control, Inc. ("Color Control"),
partially offset by a decrease in revenues of $10,925,000 at the Company's
prepress facilities operated in the 1998 period. Revenues from the publishing
group increased as a result of operating the publishing business acquired as
part of the Devon merger for the full period in 1999. Increased broadcast media
distribution services revenues resulted from internally generated growth.
These revenue increases were partially offset by a decrease of $493,000 in
revenues from digital services resulting from reduced software and equipment
sales.
Gross profit increased $38,386,000 in the first six months of 1999 as a
result of the additional revenues for the period as discussed above. The gross
profit percentage in the first six months of 1999 was 33.6% as compared to
35.9% in the 1998 period. This decrease in the gross profit percentage
resulted from reduced margins at traditional prepress facilities as a result of
the decrease in revenues discussed above, which resulted in lower absorption of
fixed manufacturing costs and the need to accept lower margin work. This
decrease was partially offset by the work in higher margin operations,
primarily the publishing business, which was acquired in the latter part of the
1998 period, and the broadcast media distribution business, which benefited
from better pricing and internal expansion that reduced reliance on outside
services.
Selling, general, and administrative expenses in the first six months of
1999 were $40,121,000 higher than in the 1998 period, and as a percent of
revenue increased to 26.3% in the 1999 period from 21.0% in the 1998 period.
Such expenses grew at a greater rate than revenue due primarily to higher costs
incurred at the Wace operations that have not been integrated and costs
incurred in the publishing business that was acquired in the latter part of the
1998 period, which business incurs selling, general, and administrative costs
at a much higher rate than the Company's other operations.
Amortization expense for intangible assets increased by $4,516,000 in the
first six months of 1999 due primarily to the goodwill associated with
acquisitions consummated in the latter part of and subsequent to the 1998
period.
<PAGE> 12
During 1998, the Company commenced two separate plans to restructure its
operations (the "Second Quarter Plan" and the "Fourth Quarter Plan",
respectively). The results of operations in the 1998 period include a charge
of $5,300,000 related to the Second Quarter Plan. As part of the Second
Quarter Plan, the Company will close two facilities in New Jersey and make the
necessary modifications to its Carlstadt, NJ, facility to accommodate the
transfer of work performed at those locations to the Carlstadt facility. The
Company has experienced delays in renovating the Carlstadt facility, which has
caused the transfer of work and the closing of facilities to be postponed. In
addition, the Company vacated a portion of one of its Chicago, IL, facilities
and transferred a portion of the work performed at that facility to its other
metropolitan Chicago area facilities. Also as part of the Second Quarter Plan,
the Company terminated certain employees and consolidated the work performed in
its West Coast facilities, resulting in the closure of one such facility. As
part of the Fourth Quarter Plan, the Company plans to close several facilities
in Illinois and terminate employees on a Company-wide basis. The work
performed at each of the Illinois facilities to be closed will be performed at
the Company's other Midwest facilities.
The Company does not anticipate any material adverse effect on its future
results of operations from the facility closings since all work performed at
such locations has been and will be transferred to other facilities. The
employees terminated and to be terminated under the restructuring plans are
principally production workers, sales people, and administrative support staff.
The Company expects to complete the Second Quarter Plan and the Fourth Quarter
Plan by September 1999 and December 1999, respectively.
Interest expense in the first six months of 1999 was $6,516,000 higher than
in the 1998 period due primarily to the interest on borrowings to finance
acquisitions.
Interest income for the first six months of 1999 was $1,539,000 lower than
during the 1998 period due to the sale of marketable securities to fund certain
mergers and acquisitions in 1998.
The effective rate of the provision for income taxes of 50.0% in the first
six months of 1999 was higher than the statutory rate due primarily to the
permanent items related to the nondeductible goodwill associated with the Devon
merger and other acquisitions and the nondeductible portion of meals and
entertainment expenses.
Revenues from business transacted with affiliates for the six months ended
June 30, 1999 and 1998, totaled $6,460,000 and $14,581,000, respectively,
representing 2.4% and 10.4%, respectively, of the Company's revenues.
THREE MONTHS ENDED JUNE 30, 1999, COMPARED WITH 1998
Revenues in the second quarter of 1999 were $71,444,000 higher than in the
comparable period in 1998. The increase of $72,232,000 from facilities operated
for none or only a portion of the 1998 period was comprised primarily of
$27,278,000 in revenues from Wace and $40,905,000 in revenues from Devon for
the comparable 1999 period not operated in 1998. This increase in revenues
from acquired operations was offset by a decrease in revenues of $788,000 at
facilities operated during the comparable 1998 period. This decrease at
existing facilities was caused primarily by the loss of certain customers and
reduced business from other customers, principally those in the entertainment
industry.
Revenues increased by $56,015,000 from content management services,
$12,529,000 from publishing operations, $1,395,000 from broadcast media
distribution services, and $1,505,000 from digital services. Increased revenues
from content management services resulted from revenues of $59,650,000
associated with acquired operations, primarily the content management
businesses acquired in the merger with Devon and the acquisitions of Wace and
Color Control, partially offset by a decrease in revenues of $3,635,000 at the
Company's prepress facilities owned in the 1998 period. Revenues from the
publishing group increased as a result of operating the publishing business
acquired as part of the Devon merger for the full period in 1999. Increased
broadcast media distribution services revenues resulted from internally
generated growth. Increased revenues from digital services resulted from
additional systems sales.
Gross profit increased $21,490,000 in the second quarter of 1999 as a
result of the additional revenues for the period as discussed above. The gross
profit percentage in the second quarter of 1999 was 33.7% as compared to 36.9%
in the 1998 period. This decrease in the gross profit percentage resulted from
reduced margins at traditional prepress facilities as a result of the decrease
in revenues discussed above, which resulted in lower absorption of
<PAGE> 13
fixed manufacturing costs and the need to accept lower margin work. This
decrease was partially offset by the work in higher margin operations,
primarily the publishing business, which was acquired in the latter part of the
1998 period, and the broadcast media distribution business, which benefited
from better pricing and internal expansion that reduced reliance on outside
services.
Selling, general, and administrative expenses in the second quarter of 1999
were $21,202,000 higher than in the 1998 period, and as a percent of revenue
increased to 25.6% in the 1999 period from 22.1% in the 1998 period. Such
expenses grew at a greater rate than revenue due primarily to higher costs
incurred at the Wace operations that have not been integrated and costs
incurred in the publishing business that was acquired in the latter part of the
1998 period, which business incurs selling, general, and administrative costs
at a much higher rate than the Company's other operations.
Amortization expense for intangible assets increased by $1,999,000 in the
second quarter of 1999 due primarily to the goodwill associated with
acquisitions consummated in the latter part of and subsequent to the 1998
period.
The results of operations in the second quarter of 1998 include a
restructuring charge of $5,300,000 related to the Second Quarter Plan.
Interest expense in the second quarter of 1999 was $3,262,000 higher than in
the 1998 period due primarily to the interest on borrowings to finance
acquisitions.
Interest income for the second quarter of 1999 was $532,000 lower than
during the 1998 period due to the sale of marketable securities to fund certain
mergers and acquisitions in 1998.
The effective rate of the provision for income taxes of 50.0% in the second
quarter of 1999 was higher than the statutory rate due primarily to the
permanent items related to the nondeductible goodwill associated with the Devon
merger and other acquisitions and the nondeductible portion of meals and
entertainment expenses.
Revenues from business transacted with affiliates for the three months
ended June 30, 1999 and 1998, totaled $3,718,000 and $6,055,000, respectively,
representing 2.4% and 7.5%, respectively, of the Company's revenues.
FINANCIAL CONDITION
In March 1999, the Company entered into an amended and restated credit
agreement (the "1999 Credit Agreement") with its lending institutions that was
conditional on consummating the Wace acquisition. On June 4, 1999 (the
"Initial Funding Date"), the Company borrowed $296,000,000, the proceeds of
which were used to pay off existing borrowings under the Company's previous
credit arrangements and to finance the Wace acquisition. The total borrowing
capacity under the 1999 Credit Agreement is a maximum of $350,000,000,
comprised of a $100,000,000 revolving credit line (the "Revolver") and three
term loans aggregating $250,000,000 (the "Term Loans"). The Revolver extends
through June 2005. The Term Loans are comprised of three tranches of
$125,000,000, $75,000,000, and $50,000,000 that have terms extending through
June 2005, June 2006, and June 2007, respectively. Interest rates on funds
borrowed under the 1999 Credit Agreement vary from either LIBOR or the prime
rate in effect at the time of the borrowing, plus a factor based on annual pro
forma EBITDA (as defined in the 1999 Credit Agreement).
Under the terms of the 1999 Credit Agreement, the Company is obligated to
enter into hedge arrangements within 180 days of the Initial Funding Date for a
minimum of two years covering at least 30% of the amount borrowed on the
Initial Funding Date. The Company's previously existing swap arrangements,
which continue to be accounted for as hedges against the variable interest rate
component of the 1999 Credit Agreement, cover approximately 25% of the amount
borrowed on the Initial Funding Date.
At June 30, 1999, total funded debt (as defined in the 1999 Credit Agreement)
was $328,857,000. Although the Company may continue to borrow up to the maximum
capacity during the course of subsequent periods, on the last day of each
quarterly period in 1999 it must have a ratio of total funded debt to annual
pro forma EBITDA that does not exceed 4.25 in order to remain in compliance
with the covenants of the 1999 Credit Agreement. The Company continues to
monitor compliance with this covenant and intends to take certain actions to
ensure compliance is maintained. The Company is actively pursuing the sale of
certain of its properties and non-core businesses, including those obtained as
part of the Wace acquisition, to generate additional working capital. In
addition, the Company's integration and restructuring efforts may result in
higher EBITDA and higher operating cash flows that can be used to pay down debt.
<PAGE> 14
During the first six months of 1999, in addition to the borrowings under
the 1999 Credit Agreement and the acquisition of Wace, the Company repaid
$671,000 of notes and capital lease obligations and invested $12,507,000 in
management information systems, facility construction, and new equipment. Such
amounts were primarily generated from cash balances at year end and sale and
leaseback transactions that generated proceeds of $1,496,000. The sale and
leaseback arrangements, which are accounted for as operating leases, resulted
in immaterial gains that have been deferred and are being recognized as a
credit against future rental expenses.
Cash flows from operating activities during the first six months of 1999
increased by $2,830,000 as compared to the comparable period in 1998 due
primarily to the collection of trade accounts receivable and income tax
refunds, partially offset by the timing of vendor payments.
The Company expects to spend approximately $10,000,000 over the course of the
next twelve months for capital improvements and management information systems,
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.
The Company believes that cash flows from operations, including potential
improvements in operations as a result of its various integration and
restructuring efforts, planned sales of certain properties and certain non-core
businesses, and available borrowing capacity will provide sufficient cash flows
to fund its cash needs for the foreseeable future.
YEAR 2000 COMPLIANCE
Many computer systems and applications use a two-digit field to designate a
year rather than a four-digit field. This can result in these systems and
applications recognizing the use of "00" as either the year 1900 or some other
year as opposed to the year 2000 ("Y2K"). Such failure to recognize the
correct year could result in system failures and miscalculations that could
adversely impact the ability of a company to do business (the "Y2K Issue").
The Company has commenced a review of the Y2K Issue and has separated its
review into five categories. These categories are (i) internally developed
software and information technology ("IT") systems for sale or internal use,
(ii) IT systems and software associated with the Company's content management
and other manufacturing processes, (iii) financial and other administrative IT
systems, (iv) non-IT systems, and (v) customer and vendor IT systems.
Internally Developed Software and IT Systems: The Company's Digital Link(R)
software is used in certain of its prepress manufacturing processes and also
provides a source of revenue for the Company through the sale of software
licenses and systems that incorporate Digital Link. The Company has performed
a review and testing of the Digital Link software with respect to Y2K
compliance. The Company believes that all of the internally-developed
components of Digital Link are Y2K compliant. The operating system on which
Digital Link runs is Y2K compliant. The database that Digital Link utilizes is
not currently Y2K compliant, however, the Company has obtained from the vendor
the necessary modifications to make the database Y2K compliant. The Company
has applied and successfully tested the vendor modifications and is in the
process of implementing the modifications at customer locations. Based on
additional testing, the Company is not aware of any other Y2K issues related to
the Digital Link software. The Company has not reviewed whether the equipment
on which Digital Link runs at customer locations or other customer systems with
which Digital Link operates is Y2K compliant. Failure of the Company's
customers to achieve Y2K compliance on such equipment and systems could result
in the loss of future revenue to the Company.
Manufacturing Processes: The Company has implemented a plan to review its
prepress manufacturing processes and the equipment and software used in such
processes, including those processes and equipment used at the operations
obtained as part of the Wace acquisition. The Company's prepress manufacturing
process is heavily dependent on Macintosh systems, which are Y2K compliant.
The Company has received certificates from certain of its suppliers of
<PAGE> 15
manufacturing equipment and software regarding Y2K compliance or Y2K readiness
of such suppliers. All suppliers reviewed to date have indicated that their
equipment and software are either Y2K compliant or that they have commenced
action necessary to make such equipment and software Y2K compliant. The Company
has also been installing Y2K compliant equipment and software as older,
non-compliant items are retired. To date, most mission-critical systems have
been tested and no Y2K-related issues have been identified in the prepress
manufacturing processes. As part of its plan, the Company is identifying,
categorizing, and assessing all of its manufacturing process equipment and
software and is in the process of repairing or replacing any non-compliant
systems identified in its review. By the end of the year, the Company intends
to achieve Y2K compliance or have adequate contingency plans in place.
The Company is not responsible for the printing of customers' material,
except for certain limited print work done in its Los Angeles facility and
other print work subcontracted to an affiliate. However, the Company makes use
of direct-to-plate delivery to certain printers selected by its customers. The
Company's ability to continue to use direct-to-plate delivery may be contingent
on the printers' equipment being Y2K compliant. Certain of these printers use
equipment supplied by the Company that is Y2K compliant. In the event that a
printer's equipment is not Y2K compliant and is unable to accept
direct-to-plate delivery, the Company could deliver film to such printer.
However, irrespective of how the Company delivers its product to the printer,
the ability of the printer to deliver the finished product to the customer is
contingent on the printer's manufacturing process not being adversely impacted
by the Y2K Issue. The Company's business could be adversely impacted if
printers' manufacturing processes are not Y2K compliant, and therefore unable
to produce finished product, or if customers, as a result, order fewer prepress
services or delay orders until an alternative printer whose manufacturing
process is Y2K compliant is located. The Company does not currently intend to
review the Y2K compliance status of printers.
The Company has commenced a review of the systems used in the publishing
operations acquired in the Devon merger. Based on this review, the Company has
identified systems that are not Y2K compliant. The Company has initiated an
effort to make the necessary modifications and expects to achieve Y2K
compliance during the fourth quarter of 1999.
The Company has reviewed the Y2K Issues involving the broadcast media
distribution manufacturing process. The Company has made the necessary
modifications to achieve Y2K compliance at its New York City facility. The
Company is currently making the necessary modifications to achieve Y2K
compliance at its Wilmington, OH, facility and intends to be completed during
the fourth quarter of 1999.
Financial and Other Administrative IT Systems: The Company is currently
replacing the various modules that comprise its financial and administrative
systems that are not Y2K compliant. The Company has implemented the general
ledger, accounts payable, and human resources modules of its new systems at all
of its operations, except at those operations acquired as part of the
acquisitions of Wace and Color Control and the merger with Devon. The Company
plans to implement the remaining modules by the end of the third quarter of
1999. The Company does not anticipate any delays in the implementation of these
financial and administrative systems. The Company plans to complete the
implementation of the various financial and administrative modules at Color
Control and the prepress operations at Devon during the fourth quarter of 1999.
The financial and administrative systems at Wace were upgraded prior to the
acquisition and, based on reviews performed by Wace personnel prior to the
acquisition, are believed to be Y2K compliant. The Company is also replacing
the financial and administrative systems used in the publishing business with
different Y2K- compliant systems than those being installed at all other
operations. The Company expects such systems to be implemented by the end of
the third quarter of 1999.
The Company also plans to replace its job costing and billing systems at
those locations that have non-Y2K compliant systems. The Company is currently
in the process of implementing a replacement system for certain operations
currently using job costing systems that are not Y2K compliant. Failure to
implement a new system at those locations using a non-Y2K compliant system may
adversely impact the Company's ability to properly bill a customer for work
performed on specific jobs and to properly manage costs at these locations. The
Company is currently implementing a Y2K compliant billing system at certain
locations that do not have compliant systems. A similar system is also being
implemented at certain Wace operations to replace non- compliant portions of
those systems. In the event the Company cannot implement a Y2K-compliant job
costing or billing system at these locations, the Company plans to rely on
processes that are not electronically integrated to provide the necessary
information. Reliance on such non-electronically integrated systems may result
in higher administrative costs.
<PAGE> 16
Non-IT Systems: The Company intends to perform a cursory review of its non-IT
systems, which would involve an assessment of the myriad of day-to-day
functions that may be controlled or enhanced by some type of microprocessor.
The Company's contingency plan for non-IT systems that are not reviewed is to
develop alternative workflows for any non-IT system that fails to function
properly due to the Y2K Issue. There can be no assurance, however, that there
will not be a disruption in the Company's ability to do business because of a
Y2K problem encountered with one of these systems.
Customer and Vendor IT Systems: The Company is continuing its review of
customers' and vendors' systems by soliciting responses to questionnaires sent
to such customers and vendors. All responses received to date by the Company
have indicated that the responding vendor or customer does recognize the Y2K
issue and is taking the necessary steps to mitigate risks. Non-Y2K compliant
customer systems may inhibit the ability of customers to process and pay the
Company's invoices or to continue to provide business to the Company. Non-Y2K
compliant vendor systems may inhibit the ability of vendors to provide the
goods and services necessary for the Company to continue to perform its
business. Although the Company would seek to receive such goods and services
from those vendors who can provide them without interruption caused by Y2K
Issues, there can be no assurance that the Company will be able to locate
vendors that can provide the goods and services in a timely manner and at a
similar cost.
The Company will fund the costs of attaining Y2K compliance through working
capital or borrowings under its credit facilities. The Company is unable at
this time to estimate the costs of attaining Y2K compliance or the potential
impact of Y2K Issues on its future results of operations. The Company has not
deferred and does not intend to defer any systems related projects due to the
work necessary to achieve Y2K compliance.
There can be no assurance that the Company will not uncover additional Y2K
Issues as it proceeds with its reviews. Failure to attain Y2K compliance may
have an adverse effect on the Company's results of operations.
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
The Company's primary exposure to market risk is interest rate risk. The
Company had $299,874,000 outstanding under its credit facilities at June 30,
1999. Interest rates on funds borrowed under the Company's credit facilities
vary based on changes to the prime rate or LIBOR. The Company partially manages
its interest rate risk through three interest rate swap agreements under which
the Company pays a fixed rate and is paid a floating rate based on the three
month LIBOR rate. The notional amounts of the three interest rate swaps totaled
$75,000,000 at June 30, 1999. A change in interest rates of 1.0% would result
in an annual change in income before taxes of $2,249,000 based on the
outstanding balance under the Company's credit facilities and the notional
amounts of the interest rate swap agreements at June 30, 1999.
<PAGE> 17
PART II. - OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders.
The annual meeting of the stockholders of Applied Graphics Technologies,
Inc., was held on June 3, 1999, and adjourned to June 17, 1999. The
stockholders voted on the following matters:
1. The election of the following nine directors of the Company for
terms expiring at the 2000 annual meeting of stockholders:
<TABLE>
<CAPTION>
Shares Shares
Voted For Withheld
--------- --------
<S> <C> <C>
Fred Drasner 21,059,385 197,855
John R. Harris 21,061,274 195,966
Martin D. Krall 21,061,274 195,966
Marne Obernauer, Jr. 21,061,274 195,866
David R. Parker 21,059,874 197,366
Howard Stringer 20,102,681 1,154,559
Linda J. Wachner 21,060,474 196,766
John Zuccotti 21,059,029 198,211
Mortimer B. Zuckerman 21,059,935 197,305
</TABLE>
2. The amendment of the 1998 Incentive Compensation Plan.
<TABLE>
<CAPTION>
Shares Shares Shares
Voted For Voted Against Abstained
--------- ------------- ---------
<S> <C> <C> <C>
9,107,389 8,910,546 15,172
</TABLE>
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
<TABLE>
<S> <C>
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
</TABLE>
<PAGE> 18
<TABLE>
<S> <C>
Securities 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 (Incorporated by reference to Exhibit No. 3.1(b)
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 June 30, 1998).
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).
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
</TABLE>
<PAGE> 19
<TABLE>
<S> <C>
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).
10.6(c) Employment Agreement, effective as of May 24, 1999, between the
Company and Derek Ashley.
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).
10.6(f) Employment Agreement, effective as of July 21, 1998, between the
Company and Jonathan C. Swindle (Incorporated by reference to
Exhibit No. 10.6(f) 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 Act of 1934, as amended, for the
quarterly period ended September 30, 1998).
</TABLE>
<PAGE> 20
<TABLE>
<S> <C>
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 Applied Graphics Technologies, Inc., 1998 Incentive Compensation
Plan, as Amended and Restated.
10.9(a) Amended and Restated Credit Agreement, dated as of March 10, 1999,
among Applied Graphics Technologies, Inc., Other Institutional
Lenders as Initial Lenders, and Fleet Bank, N.A. (Incorporated by
reference to Exhibit 99.2 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 March 22,
1999).
10.9(b) Amendment No. 1, dated as of June 2, 1999, to the Amended and
Restated Credit Agreement among Applied Graphics Technologies, Inc.,
Other Institutional Lenders as Initial Lenders, and Fleet Bank, N.A.
27 Financial Data Schedule (EDGAR filing only).
</TABLE>
- --------------------------------------------------------------------------------
(b) The Registrant filed the following reports on Form 8-K during the quarter
ended June 30, 1999:
Current Report on Form 8-K filed on April 6, 1999, regarding increase
in the offer to purchase all of the outstanding shares of Wace Group
Plc.
Current Report on Form 8-K filed on June 4, 1999, regarding the
acquisition of Wace Group Plc.
<PAGE> 21
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.
<TABLE>
<S> <C>
APPLIED GRAPHICS TECHNOLOGIES, INC.
(Registrant)
By: /s/ Martin D. Krall
Date: August 16, 1999
------------------------------------------------------
Martin D. Krall
Executive Vice President,
Chief Legal Officer, and Secretary
(Duly authorized officer)
/s/ Louis Salamone, Jr.
Date: August 16, 1999
------------------------------------------------------
Louis Salamone, Jr.
Senior Vice President and Chief Financial Officer
(Principal Financial Officer)
</TABLE>
<PAGE> 1
Exhibit 10.6(c)
EMPLOYMENT AGREEMENT
This Agreement, effective as of May 24, 1999, is entered into by and
between Applied Graphics Technologies, Inc., a Delaware corporation ("AGT"),
and Derek Ashley, (hereinafter referred to as the "Employee"), an individual
presently residing at 41 Parkgate Crescent, Hadley Wood, Hertfordshire, England
EN40NW. In consideration of the mutual covenants set forth herein, the parties
agree as follows:
1. Employment Term. Subject to the further terms and conditions of this
Agreement, AGT shall employ Employee as Vice Chairman and Chief Operating
Officer for the period beginning on May 24, 1999 (the "Commencement Date") and
ending on May 23, 2001 (the "Term"). This Agreement will be automatically
renewed for an additional twelve month period, unless either party provides
notice no less than 180 days prior to the expiration of the Term that it does
not want to extend this Agreement for said twelve month period.
2. Board of Directors.
As soon as practicable after AGT's 1999 annual shareholders meeting,
which is currently scheduled to be held on June 3, 1999, the Employee will be
appointed to serve as a member of AGT's Board of Directors.
3. Compensation.
(a) AGT will pay Employee a salary at the rate of Four Hundred
Thousand dollars ($400,000) per annum.
(b) With respect to each of the two successive twelve month
periods during the Term, Employee shall be eligible for a cash bonus at the end
of said period in an amount, if any, to be
<PAGE> 2
determined in the sole discretion of AGT, provided, however, that the bonus for
the first twelve month period shall be no less than One Hundred Thousand
dollars ($100,000).
(c) In addition to the bonus set forth in subparagraph 3(b) above,
the Employee will receive a bonus of $400,000 payable on or around June 4,
1999.
(d) The salary and bonus referred to in subparagraphs (a), (b) and
(c) above represent all of Employee's cash compensation, and accordingly,
Employee shall not be entitled to any overtime, weekend or holiday
compensation. All payments made pursuant to this Agreement shall be less
applicable withholdings and deductions.
(e) Employee shall receive those insurance, retirement and other
benefits generally provided to AGT's other senior executives of similar rank
and tenure from time to time.
(f) Employee shall be reimbursed for all reasonable travel and
entertainment expenses incurred in the furtherance of AGT's business, upon
submission by Employee of reasonable documentation in accordance with AGT's
policies as are in effect from time to time.
(g) Employee shall be reimbursed for the Business class airfare
for not more than two trips per annum between New York and London for each of
Employee, his wife and children.
(h) AGT shall provide Employee with the use of a car.
(i) AGT shall, at its option, either arrange with its regular
attorneys or accountants for competent advice to be provided to Employee
concerning his tax position and Permanent Residency status or reimburse
Employee for the reasonable expenses of obtaining this advice on his own.
<PAGE> 3
4. Relocation. Employee agrees that no later than 120 days after the
Commencement Date, he will relocate his primary residence to within commuting
distance of AGT's corporate headquarters presently located in New York City.
The Company agrees to reimburse Employee for reasonable expenses relating to
relocating his primary residence to the New York metropolitan area, provided,
however, that such expenses shall not include fees and expenses relating to
purchasing or selling a residence.
5. Duties. During the Term, Employee agrees to fulfill the duties of
Vice Chairman and Chief Operating Officer, as such duties are defined by AGT's
Board of Directors or Chief Executive Officer. Employee shall report to the
Chief Executive Officer of AGT, and shall devote all of his business efforts to
the performance of his duties as Vice Chairman and Chief Operating Officer, and
shall do so to the best of his abilities. It is expected that Employee will
work in the Company's corporate headquarters presently located in New York
City, unless otherwise assigned by the Chief Executive Officer, and will travel
both in the United States and abroad as necessary and appropriate to fulfill
his duties.
6. Vacation. Employee shall be entitled to four (4) weeks vacation
during each year of the Term, to be taken consistent with AGT's policies as are
in effect from time to time.
7. Termination.
(a) This Agreement shall terminate prior to the expiration hereof
in the event of Employee's death, permanent disability, or discharge for cause.
"Cause" shall mean (i) indictment for, conviction of or pleas of guilty or nolo
contendre to any felony or business-related misdemeanor; (ii) theft, fraud or
embezzlement; (iii) excessive absenteeism not related to illness; (iv) the
intentional failure to perform assigned duties; (v) an act of gross neglect or
gross misconduct; (vi) a material breach of any of the provisions of this
Agreement; (vii) the commission of any other action with the intent to harm or
injure AGT, its parents, subsidiaries or affiliates; or (viii) habitual drug or
alcohol abuse. In the event that AGT terminates Employee for Cause, Employee
shall be entitled to compensation earned up to the date of termination, but no
other
<PAGE> 4
compensation, and AGT reserves the right to seek appropriate relief for
whatever damage may have resulted from that "Cause". Accordingly, without
limiting the foregoing, if the Employee is terminated for Cause he is not
entitled to receive any further payments or benefits pursuant to Paragraphs
3(a), 3(b), 3(e), 3(g) or 3(h) above. "Permanent disability" shall mean a
physical or mental illness, disability or disfigurement which renders Employee
incapable of performing his normal services hereunder for a continuous period
of 8 weeks, or an aggregate of 16 weeks during any 52 week period. In the
event Employee is disabled for less than such 8 or 16 weeks, respectively,
Employee shall nonetheless be entitled to full compensation during such period.
In the event of Employee's permanent disability or death, Employee shall be
entitled to receive his salary and benefits pursuant to Paragraph 3 herein
until the effective date of his termination, and the Company shall have no
further obligation to the Employee pursuant to this Agreement, including but
not limited to Paragraphs 3(a), 3(b), 3(e), 3(g) or 3(h) above.
(b) AGT shall be entitled to terminate this Agreement at any time
during the Term without Cause (as defined above). However, in the event AGT
exercises its rights under this Paragraph 7(b), AGT's sole obligation pursuant
to this Agreement shall be (i) to continue to pay Employee's salary under
Paragraph 3(a) and provide medical benefits under Paragraph 3(e) for the
shorter of (A) the remainder of the Term or (B) six months and (ii) to pay the
bonus, if any, provided for in Paragraph 3(b); provided however that Employee
shall make a good faith effort to find other employment and any amounts due
under this clause shall be offset by any compensation (including without
limitation benefits) earned or received by Employee from other persons or
entities with respect to any services performed by him during the remainder of
said Term.
(c) Amounts payable to Employee pursuant to this Paragraph 7 shall
be paid in accordance with AGT's usual payroll practices.
8. Noncompetition, Nonsolicitation and Confidentiality. As a material
inducement to AGT to employ him, Employee agrees to execute the Noncompetition,
Nonsolicitation and Confidentiality Agreement attached hereto as Exhibit A, the
terms of which are incorporated herein by reference.
<PAGE> 5
9. Absence of Restrictions. Employee represents and warrants that he is
not a party to any agreement or contract pursuant to which there is any
restriction or limitation upon him entering into this Agreement or performing
the duties called for by this Agreement.
10. Options. Employee shall be granted options to purchase 300,000 shares
of AGT's common stock at the greater of $12 per share or the fair market value
of such shares on the Commencement Date. On each of the first, second, third,
fourth and fifth anniversaries of the Commencement Date, if Employee is still
employed by AGT, 20% of such options shall vest. Such options will be subject
to the other terms and conditions set forth in AGT's customary Stock Option
Agreement and as are established by the Compensation Committee of the Board of
Directors from time to time.
11. Notices. All notices, consents and other communications required or
permitted to be given hereunder shall be in writing and delivered personally or
sent by certified or registered mail, postage prepaid, as follows:
(a) if to Employee, to: Derek Ashley, 41 Parkgate Crescent, Hadley
Wood, Hertfordshire, England EN40NW, with a copy to the Employee at 450 West
33rd Street, New York, New York 10001-2681.
(b) if to AGT, to: Fred Drasner, 450 West 33rd Street, New York,
NY 10001-2681, with a copy to Martin D. Krall at the same address.
Any notice so given shall be deemed received when delivered
personally, or, if mailed, three days after it is deposited, postage prepaid,
by certified mail, in the United States mail. Either party may change the
address to which notices are to be sent by giving written notice of such change
of address to the other party in the manner herein provided for giving notice.
<PAGE> 6
12. General.
(a) Any controversy or claim arising out of or relating to this
Agreement, or any breach thereof, shall be subject to resolution in the state
or federal courts in New York and shall be governed by and construed and
enforced in accordance with the laws of the State of New York applicable to
agreements made and to be performed entirely in New York without giving effect
to principles of conflicts of laws thereof.
(b) The section headings contained herein are for reference
purposes only and shall not in any way affect the meaning or interpretation of
this Agreement.
(c) This Agreement sets forth the entire agreement and
understanding of the parties hereto concerning the subject matter hereof, and
supersedes all prior agreements, arrangements and understandings between the
parties hereto.
(d) AGT may assign its rights and obligations under this Agreement
to any successor thereto or to any corporation or other entity controlled, or
under common control with AGT or any of its affiliates. This Agreement is
personal to Employee, and neither this Agreement nor any of Employee's rights
or obligations hereunder may be assigned, pledged or encumbered by him, without
the prior written approval of AGT.
(e) This Agreement may be amended, modified, superseded or
canceled, and the terms or covenants hereof may be waived, only by a written
instrument executed by both parties hereto, or, in the case of a waiver, by the
party waiving compliance. The failure of either party at any time or times to
require performance of any provision hereof shall in no manner affect the right
at a later time to enforce the same. No waiver by either party of the breach
of any term or covenant contained in this Agreement, whether by conduct or
<PAGE> 7
otherwise, in any one or more instances, shall be deemed to be, or construed
as, a further or continuing waiver of any such breach or a waiver of the breach
of any other term or covenant in this Agreement.
(f) In the event that any one or more of the provisions of this
Agreement shall be determined to be invalid or unenforceable in any respect,
the validity and enforceability of the remaining provisions of this Agreement
shall not in any way be affected or impaired thereby.
(g) This Agreement may be executed in counterparts, each of which
shall be deemed to be an original but all of which together shall be deemed to
be one and the same instrument.
(h) Except with regard to Employee's obligations under the
Noncompetition, Nonsolicitation and Confidentiality Agreement attached hereto
as Exhibit A, this Agreement shall be of no further force and effect and AGT
shall have no further obligations hereunder after the expiration or termination
of this Agreement.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date shown above.
Applied Graphics Technologies, Inc.
By
------------------------------------
------------------------------------
Derek Ashley
<PAGE> 8
EXHIBIT A
Noncompetition, Nonsolicitation
and Confidentiality Agreement
In consideration for the agreement of Applied Graphics Technologies, Inc.,
("AGT") to employ Derek Ashley ("Employee") as Vice Chairman and COO, (the
"Employment Agreement") Employee hereby agrees as follows:
1. In this Agreement, the term AGT includes Applied Graphics
Technologies, Inc., as well as all of its parents, subsidiaries and affiliates.
2. Employee acknowledges that he will be furnished, or may otherwise
receive or have access to, private information which relates to AGT's past,
present or anticipated customer lists or other compilations for marketing or
development, or which relates to administrative, management, financial,
marketing, sales or manufacturing activities of AGT and that such information
is not easily accessible from public sources. All such information, including
any materials or documents containing such information, shall be considered by
AGT and Employee as proprietary and confidential ("Proprietary Information").
3. Both during and forever after the term of the Employment Agreement,
Employee agrees to preserve and protect the confidentiality of the Proprietary
Information and all physical forms thereof, whether disclosed to him before
this Agreement is signed or afterward. In addition, Employee shall not (i)
disclose or disseminate the Proprietary Information to any third party,
including employees of AGT, without a need to know, (ii) remove Proprietary
Information from AGT's premises without valid business purpose, or (iii) use
Proprietary Information for his own benefit or for the benefit of any third
party.
4. Employee acknowledges and agrees that all Proprietary Information used
or generated during the course of working for AGT is the property of AGT.
Employee agrees to deliver to AGT all documents and other tangibles (including
diskettes and other storage media) containing Proprietary Information,
including all copies of such documents or tangibles, immediately upon notice of
the termination of his employment with AGT.
5. While working for AGT and for one year following termination of his
employment from AGT for any reason, Employee will not attempt, either directly
or indirectly, to solicit, induce, entice or attempt to influence any employee
of AGT to leave AGT's employ or directly or indirectly hire or cause any other
entity to hire any person who has been an AGT employee in the 12 months
preceding the contact.
6. Noncompetition
a. Employee acknowledges that his agreement to forego competition
with AGT was a material inducement to AGT to employ him. Employee also
acknowledges that he will acquire much Proprietary Information concerning AGT's
financial status, current and future marketing and advertising strategies,
pricing, and other confidential information as the result of his employment and
that such information is not easily accessible from other sources. Employee
further acknowledges that the businesses in which AGT engages, including but
not limited to pre-press and digital archiving are very competitive; that
competition by him in those businesses during his employment, or after his
employment terminates, would severely injure AGT; and that his agreements
herein are demonstrably necessary to protect those legitimate interests.
b. During the term of his employment with AGT, Employee (i) will
devote all his professional and business time and effort to and give undivided
loyalty to AGT and (ii) will not engage in any way whatsoever, directly or
indirectly, in any business that is competitive with AGT, nor directly or
indirectly solicit or in any other manner work for or assist any business which
is competitive with AGT.
<PAGE> 9
c. The "Restricted Period" shall mean the period beginning on the
Commencement Date of the Employment Agreement and ending on the later of the
second anniversary thereof or six months after Employee's employment is
terminated. Notwithstanding the foregoing, the Restricted Period shall
terminate immediately if the Employee's employment is terminated pursuant to
Paragraph 7(b) of the Employment Agreement. During the Restricted Period,
Employee shall not, whether alone or in association with any other person,
directly or indirectly (i) engage in any business in the Specified Areas that
is competitive with any aspect of the business that is being conducted or
planned by AGT at the time Employee's employment with AGT terminates; or (ii)
have any interest or association (including, without limitation, as a
shareholder, partner, director, officer, employee, consultant, sales
representative, supplier, distributor, agent or lender) in or with any person
engaged in a business in the Specified Areas that Employee is prohibited from
engaging in pursuant to clause (i) above; provided however, that the foregoing
shall not prohibit Employee from owning securities of any publicly traded
company that is engaged in any such business as long as Employee does not own
at any time 5% or more of any class of the equity securities of such company.
For purposes of the foregoing, the "Specified Areas" means each state or
country in which AGT makes any sales or performs any services during the 12
month period preceding the date on which Employee's employment with AGT
terminates.
<PAGE> 10
d. If any provision of this Agreement is determined by a court to
be overly broad thereby making the provision unenforceable, Employee agrees
that such court shall substitute a reasonable, judicially enforceable
limitation in place of the invalid part of the provision and that as so
modified the provision shall be as fully enforceable as if set forth herein in
the modified form. If it is not possible to restate the provision in a valid
or legal manner, then that invalid or illegal portion shall be deemed not a
part of the Agreement and the remaining provisions shall remain in full force
and effect.
7. Employee acknowledges and agrees that:
a. (i) his contractual obligations under paragraphs 3, 4, 5, and
6 hereof have a unique and very substantial value to AGT, (ii) he has
sufficient assets and other skills to provide a reasonable livelihood for
himself while such paragraphs are in force, and (iii) he is subject to
immediate dismissal by AGT for any breach of those provisions and that such
dismissal shall not relieve him from his continuing obligations under this
Agreement or from the imposition by a court of any judicial remedies, such as
money damages or equitable enforcement of those provisions.
b. the terms and provisions of this Agreement are applicable to
all information and materials developed for, received from or any advice
provided to, AGT prior to or after the signing of this Agreement; and
c. the termination of his employment with AGT for any reason,
shall not relieve him from complying with the undertakings and agreements
contained herein, which call for performance prior or subsequent to the
termination date, including, but not limited to those undertakings and
agreements set forth in paragraphs 3, 4, 5 and 6 hereof.
d. in the event of his breach of any of the undertakings or
agreements set forth in paragraphs 3, 4, 5, and 6 of this Agreement, AGT shall
have the right to obtain an injunction or decree of specific performance from
any court of competent jurisdiction to restrain him from violating such
undertakings or agreements or to compel him to perform such undertakings or
agreements. Nothing herein contained shall in any way limit or exclude any and
all other rights granted by law or equity to AGT.
8. No act or failure to act by AGT will waive any right contained herein.
Any waiver by AGT must be in writing and signed by the Chairman of AGT to be
effective.
9. In the event that any provision of this Agreement conflicts with the
law under which this Agreement is to be construed or if any such provision is
held invalid by a court or other authority with jurisdiction over the parties
to this Agreement, such provision shall be deemed to be restated to reflect as
nearly as possible the original intentions of the parties in accordance with
applicable law, and the remainder of this Agreement shall remain in full force
and effect. If it is not possible to restate the provision in a valid or legal
manner, then that invalid or illegal portion shall be deemed not a part of the
Agreement and the remaining provisions shall remain in full force and effect.
10. This Agreement shall be construed according to its terms and not
strictly for or against either party.
11. This Agreement shall be governed by the laws of the State of New York
without regard to its conflicts of laws provisions.
12. All remedies provided herein are cumulative and in addition to all
other remedies which may be available at law or in equity.
<PAGE> 11
13. This Agreement shall be binding on both parties successors, heirs and
assigns.
Employee: Applied Graphics Technologies, Inc.:
- ------------------------ --------------------------------
Derek Ashley
By:
-------------------------
Title:
----------------------
- -------------------------------- --------------------------------
Date Date
<PAGE> 1
EXHIBIT 10.8
APPLIED GRAPHICS TECHNOLOGIES, INC.
1998 INCENTIVE COMPENSATION PLAN, AS AMENDED AND RESTATED
1.0 DEFINITIONS
The following terms shall have the following meanings unless the context
indicates otherwise:
1.1 "Affiliated Person" shall mean an employee of an entity other than the
Company whose activities may benefit the Company and who has been designated by
the Board to be eligible to participate in the Plan.
1.2 "Award" shall mean either a Stock Option, an SAR, a Stock Award, a
Stock Unit, a Performance Share, a Performance Unit, or a Cash Award.
1.3 "Award Agreement" shall mean a written agreement between the Company
and the Participant that establishes the terms, conditions, restrictions and/or
limitations applicable to an Award in addition to those established by the Plan
and by the Committee's exercise of its administrative powers.
1.4 "Board" shall mean the Board of Directors of the Company.
1.5 "Cash Award" shall mean the grant by the Committee to a Participant of
an Award of cash as described in Section 11 below.
1.6 "Code" shall mean the Internal Revenue Code of 1986, as amended from
time to time.
1.7 "Committee" shall mean (i) the Board or (ii) a committee or
subcommittee of the Board appointed by the Board from among its members. The
Committee may be the Board's Compensation Committee. Unless the Board
determines otherwise, the Committee shall be comprised solely of not less than
two members who each shall qualify as (x) a "Non-Employee Director" within the
meaning of Rule 16b-3(b)(3) (or any successor rule) under the Exchange Act and
(y) an "outside director" within the meaning of Section 162(m) of the Code and
the Treasury Regulations thereunder.
1.8 "Common Stock" shall mean the common stock, $.01 par value per share,
of the Company.
1.9 "Company" shall mean Applied Graphics Technologies, Inc., a Delaware
corporation.
1.10 "Dividend Equivalent Right" shall mean the right to receive an amount
equal to the amount of any dividend paid with respect to a share of Common
Stock multiplied by the number of hypothetical shares of Common Stock
underlying a Stock Unit or a Performance Unit, and which shall be payable in
cash, in Common Stock, in the form of additional Stock Units or Performance
Units (as the case may be), or a combination of all of the foregoing.
1.11 "Effective Date" shall mean the date on which the Plan is approved by
the Company's stockholders.
1.12 "Employee" shall mean an employee of the Company or any Subsidiary as
described in Treasury Regulation Section 1.421-7(h).
1.13 "Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended from time to time, including applicable regulations thereunder.
1.14 "Fair Market Value of the Common Stock" shall mean:
(a) if the Common Stock is readily tradeable on a national
securities exchange or other market system, the closing price of the
Common Stock on the date of calculation (or on the last preceding
trading date if Common Stock was not traded on such date), or
(b) if the Common Stock is not readily tradeable on a national
securities exchange or other market system:
(i) the book value of a share of Common Stock as of the
last day of the last completed fiscal quarter preceding the
date of calculation; or
(ii) any other value as otherwise determined in good faith
by the Board.
<PAGE> 2
1.15 "Independent Contractor" shall mean a person or an entity that renders
services to the Company, but -- if a person -- is not an Employee or a
Nonemployee Director.
1.16 "ISO" shall mean an "incentive stock option" as such term is used in
Code Section 422.
1.17 "Nonemployee Director" shall mean a member of the Board who is not an
Employee.
1.18 "Nonqualified Stock Option" shall mean a Stock Option that does not
qualify as an ISO.
1.19 "Participant" shall mean any Employee, Nonemployee Director,
Affiliated Person or Independent Contractor to whom an Award has been granted
by the Committee under the Plan.
1.20 "Performance-Based Award" shall mean an Award subject to the
achievement of certain performance goal or goals as described in Section 12
below.
1.21 "Performance Share" shall mean the grant by the Committee to a
Participant of an Award as described in Section 10.1 below.
1.22 "Performance Unit" shall mean the grant by the Committee to a
Participant of an Award as described in Section 10.2 below.
1.23 "Plan" shall mean the Applied Graphics Technologies, Inc. 1998
Incentive Compensation Plan.
1.24 "SAR" shall mean the grant by the Committee to a Participant of a
stock appreciation right as described in Section 8 below.
1.25 "Stock Award" shall mean the grant by the Committee to a Participant
of an Award of Common Stock under Section 9.1 below.
1.26 "Stock Option" shall mean the grant by the Committee to a Participant
of an option to purchase Common Stock under Section 7 below.
1.27 "Stock Unit" shall mean the grant by the Committee to a Participant of
an Award as described in Section 9.2 below.
1.28 "Subsidiary" shall mean a corporation of which the Company directly or
indirectly owns more than 50 percent of the Voting Stock or any other business
entity in which the Company directly or indirectly has an ownership interest of
more than 50 percent.
1.29 "Treasury Regulations" shall mean the regulations promulgated under
the Code by the United States Department of the Treasury, as amended from time
to time.
1.30 "Vest" shall mean:
(a) with respect to Stock Options and SARs, when the Stock Option
or SAR (or a portion of such Stock Option or SAR) first becomes
exercisable and remains exercisable subject to the terms and
conditions of such Stock Option or SAR; or
(b) with respect to Awards other than Stock Options and SARs, when
the Participant has:
(i) an unrestricted right, title and interest to receive
the compensation (whether payable in cash, Common Stock, or a
combination of both) attributable to an Award (or a portion of
such Award) or to otherwise enjoy the benefits underlying such
Award; and
(ii) a right to transfer an Award subject to no
Company-imposed restrictions or limitations other than those
restrictions and/or limitations imposed by Section 14 below.
1.31 "Vesting Date" shall mean the date or dates on which an Award Vests.
1.32 "Voting Stock" shall mean the capital stock of any class or classes
having general voting power under ordinary circumstances, in the absence of
contingencies, to elect the directors of a corporation.
2.0 PURPOSE AND TERM OF PLAN
2.1 Purpose. The purpose of the Plan is to provide motivation to certain
Employees, Nonemployee Directors, Affiliated Persons and Independent
Contractors to put forth maximum efforts toward the growth, profitability, and
<PAGE> 3
success of the Company and Subsidiaries by providing incentives to such
Employees, Nonemployee Directors, Affiliated Persons and Independent
Contractors either through cash payments and/ or through the ownership and
performance of the Common Stock. In addition, the Plan is intended to provide
incentives which will attract and retain highly qualified individuals as
Employees and Nonemployee Directors and to assist in aligning the interests of
such Employees and Nonemployee Directors with those of its stockholders.
2.2 Term. The Plan shall be effective as of the Effective Date. The Plan
shall terminate on the 10th anniversary of the Effective Date (unless sooner
terminated by the Board).
3.0 ELIGIBILITY AND PARTICIPATION
3.1 Eligibility and Participation. All Employees of the Company, all
Nonemployee Directors, Affiliated Persons and Independent Contractors shall be
eligible to participate in the Plan and to receive Awards. Participants shall
consist of such Employees, Nonemployee Directors, Affiliated Persons and
Independent Contractors as the Committee in its sole discretion designates to
receive Awards under the Plan. Designation of a Participant in any year shall
not require the Committee to designate such person or entity to receive an
Award in any other year or, once designated, to receive the same type or amount
of Award as granted to the Participant in any other year. The Committee shall
consider such factors as it deems pertinent in selecting Participants and in
determining the type and amount of their respective Awards.
4.0 ADMINISTRATION
4.1 Responsibility. The Committee shall have the responsibility, in its
sole discretion, to control, operate, manage and administer the Plan in
accordance with its terms.
4.2 Award Agreement. Each Award granted under the Plan shall be evidenced
by an Award Agreement which shall be signed by the Committee and the
Participant; provided, however, that in the event of any conflict between a
provision of the Plan and any provision of an Award Agreement, the provision of
the Plan shall prevail.
4.3 Authority of the Committee. The Committee shall have all the
discretionary authority that may be necessary or helpful to enable it to
discharge its responsibilities with respect to the Plan, including but not
limited to the following:
(a) to determine eligibility for participation in the Plan;
(b) to determine eligibility for and the type and size of an Award
granted under the Plan;
(c) to supply any omission, correct any defect, or reconcile any
inconsistency in the Plan in such manner and to such extent as it
shall deem appropriate in its sole discretion to carry the same into
effect;
(d) to issue administrative guidelines as an aid to administer the
Plan and make changes in such guidelines as it from time to time deems
proper;
(e) to make rules for carrying out and administering the Plan and
make changes in such rules as it from time to time deems proper;
(f) to the extent permitted under the Plan, grant waivers of Plan
terms, conditions, restrictions, and limitations;
(g) to accelerate the Vesting of any Award when such action or
actions would be in the best interest of the Company;
(h) to grant Awards in replacement of Awards previously granted
under this Plan or any other executive compensation plan of the
Company; and
<PAGE> 4
(i) to take any and all other actions it deems necessary or
advisable for the proper operation or administration of the Plan.
4.4 Action by the Committee. The Committee may act only by a majority of
its members. Any determination of the Committee may be made, without a meeting,
by a writing or writings signed by all of the members of the Committee. In
addition, the Committee may authorize any one or more of its members to execute
and deliver documents on behalf of the Committee.
4.5 Delegation of Authority. The Committee may delegate to one or more of
its members, or to one or more agents, such administrative duties as it may
deem advisable; provided, however, that any such delegation shall be in
writing. In addition, the Committee, or any person to whom it has delegated
duties under this Section 4.5, may employ one or more persons to render advice
with respect to any responsibility the Committee or such person may have under
the Plan. The Committee may employ such legal or other counsel, consultants and
agents as it may deem desirable for the administration of the Plan and may rely
upon any opinion or computation received from any such counsel, consultant or
agent. Expenses incurred by the Committee in the engagement of such counsel,
consultant or agent shall be paid by the Company, or the Subsidiary whose
employees have benefitted from the Plan, as determined by the Committee.
4.6 Determinations and Interpretations by the Committee. All
determinations and interpretations made by the Committee shall be binding and
conclusive on all Participants and their heirs, successors, and legal
representatives.
4.7 Liability. No member of the Board, no member of the Committee and no
employee of the Company shall be liable for any act or failure to act
hereunder, except in circumstances involving his or her bad faith, gross
negligence or willful misconduct, or for any act or failure to act hereunder by
any other member or employee or by any agent to whom duties in connection with
the administration of the Plan have been delegated.
4.8 Indemnification. The Company shall indemnify members of the Committee
and any agent of the Committee who is an employee of the Company, against any
and all liabilities or expenses to which they may be subjected by reason of any
act or failure to act with respect to their duties on behalf of the Plan,
except in circumstances involving such person's bad faith, gross negligence or
willful misconduct.
5.0 SHARES SUBJECT TO PLAN
5.1 Available Shares. The aggregate number of shares of Common Stock
which shall be available for grants of Awards under the Plan during its term
shall be 7,000,000, which shall include the number of shares of Common Stock
available for grants as of the Effective Date under the Company's Revised 1996
Stock Option Plan (the "1996 Plan"). On or about the Effective Date, the Board
shall amend the 1996 Plan so that no further grants shall be made under the
1996 Plan and all available shares under the 1996 Plan as of the Effective Date
shall be transferred to the Plan. Shares of Common Stock available for issuance
under the Plan may be either authorized but unissued shares, shares of issued
stock held in the Company's treasury, or both, at the discretion of the
Company, and subject to any adjustments made in accordance with Section 5.2
below. Any shares of Common Stock underlying Awards which terminate by
expiration, forfeiture, cancellation or otherwise without the issuance of such
shares shall again be available for grants of Awards under the Plan.
5.2 Adjustment to Shares. If there is any change in the Common Stock of
the Company, through merger, consolidation, reorganization, recapitalization,
stock dividend, stock split, reverse stock split, split-up, split-off,
spin-off, combination of shares, exchange of shares, dividend in kind or other
like change in capital structure or distribution (other than normal cash
dividends) to stockholders of the Company, an adjustment shall be made to each
outstanding Award so that each such Award shall thereafter be with respect to
or exercisable for such securities, cash and/or other property as would have
been received in respect of the Common Stock subject to such Award had such
Award been paid, distributed or exercised in full immediately prior to such
change or distribution. Such adjustment shall be made successively each time
any such change shall occur. In addition, in the event of any such change or
distribution, in order to prevent dilution or enlargement of Participants'
rights under the Plan, the Committee shall have the authority to adjust, in an
equitable manner, the number and kind of shares that may be issued under the
Plan, the number and kind of shares subject to outstanding Awards, the exercise
price applicable to outstanding Stock Options and SARs, and the Fair Market
Value of the Common Stock and other value determinations applicable to
outstanding Awards. Appropriate adjustments may also be made by the Committee
in the terms of any Awards granted under the Plan to reflect such changes or
distributions and to modify any other
<PAGE> 5
terms of outstanding Awards on an equitable basis, including modifications of
performance goals and changes in the length of performance periods; provided,
however, that with respect to Performance-Based Awards, such modifications
and/or changes do not disqualify compensation attributable to such Awards as
"performance-based compensation" under Code Section 162(m). In addition, the
Committee is authorized to make adjustments to the terms and conditions of, and
the criteria included in, Awards in recognition of unusual or nonrecurring
events affecting the Company or the financial statements of the Company, or in
response to changes in applicable laws, regulations, or accounting principles;
provided, however, that with respect to Performance-Based Awards, such
modifications and/or changes do not disqualify compensation attributable to
such Awards as "performance-based compensation" under Code Section 162(m).
Notwithstanding anything contained in the Plan, any adjustment with respect to
an ISO due to a change or distribution described in this Section 5.2 shall
comply with the rules of Code Section 424(a), and in no event shall any
adjustment be made which would render any ISO granted hereunder other than an
incentive stock option for purposes of Code Section 422.
6.0 MAXIMUM INDIVIDUAL AWARDS
6.1 Maximum Aggregate Number of Shares Underlying Stock-Based Awards
Granted Under the Plan to Any Single Participant. The maximum aggregate number
of shares of Common Stock underlying all Awards measured in shares of Common
Stock (whether payable in cash, Common Stock, or a combination of both) that
may be granted to any single Participant during the life of the Plan shall be
1,000,000 shares, subject to adjustment as provided in Section 5.2 above. For
purposes of the preceding sentence, such Awards that are cancelled or repriced
shall continue to be counted in determining such maximum aggregate number of
shares of Common Stock that may be granted to any single Participant during the
life of the Plan.
6.2 Maximum Dollar Amount Underlying Cash-Based Awards Granted Under the
Plan to Any Single Participant. The maximum dollar amount that may be paid to
any single Participant with respect to all Awards granted to such Participant
measured in cash (whether payable in cash, Common Stock, or a combination of
both) during the life of the Plan shall be $30,000,000.
7.0 STOCK OPTIONS
7.1 In General. The Committee may, in its sole discretion, grant Stock
Options to Employees, Nonemployee Directors, Affiliated Persons and/or
Independent Contractors. The Committee shall, in its sole discretion, determine
the Employees, the Nonemployee Directors, Affiliated Persons and Independent
Contractors who will receive Stock Options and the number of shares of Common
Stock underlying each Stock Option. With respect to Employees who become
Participants, the Committee may grant such Participants ISOs or Nonqualified
Stock Options or a combination of both. With respect to Nonemployee Directors,
Affiliated Persons and Independent Contractors who become Participants, the
Committee may grant such Participants only Nonqualified Stock Options. Each
Stock Option shall be subject to such terms and conditions consistent with the
Plan as the Committee may impose from time to time. In addition, each Stock
Option shall be subject to the terms and conditions set forth in Sections 7.2
through 7.8 below.
7.2 Exercise Price. The Committee shall specify the exercise price of
each Stock Option in the Award Agreement; provided, however, that (i) the
exercise price of any ISO shall not be less than 100 percent of the Fair Market
Value of the Common Stock on the date of grant, and (ii) the exercise price of
any Nonqualified Stock Option shall not be less than 100 percent of the Fair
Market Value of the Common Stock on the date of grant unless the Committee --
in its sole discretion and due to special circumstances -- determines otherwise
on the date of grant.
7.3 Term of Stock Option. The Committee shall specify the term of each
Stock Option in the Award Agreement; provided, however, that:
(a) no ISO shall be exercised after the 10th anniversary of the
date of grant of such ISO; and
(b) no Nonqualified Stock Option shall be exercised after the 10th
anniversary of the date of grant of such Nonqualified Stock Option,
unless the Committee, in its sole discretion, provides otherwise.
Each Stock Option shall terminate at such earlier times and upon such
conditions or circumstances as the Committee shall, in its sole discretion, set
forth in the Award Agreement on the date of grant.
<PAGE> 6
7.4 Vesting Date. The Committee shall specify the Vesting Date with
respect to each Stock Option in the Award Agreement. The Committee may grant
Stock Options that are Vested, either in whole or in part, on the date of
grant. If the Committee fails to specify a Vesting Date in the Award Agreement,
such Stock Option shall become exercisable in accordance with the following
schedule:
<TABLE>
<CAPTION>
CUMULATIVE
ANNIVERSARY OF DATE OF GRANT PERCENT THAT VESTS
---------------------------- ------------------
<S> <C>
Less than 1 year.................................................................. 0%
On the first anniversary date..................................................... 20%
On the second anniversary date.................................................... 25%
On the third anniversary date..................................................... 30%
On the fourth anniversary date.................................................... 35%
On the fifth anniversary date..................................................... 100%
</TABLE>
The Vesting of a Stock Option may also be subject to such other terms and
conditions as shall be determined by the Committee, including, without
limitation, accelerating the Vesting (i) based on individual performance or
(ii) if certain performance goals are achieved.
7.5 Exercise of Stock Options. The Stock Option exercise price may be
paid in cash or, in the sole discretion of the Committee, by the delivery of
shares of Common Stock owned by the Participant for a period of greater than
six months, by the withholding of shares of Common Stock for which a Stock
Option is exercisable, or by a combination of these methods. In the sole
discretion of the Committee, payment may also be made by delivering a properly
executed exercise notice to the Company together with a copy of irrevocable
instructions to a broker to deliver promptly to the Company the amount of sale
or loan proceeds to pay the exercise price. To facilitate the foregoing, the
Company may enter into agreements for coordinated procedures with one or more
brokerage firms. The Committee may prescribe any other method of paying the
exercise price that it determines to be consistent with applicable law and the
purpose of the Plan, including, without limitation, in lieu of the exercise of
a Stock Option by delivery of shares of Common Stock then owned by a
Participant, providing the Company with a notarized statement attesting to the
number of shares owned by the Participant, where upon verification by the
Company, the Company would issue to the Participant only the number of
incremental shares to which the Participant is entitled upon exercise of the
Stock Option. In determining which methods a Participant may utilize to pay the
exercise price, the Committee may consider such factors as it determines are
appropriate; provided, however, that with respect to ISOs, all such
discretionary determinations by the Committee shall be made at the time of
grant and specified in the Award Agreement.
7.6 Restrictions Relating to ISOs. In addition to being subject to the
terms and conditions of this Section 7, ISOs shall comply with all other
requirements under Code Section 422. Accordingly, ISOs may be granted only to
Participants who are employees (as described in Treasury Regulation Section
1.421-7(h)) of the Company or of any "Parent Corporation" (as defined in Code
Section 424(e)) or of any "Subsidiary Corporation" (as defined in Code Section
424(f)) on the date of grant. The aggregate market value (determined as of the
time the ISO is granted) of the Common Stock with respect to which ISOs (under
all option plans of the Company and of any Parent Corporation and of any
Subsidiary Corporation) are exercisable for the first time by a Participant
during any calendar year shall not exceed $100,000. For purposes of the
preceding sentence, (i) ISOs shall be taken into account in the order in which
they are granted and (ii) ISOs granted before 1987 shall not be taken into
account. ISOs shall not be transferable by the Participant otherwise than by
will or the laws of descent and distribution and shall be exercisable, during
the Participant's lifetime, only by such Participant. The Committee shall not
grant ISOs to any Employee who, at the time the ISO is granted, owns stock
possessing (after the application of the attribution rules of Code Section
424(d)) more than 10 percent of the total combined voting power of all classes
of stock of the Company or of any Parent Corporation or of any Subsidiary
Corporation unless the exercise price of the ISO is fixed at not less than 110
percent of the Fair Market Value of the Common Stock on the date of grant and
the exercise of such ISO is prohibited by its terms after the 5th anniversary
of the ISO's date of grant. In addition, no ISO shall be issued to a
Participant in tandem with a Nonqualified Stock Option issued to such
Participant in accordance with Treasury Regulation Section 14a.422A-1, Q/A-39.
<PAGE> 7
7.7 Additional Terms and Conditions. The Committee may, by way of the
Award Agreements or otherwise, establish such other terms, conditions,
restrictions and/or limitations, if any, of any Stock Option, provided they are
not inconsistent with the Plan, including, without limitation, the requirement
that the Participant not engage in competition with the Company.
7.8 Conversion Stock Options. The Committee may, in its sole discretion,
grant a Stock Option to any holder of an option (an "Original Option") to
purchase shares of the stock of any corporation:
(i) the stock or assets of which were acquired, directly
or indirectly, by the Company or any Subsidiary; or
(ii) which was merged with and into the Company or a
Subsidiary;
so that the Original Option is "converted" into a Stock Option (a "Conversion
Stock Option"); provided, however, that such Conversion Stock Option as of the
date of its grant (the "Conversion Stock Option Grant Date") shall have the
same economic value as the Original Option as of the Conversion Stock Option
Grant Date. In addition, unless the Committee in its sole discretion determines
otherwise, a Conversion Stock Option which is converting an Original Option
intended to qualify as an ISO shall have the same terms and conditions as
applicable to the Original Option in accordance with Code Section 424 and the
Treasury Regulations thereunder so that the conversion (x) is treated as the
issuance or assumption of a stock option under Code Section 424(a) and (y) is
not treated as a modification, extension or renewal of a stock option under
Code Section 424(h).
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.
8.0 SARS
8.1 In General. The Committee may, in its sole discretion, grant SARs to
Employees, Nonemployee Directors, Affiliated Persons, and/or Independent
Contractors. An SAR is a right to receive a payment in cash, Common Stock or a
combination of both, in an amount equal to the excess of:
(x) the Fair Market Value of the Common Stock, or other specified
valuation, of a specified number of shares of Common Stock on the date
the SAR is exercised; over
(y) the Fair Market Value of the Common Stock, or other specified
valuation (which shall be no less than the Fair Market Value of the
Common Stock), of such shares of Common Stock on the date the SAR is
granted, all as determined by the Committee;
provided, however, that if a SAR is granted retroactively in tandem with or in
substitution for a Stock Option, the designated Fair Market Value of the Common
Stock in the Award Agreement may be the Fair Market Value of the Common Stock
on the date such Stock Option was granted. Each SAR shall be subject to such
terms and conditions, including, but not limited to, a provision that
automatically converts a SAR into a Stock Option on a conversion date specified
at the time of grant, as the Committee shall impose from time to time in its
sole discretion and subject to the terms of the Plan.
9.0 STOCK AWARDS AND STOCK UNITS
9.1 Stock Awards. The Committee may, in its sole discretion, grant Stock
Awards to Employees, Nonemployee Directors, Affiliated Persons, and/or
Independent Contractors as additional compensation or in lieu of other
compensation for services to the Company. A Stock Award shall consist of shares
of Common Stock which shall be subject to such terms and conditions as the
Committee, in its sole discretion, determines appropriate -- including, without
limitation, restrictions on the sale or other disposition of such shares, the
Vesting Date with
<PAGE> 8
respect to such shares, and the right of the Company to reacquire such shares
for no consideration upon termination of the Participant's employment within
specified periods. The Committee may require the Participant to deliver a duly
signed stock power, endorsed in blank, relating to the Common Stock covered by
such Stock Award and/or that the stock certificates evidencing such shares be
held in custody or bear restrictive legends until the restrictions thereon
shall have lapsed. With respect to the shares of Common Stock subject to a
Stock Award granted to a Participant, such Participant shall have all of the
rights of a holder of shares of Common Stock, including the right to receive
dividends and to vote the shares, unless the Committee determines otherwise on
the date of grant.
9.2 Stock Units. The Committee may, in its sole discretion, grant Stock
Units to Employees, Nonemployee Directors, Affiliated Persons, and/or
Independent Contractors as additional compensation or in lieu of other
compensation for services to the Company. A Stock Unit is a hypothetical share
of Common Stock represented by a notional account established and maintained
(or caused to be established or maintained) by the Company for such Participant
who receives a grant of Stock Units. Stock Units shall be subject to such terms
and conditions as the Committee, in its sole discretion, determines appropriate
- -- including, without limitation, determinations of the Vesting Date with
respect to such Stock Units and the criteria for the Vesting of such Stock
Units. A Stock Unit granted by the Committee shall provide for payment in
shares of Common Stock at such time or times as the Award Agreement shall
specify. The Committee shall determine whether a Participant who has been
granted a Stock Unit shall also be entitled to a Dividend Equivalent Right.
9.3 Payout of Stock Units. Subject to a Participant's election to defer
in accordance with Section 17.3 below, upon the Vesting of a Stock Unit, the
shares of Common Stock representing the Stock Unit shall be distributed to the
Participant, unless the Committee, in its sole discretion, provides for the
payment of the Stock Unit in cash (or partly in cash and partly in shares of
Common Stock) equal to the value of the shares of Common Stock which would
otherwise be distributed to the Participant.
10.0 PERFORMANCE SHARES AND PERFORMANCE UNITS
10.1 Performance Shares. The Committee may, in its sole discretion, grant
Performance Shares to Employees, Nonemployee Directors, Affiliated Persons,
and/or Independent Contractors as additional compensation or in lieu of other
compensation for services to the Company. A Performance Share shall consist of
a share or shares of Common Stock which shall be subject to such terms and
conditions as the Committee, in its sole discretion, determines appropriate --
including, without limitation, determining the performance goal or goals which,
depending on the extent to which such goals are met, will determine the number
and/or value of the Performance Shares that will be paid out or distributed to
the Participant who has been granted Performance Shares. Performance goals may
be based on, without limitation, Company-wide, divisional and/or individual
performance, as the Committee, in its sole discretion, may determine, and may
be based on the performance measures listed in Section 12.3 below.
10.2 Performance Units. The Committee may, in its sole discretion, grant
Performance Units to Employees, Nonemployee Directors, Affiliated Persons,
and/or Independent Contractors as additional compensation or in lieu of other
compensation for services to the Company. A Performance Unit is a hypothetical
share or shares of Common Stock represented by a notional account which shall
be established and maintained (or caused to be established or maintained) by
the Company for such Participant who receives a grant of Performance Units.
Performance Units shall be subject to such terms and conditions as the
Committee, in its sole discretion, determines appropriate -- including, without
limitation, determining the performance goal or goals which, depending on the
extent to which such goals are met, will determine the number and/or value of
the Performance Units that will be accrued with respect to the Participant who
has been granted Performance Units. Performance goals may be based on, without
limitation, Company-wide, divisional and/or individual performance, as the
Committee, in its sole discretion, may determine, and may be based on the
performance measures listed in Section 12.3 below.
10.3 Adjustment of Performance Goals. With respect to those Performance
Shares or Performance Units that are not intended to qualify as
Performance-Based Awards (as described in Section 12 below), the Committee
shall have the authority at any time to make adjustments to performance goals
for any outstanding Performance Shares or Performance Units which the Committee
deems necessary or desirable unless at the time of establishment of the
performance goals the Committee shall have precluded its authority to make such
adjustments.
10.4 Payout of Performance Shares or Performance Units. Subject to a
Participant's election to defer in accordance with Section 17.3 below, upon the
Vesting of a Performance Share or a Performance Unit, the Performance Share or
the Performance Unit shall be distributed to the Participant in shares of
Common Stock, unless the Committee, in its sole discretion, provides for the
payment of the Performance Share or a Performance
<PAGE> 9
Unit in cash (or partly in cash and partly in shares of Common Stock) equal to
the value of the shares of Common Stock which would otherwise be distributed to
the Participant.
11.0 CASH AWARDS
11.1 In General. The Committee may, in its sole discretion, grant Cash
Awards to Employees, Nonemployee Directors, Affiliated Persons, and/or
Independent Contractors as additional compensation or in lieu of other
compensation for services to the Company. A Cash Award shall be subject to such
terms and conditions as the Committee, in its sole discretion, determines
appropriate -- including, without limitation, determining the Vesting Date with
respect to such Cash Award, the criteria for the Vesting of such Cash Award,
and the right of the Company to require the Participant to repay the Cash Award
(with or without interest) upon termination of the Participant's employment
within specified periods.
12.0 PERFORMANCE-BASED AWARDS
12.1 In General. The Committee, in its sole discretion, may designate and
design Awards granted under the Plan as Performance-Based Awards (as defined
below) if it determines that compensation attributable to such Awards might not
otherwise be tax deductible by the Company due to the deduction limitation
imposed by Code Section 162(m). Accordingly, an Award granted under the Plan
may be granted in such a manner that the compensation attributable to such
Award is intended by the Committee to qualify as "performance-based
compensation" (as such term is used in Code Section 162(m) and the Treasury
Regulations thereunder) and thus be exempt from the deduction limitation
imposed by Code Section 162(m) ("Performance-Based Awards").
12.2 Qualification of Performance-Based Awards. Awards shall qualify as
Performance-Based Awards under the Plan only if:
(a) at the time of grant the Committee is comprised solely of two
or more "outside directors" (as such term is used in Code Section
162(m) and the Treasury Regulations thereunder);
(b) with respect to either the granting or Vesting of an Award
(other than (i) a Nonqualified Stock Option or (ii) an SAR, which are
granted with an exercise price at or above the Fair Market Value of
the Common Stock on the date of grant), such Award is subject to the
achievement of a performance goal or goals based on one or more of the
performance measures specified in Section 12.3 below;
(c) the Committee establishes in writing (i) the objective
performance-based goals applicable to a given performance period and
(ii) the individual employees or class of employees to which such
performance-based goals apply no later than 90 days after the
commencement of such performance period (but in no event after 25
percent of such performance period has elapsed);
(d) no compensation attributable to a Performance-Based Award will
be paid to or otherwise received by a Participant until the Committee
certifies in writing that the performance goal or goals (and any other
material terms) applicable to such performance period have been
satisfied; and
(e) after the establishment of a performance goal, the Committee
shall not revise such performance goal (unless such revision will not
disqualify compensation attributable to the Award as
"performance-based compensation" under Code Section 162(m)) or
increase the amount of compensation payable with respect to such Award
upon the attainment of such performance goal.
<PAGE> 10
12.3 Performance Measures. The Committee may use the following performance
measures (either individually or in any combination) to set performance goals
with respect to Awards intended to qualify as Performance- Based Awards: net
sales; pre-tax income before allocation of corporate overhead and bonus;
budget; cash flow; earnings per share; net income; division, group or corporate
financial goals; return on stockholders' equity; return on assets; attainment
of strategic and operational initiatives; appreciation in and/or maintenance of
the price of the Common Stock or any other publicly-traded securities of the
Company; market share; gross profits; earnings before interest and taxes;
earnings before interest, taxes, depreciation and amortization; economic
value-added models; comparisons with various stock market indices; increase in
number of customers; and/or reductions in costs.
12.4 Shareholder Reapproval. As required by Treasury Regulation Section
1.162-27(e)(vi), the material terms of performance goals as described in this
Section 12 shall be disclosed to and reapproved by the Company's stockholders
no later than the first stockholder meeting that occurs in the 5th year
following the year in which the Company stockholders previously approved such
performance goals.
13.0 CHANGE IN CONTROL
13.1 Accelerated Vesting or Payout. Notwithstanding any other provision of
this Plan to the contrary, if there is a change in control of the Company, the
Committee, in its sole discretion, may take such actions as it deems
appropriate with respect to outstanding awards, including, without limitation,
accelerating the Vesting Date and/or payout of such Awards; provided, however,
that such action shall not conflict with any provision contained in an Award
Agreement unless such provision is amended in accordance with Section 16.3
below.
13.2 Cashout. The Committee, in its sole discretion, may determine that,
upon the occurrence of a change in control of the Company, all or a portion of
certain outstanding Awards shall terminate within a specified number of days
after notice to the holders, and each such holder shall receive an amount equal
to the value of such Award on the date of the change in control, and with
respect to each share of Common Stock subject to a Stock Option or SAR, an
amount equal to the excess of the Fair Market Value of such shares of Common
Stock immediately prior to the occurrence of such change in control over the
exercise price per share of such Stock Option or SAR. Such amount shall be
payable in cash, in one or more kinds of property (including the property, if
any, payable in the transaction) or in a combination thereof, as the Committee,
in its sole discretion, shall determine.
13.3 Assumption or Substitution of Awards. Notwithstanding anything
contained in the Plan to the contrary, the Committee may, in its sole
discretion, provide that an Award may be assumed by any entity which acquires
control of the Company or may be substituted by a similar award under such
entity's compensation plans.
14.0 TERMINATION OF EMPLOYMENT IF PARTICIPANT IS AN EMPLOYEE
14.1 Termination of Employment Due to Death or Disability. Subject to any
written agreement between the Company and a Participant, if a Participant's
employment is terminated due to death or disability:
(a) all non-Vested portions of Awards held by the Participant on
the date of the Participant's death or the date of the termination of
his or her employment, as the case may be, shall immediately be
forfeited by such Participant as of such date; and
(b) all Vested portions of Stock Options and SARs held by the
Participant on the date of the Participant's death or the date of the
termination of his or her employment, as the case may be, shall remain
exercisable until the earlier of:
(i) the end of the 12-month period following the date of
the Participant's death or the date of the termination of his
or her employment, as the case may be; or
(ii) -the date the Stock Option or SAR would otherwise
expire.
14.2 Termination of Employment for Cause. Subject to any written agreement
between the Company and a Participant, if a Participant's employment is
terminated by the Company for cause, all Awards held by a Participant on the
date of the termination of his or her employment for cause, whether Vested or
non-Vested, shall immediately be forfeited by such Participant as of such date.
<PAGE> 11
14.3 Other Terminations of Employment. Subject to any written agreement
between the Company and a Participant, if a Participant's employment is
terminated for any reason other than for cause or other than due to death or
disability:
(a) all non-Vested portions of Awards held by the Participant on
the date of the termination of his or her employment shall immediately
be forfeited by such Participant as of such date; and
(b) all Vested portions of Stock Options and/or SARs held by the
Participant on the date of the termination of his or her employment
shall remain exercisable until the earlier of:
(i) the end of the 90-day period following the date of
the termination of the Participant's employment; or
(ii) the date the Stock Option or SAR would otherwise
expire.
14.4 Committee Discretion. Notwithstanding anything contained in the Plan
to the contrary, the Committee may, in its sole discretion and at anytime,
provide that:
(a) any or all non-Vested portions of Stock Options and/or SARs
held by the Participant on the date of the Participant's death and/or
the date of the termination of his or her employment shall immediately
become exercisable as of such date and, except with respect to ISOs,
shall remain exercisable until a date that occurs on or prior to the
date the Stock Option or SAR is scheduled to expire;
(b) any or all Vested portions of Nonqualified Stock Options
and/or SARs held by the Participant on the date of the Participant's
death and/or the date of the termination of his or her employment
shall remain exercisable until a date that occurs on or prior to the
date the Stock Option or SAR is scheduled to expire; and/or
(c) any or all non-Vested portions of Stock Awards, Stock Units,
Performance Shares, Performance Units, and/or Cash Awards held by the
Participant on the date of the Participant's death and/or the date of
the termination of his or her employment shall immediately Vest or
shall become Vested on a date that occurs on or prior to the date the
Award is scheduled to vest.
14.5 ISOs. Notwithstanding anything contained in the Plan to the contrary,
(i) the provisions contained in this Section 14 shall be applied to an ISO only
if the application of such provision maintains the treatment of such ISO as an
ISO and (ii) the exercise period of an ISO in the event of a termination of the
Participant's employment due to disability provided in Section 14.1 above shall
be applied only if the Participant is "permanently and totally disabled" (as
such term is defined in Code Section 22(e)(3)).
15.0 TAXES
15.1 Withholding Taxes. With respect to Employees, the Company, or the
applicable Subsidiary, may require a Participant who has become vested in his
or her Stock Award, Stock Unit, Performance Share or Performance Unit granted
hereunder, or who exercises a Stock Option or SAR granted hereunder to
reimburse the corporation which employs such Participant for any taxes required
by any governmental regulatory authority to be withheld or otherwise deducted
and paid by such corporation or entity in respect of the issuance or
disposition of such shares or the payment of any amounts. In lieu thereof, the
corporation or entity which employs such Participant shall have the right to
withhold the amount of such taxes from any other sums due or to become due from
such corporation or
<PAGE> 12
entity to the Participant upon such terms and conditions as the Committee shall
prescribe. The corporation or entity that employs such Participant may, in its
discretion, hold the stock certificate to which such Participant is entitled
upon the vesting of a Stock Award, Stock Unit, Performance Share or Performance
Unit or the exercise of a Stock Option or SAR as security for the payment of
such withholding tax liability, until cash sufficient to pay that liability has
been accumulated.
15.2 Use of Common Stock to Satisfy Withholding Obligation. With respect
to Employees, at any time that the Company, Subsidiary or other entity that
employs such Participant becomes subject to a withholding obligation under
applicable law with respect to the vesting of a Stock Award, Stock Unit,
Performance Share or Performance Unit or the exercise of a Nonqualified Stock
Option (the "Tax Date"), except as set forth below, a holder of such Award may
elect to satisfy, in whole or in part, the holder's related personal tax
liabilities (an "Election") by (i) directing the Company, Subsidiary or other
entity that employs such Participant to withhold from shares issuable in the
related vesting or exercise either a specified number of shares or shares of
Common Stock having a specified value (in each case not in excess of the
related personal tax liabilities), (ii) tendering shares of Common Stock
previously issued pursuant to the exercise of a Stock Option or other shares of
the Common Stock owned by the holder, or (iii) combining any or all of the
foregoing Elections in any fashion. An Election shall be irrevocable. The
withheld shares and other shares of Common Stock tendered in payment shall be
valued at their Fair Market Value of the Common Stock on the Tax Date. The
Committee may disapprove of any Election, suspend or terminate the right to
make Elections or provide that the right to make Elections shall not apply to
particular shares or exercises. The Committee may impose any additional
conditions or restrictions on the right to make an Election as it shall deem
appropriate, including conditions or restrictions with respect to Section 16 of
the Exchange Act.
15.3 No Guarantee of Tax Consequences. No person connected with the Plan
in any capacity, including, but not limited to, the Company and any Subsidiary
and their directors, officers, agents and employees makes any representation,
commitment, or guarantee that any tax treatment, including, but not limited to,
federal, state and local income, estate and gift tax treatment, will be
applicable with respect to amounts deferred under the Plan, or paid to or for
the benefit of a Participant under the Plan, or that such tax treatment will
apply to or be available to a Participant on account of participation in the
Plan.
16.0 AMENDMENT AND TERMINATION
16.1 Termination of Plan. The Board may suspend or terminate the Plan at
any time with or without prior notice; provided, however, that no action
authorized by this Section 16.1 shall reduce the amount of any outstanding
Award or change the terms and conditions thereof without the Participant's
consent.
16.2 Amendment of Plan. The Board may amend the Plan at any time with or
without prior notice; provided, however, that no action authorized by this
Section 16.2 shall reduce the amount of any outstanding Award or change the
terms and conditions thereof without the Participant's consent. No amendment of
the Plan shall, without the approval of the stockholders of the Company:
(a) increase the total number of shares which may be issued under
the Plan;
(b) increase the maximum number of shares with respect to all
Awards measured in Common Stock that may be granted to any individual
under the Plan;
(c) increase the maximum dollar amount with respect to all Awards
measured in cash that may be paid to any individual under the Plan; or
(d) modify the requirements as to eligibility for Awards under the
Plan.
In addition, the Plan shall not be amended without the approval of such
amendment by the Company's stockholders if such amendment (i) is required under
the rules and regulations of the stock exchange or national market system on
which the Common Stock is listed or (ii) will disqualify any ISO granted
hereunder.
16.3 Amendment or Cancellation of Award Agreements. The Committee may
amend or modify any Award Agreement at any time by mutual agreement between the
Committee and the Participant or such other persons as may then have an
interest therein. In addition, by mutual agreement between the Committee and a
Participant or such other persons as may then have an interest therein, Awards
may be granted to an Employee, Nonemployee
<PAGE> 13
Director, Affiliated Person or Independent Contractor in substitution and
exchange for, and in cancellation of, any Awards previously granted to such
Employee, Nonemployee Director, Affiliated Person or Independent Contractor
under the Plan, or any award previously granted to such Employee, Nonemployee
Director, Affiliated Person or Independent Contractor under any other present
or future plan of the Company or any present or future plan of an entity which
(i) is purchased by the Company, (ii) purchases the Company, or (iii) merges
into or with the Company.
17.0 MISCELLANEOUS
17.1 Other Provisions. Awards granted under the Plan may also be subject
to such other provisions (whether or not applicable to the Award granted to any
other Participant) as the Committee determines on the date of grant to be
appropriate, including, without limitation, for the installment purchase of
Common Stock under Stock Options, to assist the Participant in financing the
acquisition of Common Stock, for the forfeiture of, or restrictions on resale
or other disposition of, Common Stock acquired under any Stock Option, for the
acceleration of Vesting of Awards in the event of a change in control of the
Company, for the payment of the value of Awards to Participants in the event of
a change in control of the Company, or to comply with federal and state
securities laws, or understandings or conditions as to the Participant's
employment in addition to those specifically provided for under the Plan.
17.2 Transferability. Each Award granted under the Plan to a Participant
shall not be transferable otherwise than by will or the laws of descent and
distribution, and Stock Options and SARs shall be exercisable, during the
Participant's lifetime, only by the Participant. In the event of the death of a
Participant, each Stock Option or SAR theretofore granted to him or her shall
be exercisable during such period after his or her death as the Committee
shall, in its sole discretion, set forth in the Award Agreement on the date of
grant and then only by the executor or administrator of the estate of the
deceased Participant or the person or persons to whom the deceased
Participant's rights under the Stock Option or SAR shall pass by will or the
laws of descent and distribution. Notwithstanding the foregoing, the Committee,
in its sole discretion and on a case-by-case basis, may permit the
transferability of a Nonqualified Stock Option by a Participant, including, but
not limited to, members of the Participant's immediate family or trusts or
family partnerships or other similar entities for the benefit of such persons,
and all such transfers shall be subject to such terms, conditions, restrictions
and/or limitations, if any, as the Committee may establish and include in the
Award Agreement.
17.3 Election to Defer Compensation Attributable to Award. The Committee
may, in its sole discretion, allow a Participant to elect to defer the receipt
of any compensation attributable to an Award under guidelines and procedures to
be established by the Committee after taking into account the advice of the
Company's tax counsel.
17.4 Listing of Shares and Related Matters. If at any time the Committee
shall determine that the listing, registration or qualification of the shares
of Common Stock subject to any Award on any securities exchange or under any
applicable law, or the consent or approval of any governmental regulatory
authority, is necessary or desirable as a condition of, or in connection with,
the granting of an Award or the issuance of shares of Common Stock thereunder,
such Award may not be exercised, distributed or paid out, as the case may be,
in whole or in part, unless such listing, registration, qualification, consent
or approval shall have been effected or obtained free of any conditions not
acceptable to the Committee.
17.5 No Right, Title, or Interest in Company Assets. Participants shall
have no right, title, or interest whatsoever in or to any investments which the
Company may make to aid it in meeting its obligations under the Plan. Nothing
contained in the Plan, and no action taken pursuant to its provisions, shall
create or be construed to create a trust of any kind, or a fiduciary
relationship between the Company and any Participant, beneficiary, legal
representative or any other person. To the extent that any person acquires a
right to receive payments from the Company under the Plan, such right shall be
no greater than the right of an unsecured general creditor of the Company. All
payments to be made hereunder shall be paid from the general funds of the
Company and no special or separate fund shall be established and no segregation
of assets shall be made to assure payment of such amounts except as expressly
set forth in the Plan. The Plan is not intended to be subject to the Employee
Retirement Income Security Act of 1974, as amended.
17.6 No Right to Continued Employment or Service or to Grants. The
Participant's rights, if any, to continue to serve the Company as a director,
officer, employee, independent contractor or otherwise, shall not be enlarged
or otherwise affected by his or her designation as a Participant under the
Plan, and the Company or the applicable Subsidiary reserves the right to
terminate the employment of any Employee or the services of any Independent
Contractor or director at any time. The adoption of the Plan shall not be
deemed to give any Employee,
<PAGE> 14
Nonemployee Director, Affiliated Person or Independent Contractor or any other
individual any right to be selected as a Participant or to be granted an Award.
17.7 Awards Subject to Foreign Laws. The Committee may grant Awards to
individual Participants who are subject to the tax laws of nations other than
the United States, and such Awards may have terms and conditions as determined
by the Committee as necessary to comply with applicable foreign laws. The
Committee may take any action which it deems advisable to obtain approval of
such Awards by the appropriate foreign governmental entity; provided, however,
that no such Awards may be granted pursuant to this Section 17.7 and no action
may be taken which would result in a violation of the Exchange Act or any other
applicable law.
17.8 Governing Law. The Plan, all Awards granted hereunder, and all
actions taken in connection herewith shall be governed by and construed in
accordance with the laws of the State of Delaware without reference to
principles of conflict of laws, except as superseded by applicable federal law.
17.9 Other Benefits. No Award granted under the Plan shall be considered
compensation for purposes of computing benefits under any retirement plan of
the Company or any Subsidiary nor affect any benefits or compensation under any
other benefit or compensation plan of the Company or any Subsidiary now or
subsequently in effect.
17.10 No Fractional Shares. No fractional shares of Common Stock shall be
issued or delivered pursuant to the Plan or any Award. The Committee shall
determine whether cash, Common Stock, Stock Options, or other property shall be
issued or paid in lieu of fractional shares or whether such fractional shares
or any rights thereto shall be forfeited or otherwise eliminated.
<PAGE> 1
EXHIBIT 10.9(b)
AMENDMENT NO. 1 TO CREDIT AGREEMENT
THIS AMENDMENT NO. 1 TO CREDIT AGREEMENT (this "FIRST AMENDMENT") is
entered into this 2nd day of June, 1999, among:
APPLIED GRAPHICS TECHNOLOGIES, INC., a Delaware corporation
(hereinafter referred to as the "BORROWER");
The banks, financial institutions and other institutional lenders from
time to time party to the Credit Agreement (as defined herein) (each a "LENDER"
and, collectively, the "LENDERS"); and
FLEET BANK, N.A., a national banking association, as administrative
agent for the Lenders (in such capacity, together with its successors in such
capacity, the "ADMINISTRATIVE AGENT");
RECITALS
WHEREAS:
(A) The Borrower has entered into a certain Amended and Restated
Credit Agreement dated as of March 10, 1999 (as it may hereafter from time to
time be further amended, modified, supplemented, or restated, the "CREDIT
AGREEMENT"); and
(B) The Borrower and the Lenders have agreed to amend certain
provisions of the Credit Agreement as hereinafter set forth;
NOW, THEREFORE, in consideration of the agreements and provisions
contained herein, the parties hereto hereby agree as follows:
1. DEFINITIONS. Capitalized terms used but not otherwise
defined herein shall have the meanings ascribed to such terms in the Credit
Agreement.
2. AMENDMENTS TO CREDIT AGREEMENT. The Credit Agreement is
hereby amended, as follows:
2.1 Section 1 (Definitions) of the Credit Agreement is
hereby amended by modifying certain definitions contained therein as follows:
(a) The definition of "Advance" set forth therein
is deleted in its entirety and the following is substituted therefor:
"'ADVANCE' means a Term Loan A Advance, a Term Loan B Advance,
a Term Loan C Advance, a Revolving Credit Advance, a Swing Line
Advance or a Letter of Credit Advance."
(b) The definition of "Applicable Margin" set
forth therein is deleted in its entirety and the following is substituted
therefor:
"'APPLICABLE MARGIN' means at any date of determination
thereof:
<PAGE> 2
(i) with respect to Term Loan A Advances and Revolving
Credit Advances, the applicable percentage set forth below opposite
the applicable ratio of Consolidated Total Funded Debt to EBITDA
determined as set forth below:
APPLICABLE MARGIN FOR TERM LOAN A ADVANCES AND REVOLVING CREDIT ADVANCES
<TABLE>
<CAPTION>
RATIO OF CONSOLIDATED APPLICABLE MARGIN FOR APPLICABLE MARGIN FOR
TOTAL FUNDED DEBT/EBITDA EURODOLLAR RATE ADVANCES PRIME RATE ADVANCES
------------------------- ------------------------ ---------------------
<S> <C> <C>
Equal to or greater than 4.00
to 1.00 2.75% 1.50%
Equal to or greater than 3.75
to 1.00, but less than 4.00
to 1.00 2.50% 1.25%
Equal to or greater than 3.00
to 1.00, but less than 3.75
to 1.00 2.25% 1.00%
Equal to or greater than 2.50
to 1.00, but less than 3.00
to 1.00 2.00% 0.75%
Equal to or greater than 2.00
to 1.00, but less than 2.50
to 1.00 1.75% 0.50%
Less than 2.00 to 1.00 1.50% 0.25%
</TABLE>
The Applicable Margin for each Eurodollar Rate Advance and Prime Rate Advance
that is a Term Loan A Advance or a Revolving Credit Advance shall be determined
on a quarterly basis by reference to the ratio of Consolidated Total Funded
Debt to EBITDA for the preceding four (4) full fiscal quarters, as reflected on
the financial statements provided to the Administrative Agent pursuant to
Section 5.03(c) or (d), three (3) Business Days after the date on which the
Administrative Agent receives the foregoing financial statements, together with
a certificate of a Responsible Officer of the Borrower demonstrating the ratio
of Consolidated Total Funded Debt to EBITDA. If the Borrower has not submitted
to the Administrative Agent the information described above as and when
required under Section 5.03(c) or (d), as the case may be, the Administrative
Agent may determine, in its reasonable judgment, the ratio referred to above
that would have been in effect as at such date, and, consequently, the
Applicable Margin in effect for the period commencing on such date until such
time as the Borrower submits to the Administrative Agent the information so
required, and within three (3) Business Days after receipt thereof the
Applicable Margin shall be adjusted retroactively for the relevant period.
Notwithstanding the above schedule, prior to the delivery to the Administrative
Agent of the Borrower's financial statements for its fiscal quarter ending
September 30, 1999, the Applicable Margin for a Revolving Credit Advance and a
Term Loan A Advance shall be 2.75% for a Eurodollar Advance and 1.50% for a
Prime Rate Advance;
(ii) with respect to Term Loan B Advances, 3.25% for Eurodollar
Rate Advances, and 2.00% for Prime Rate Advances; and
<PAGE> 3
(iii) with respect to Term Loan C Advances, 3.50% for
Eurodollar Rate Advances, and 2.25% for Prime Rate Advances."
(c) The definition of "Borrowing" set forth
therein is deleted in its entirety and the following is substituted therefor:
"'BORROWING' means a Term Loan A Borrowing, a Term Loan B
Borrowing, a Term Loan C Borrowing, a Revolving Credit Borrowing or a
Swing Line Borrowing."
(d) The definition of "Commitment" set forth therein is
deleted in its entirety and the following is substituted therefor:
"'COMMITMENT' means a Term Loan A Commitment, a Term Loan B
Commitment, a Term Loan C Commitment, a Revolving Credit Commitment or
a Letter of Credit Commitment."
(e) The definition of "Excess Cash Flow" set forth
therein is amended by deleting the period at the end of clause (i) contained
therein and adding the following thereto: "(other than the Transaction)."
(f) The definition of "Facility" set forth therein is
deleted in its entirety and the following is substituted therefor:
"'FACILITY' means the Term Loan A Facility, the Term Loan B
Facility, the Term Loan C Facility, the Revolving Credit Facility, the
Letter of Credit Facility or the Swing Line Facility."
(g) The definition of "Note" set forth therein is deleted
in its entirety and the following is substituted therefor:
"'NOTE' means, individually, a Term Loan A Note, a Term Loan B
Note, a Term Loan C Note, a Revolving Credit Note or a Swing Line
Note, and collectively, the 'NOTES'."
(h) The definition of "Permitted Acquisition" set forth
therein is amended by deleting the word "and" at the end of clause (e)
contained therein, deleting the period at the end of clause (f) thereof and
substituting "; and" therefor, and adding the following clause (g) thereto:
"(g) for the most recent period of four consecutive fiscal
quarters preceding such Permitted Acquisition (calculated on a
pro-forma basis as if such Permitted Acquisition had been consummated
as of the first day of such four quarter period): (i) the ratio of
Consolidated Total Funded Debt as of the last day of such period to
EBITDA for such period is not greater than the ratio required to be
maintained pursuant to Section 5.04(a) for such period, less 0.25; and
(ii) the ratio of Consolidated Senior Debt as of the last day of such
period to EBITDA for such period is not greater than the ratio
required to be maintained pursuant to Section 5.04(b) for such period,
less 0.25."
(i) The definition of "Pledge Agreement" set
forth therein is deleted in its entirety and the following is substituted
therefor:
"'PLEDGE AGREEMENT' has the meaning specified in Section
3.02(g)(i)(E)."
(j) The definition of "Required Lenders" set
forth therein is deleted in its entirety and the following is substituted
therefor:
"'REQUIRED LENDERS means at any time Lenders holding greater
than 50% of the aggregate of the Term Loan Commitments and the
Revolving Credit Commitments; provided, however, that if any Lender
<PAGE> 4
shall be a Defaulting Lender at such time, there shall be excluded
from the determination of Required Lenders at such time the aggregate
Term Loan Commitment and Revolving Credit Commitment of such Lender at
such time."
(k) The definition of "Term Loan Advance" set
forth therein is deleted in its entirety and the following is substituted
therefor:
"'TERM LOAN ADVANCE' means a Term Loan A Advance, a Term Loan B
Advance or a Term Loan C Advance. "
(l) The definition of "Term Loan Borrowing" set
forth therein is deleted in its entirety and the following is substituted
therefor:
"'TERM LOAN BORROWING' means a Term Loan A Borrowing, a Term
Loan B Borrowing or a Term Loan C Borrowing. "
(m) The definition of "Term Loan Commitment" set
forth therein is deleted in its entirety and the following is substituted
therefor:
"'TERM LOAN COMMITMENT' means, with respect to any Term Loan
Lender at any time, such Term Loan Lender's Term Loan A Commitment,
Term Loan B Commitment or Term Loan C Commitment, as applicable."
(n) The definition of "Term Loan Facility" set
forth therein is deleted in its entirety and the following is substituted
therefor:
"'TERM LOAN FACILITY' means, at any time, the aggregate amount
of all Term Loan Lenders' Term Loan Commitments at such time."
(o) The definition of "Term Loan Lender" set
forth therein is deleted in its entirety and the following is substituted
therefor:
"'TERM LOAN LENDER' means any Lender that has a Term Loan A
Commitment, Term Loan B Commitment or Term Loan C Commitment."
(p) The definition of "Term Loan Note" set forth
therein is deleted in its entirety and the following is substituted therefor:
"'TERM LOAN NOTE' means a Term Loan A Note, a Term Loan B
Note, or a Term Loan C Note."
2.2 Section 1 (Definitions) of the Credit Agreement is
hereby amended by adding the following definitions in their appropriate
alphabetic locations:
"'TERM LOAN A ADVANCE' has the meaning specified in Section
2.01(b)(i)."
"'TERM LOAN A BORROWING' means a borrowing consisting of
simultaneous Term Loan A Advances of the same Type made by the Term
Loan A Lenders."
"'TERM LOAN A COMMITMENT' means, with respect to any Term Loan
A Lender at any time, the amount set forth opposite such Lender's name
on Schedule I hereto under the caption "Term Loan A Commitment" or, if
such Lender has entered into one or more Assignments and Acceptances,
the amount set forth for such Lender in the Register maintained by the
Administrative Agent pursuant to Section 8.07(d) as such Lender's
"Term Loan A Commitment" as such amount may be reduced at or prior to
such
<PAGE> 5
time pursuant to Section 2.05. The initial aggregate amount of the
Lenders' Term Loan A Commitments is $125,000,000.
"'TERM LOAN A FACILITY' means, at any time, the aggregate
amount of the Term Loan A Lenders' Term Loan A Commitments at such
time."
"'TERM LOAN A LENDER' means any Lender that has a Term Loan A
Commitment."
"'TERM LOAN A NOTE' means a promissory note of the Borrower
payable to the order of any Term Loan A Lender, in substantially the
form of Exhibit C-1 hereto, evidencing the indebtedness of the
Borrower to such Lender resulting from the Term Loan A Advance made by
such Lender, as each may hereafter be amended, restated, supplemented,
replaced or otherwise modified from time to time."
"'TERM LOAN A TERMINATION DATE' means the earlier of (x) the
sixth anniversary of the Initial Funding Date and (y) the Termination
Date."
"'TERM LOAN B ADVANCE' has the meaning specified in Section
2.01(b)(ii)."
"'TERM LOAN B BORROWING' means a borrowing consisting of
simultaneous Term Loan B Advances of the same Type made by the Term
Loan B Lenders."
"'TERM LOAN B COMMITMENT' means, with respect to any Term Loan
B Lender at any time, the amount set forth opposite such Lender's name
on Schedule I hereto under the caption 'Term Loan B Commitment' or, if
such Lender has entered into one or more Assignments and Acceptances,
the amount set forth for such Lender in the Register maintained by the
Administrative Agent pursuant to Section 8.07(d) as such Lender's
'Term Loan B Commitment' as such amount may be reduced at or prior to
such time pursuant to Section 2.05. The initial aggregate amount of
the Lenders' Term Loan B Commitments is $75,000,000."
"'TERM LOAN B FACILITY' means, at any time, the aggregate
amount of the Term Loan B Lenders' Term Loan B Commitments at such
time."
"'TERM LOAN B LENDER' means any Lender that has a Term Loan B
Commitment."
"'TERM LOAN B NOTE' means a promissory note of the Borrower
payable to the order of any Term Loan B Lender, in substantially the
form of Exhibit C-2 hereto, evidencing the indebtedness of the
Borrower to such Lender resulting from the Term Loan B Advance made by
such Lender, as each may hereafter be amended, restated, supplemented,
replaced or otherwise modified from time to time."
"'TERM LOAN B TERMINATION DATE' means the earlier of (x) the
seventh anniversary of the Initial Funding Date and (y) the
Termination Date."
"'TERM LOAN C ADVANCE' has the meaning specified in Section
2.01(b)(iii)."
"'TERM LOAN C BORROWING' means a borrowing consisting of
simultaneous Term Loan C Advances of the same Type made by the Term
Loan C Lenders."
"'TERM LOAN C COMMITMENT' means, with respect to any Term Loan
C Lender at any time, the amount set forth opposite such Lender's name
on Schedule I hereto under the caption 'Term Loan C Commitment' or, if
such Lender has entered into one or more Assignments and Acceptances,
the amount set forth for such Lender in the Register maintained by the
Administrative Agent pursuant to Section 8.07(d) as such Lender's
'Term Loan C Commitment' as such amount may be reduced at or prior to
such
<PAGE> 6
time pursuant to Section 2.05. The initial aggregate amount of the
Lenders' Term Loan C Commitments is $50,000,000."
"'TERM LOAN C FACILITY' means, at any time, the aggregate
amount of the Term Loan C Lenders' Term Loan C Commitments at such
time."
"'TERM LOAN C LENDER' means any Lender that has a Term Loan C
Commitment."
"'TERM LOAN C NOTE' means a promissory note of the Borrower
payable to the order of any Term Loan C Lender, in substantially the
form of Exhibit C-3 hereto, evidencing the indebtedness of the
Borrower to such Lender resulting from the Term Loan C Advance made by
such Lender, as each may hereafter be amended, restated, supplemented,
replaced or otherwise modified from time to time."
"'TERM LOAN C TERMINATION DATE' means the earlier of (x) the
eighth anniversary of the Initial Funding Date and (y) the Termination
Date."
2.4 Section 2.01 (The Advances) of the Credit Agreement
is hereby amended by deleting subsections (b) and (c) thereof in their entirety
and substituting the following therefor:
"(b) THE TERM LOAN ADVANCES.
(i) Each Term Loan A Lender severally agrees, on
the terms and conditions hereinafter set forth, to make a single
advance (a "TERM LOAN A ADVANCE") to the Borrower on the Initial
Funding Date in an amount not to exceed such Lender's Term Loan A
Commitment at such time. The Term Loan A Borrowing shall consist of
Term Loan A Advances made simultaneously by the Term Loan A Lenders
ratably according to their Term Loan A Commitments. Amounts borrowed
under this Section 2.01(b)(i) and repaid or prepaid may not be
reborrowed.
(ii) Each Term Loan B Lender severally agrees, on
the terms and conditions hereinafter set forth, to make a single
advance (a "TERM LOAN B ADVANCE") to the Borrower on the Initial
Funding Date in an amount not to exceed such Lender's Term Loan B
Commitment at such time. The Term Loan B Borrowing shall consist of
Term Loan B Advances made simultaneously by the Term Loan B Lenders
ratably according to their Term Loan B Commitments. Amounts borrowed
under this Section 2.01(b)(ii) and repaid or prepaid may not be
reborrowed.
(iii) Each Term Loan C Lender severally agrees, on
the terms and conditions hereinafter set forth, to make a single
advance (a "TERM LOAN C ADVANCE") to the Borrower on the Initial
Funding Date in an amount not to exceed such Lender's Term Loan C
Commitment at such time. The Term Loan C Borrowing shall consist of
Term Loan C Advances made simultaneously by the Term Loan C Lenders
ratably according to their Term Loan C Commitments. Amounts borrowed
under this Section 2.01(b)(iii) and repaid or prepaid may not be
reborrowed.
(c) THE SWING LINE ADVANCES. The Borrower may request the
Swing Line Bank to make, and the Swing Line Bank shall, so long as no
Default or Event of Default shall have occurred and be continuing,
make, on the terms and conditions hereinafter set forth, Swing Line
Advances to the Borrower from time to time on any Business Day during
the period from the Initial Funding Date until the Revolving Credit
Termination Date (i) in an aggregate amount not to exceed at any time
outstanding $10,000,000 (the "SWING LINE FACILITY") and (ii) in an
amount for each such Swing Line Borrowing not to exceed an amount
equal to (x) the aggregate of the Unused Revolving Credit Commitments
of the Revolving Credit Lenders at such time minus (y) the aggregate
Swing Line Advances outstanding at such time. Each Swing Line Advance
shall be in integral multiples of $100,000. No Swing Line Advance
shall be used for the purpose of funding the payment of principal of
any other Swing Line Advance. Each Swing Line Borrowing shall bear
interest at the rate established pursuant to the Fee Letter (the
"SWING LINE RATE").
<PAGE> 7
Within the limits of the Swing Line Facility and within the limits
referred to in this Section 2.01(c), the Borrower may borrow and
reborrow under this Section 2.01(c) and may repay or prepay the Swing
Line Advances at such times prior to the Revolving Credit Termination
Date, and in such integral multiples, as the Borrower may elect."
2.5 Section 2.04 (Repayment of Advances) of the Credit
Agreement is hereby amended by deleting subsection (b) thereof in its entirety
and substituting the following therefor:
"(b) TERM LOAN ADVANCES.
(i) TERM LOAN A ADVANCES. The Borrower shall
repay to the Administrative Agent for the ratable account of the Term
Loan A Lenders the aggregate outstanding principal amount of the Term
Loan A Advances as follows: the first payment date shall be April 3,
2000, the second payment date shall be July 1, 2000, and the third
payment date and each payment date subsequent thereto shall be the
first day of each third month thereafter. Each payment shall be made
in equal quarterly installments (except that the payments on April 3,
2000 and July 1, 2000 shall be one-half of the aggregate amount for
Year 1) based upon the annual amounts set forth below (which amounts
shall be reduced as a result of the application of prepayments in
accordance with the order of priority set forth in Section 2.06):
<TABLE>
<CAPTION>
YEAR AMOUNT
---- ------
<S> <C>
Year 1 $ 8,750,000
Year 2 $20,000,000
Year 3 $21,250,000
Year 4 $25,000,000
Year 5 $25,000,000
Year 6 $25,000,000
</TABLE>
provided, however, that notwithstanding the foregoing, the final
principal installment shall occur no later than the Term Loan A
Termination Date and shall be in an amount equal to the aggregate
principal amount of the Term Loan A Advances outstanding on such date.
(ii) TERM LOAN B ADVANCES. The Borrower shall repay to the
Administrative Agent for the ratable account of the Term Loan B
Lenders the aggregate outstanding principal amount of the Term Loan B
Advances as follows: the first payment date shall be April 3, 2000,
the second payment date shall be July 1, 2000, and the third payment
date and each payment date subsequent thereto shall be the first day
of each third month thereafter. Each payment shall be made in equal
quarterly installments (except that the payments on April 3, 2000 and
July 1, 2000 shall be one-half of the aggregate amount for Year 1)
based upon the annual amounts set forth below (which amounts shall be
reduced as a result of the application of prepayments in accordance
with the order of priority set forth in Section 2.06):
<TABLE>
<CAPTION>
YEAR AMOUNT
---- ------
<S> <C>
</TABLE>
<PAGE> 8
<TABLE>
<S> <C>
Year 1 $ 750,000
Year 2 $ 750,000
Year 3 $ 750,000
Year 4 $ 750,000
</TABLE>
<TABLE>
<CAPTION>
YEAR AMOUNT
---- ------
<S> <C>
Year 5 $ 750,000
Year 6 $31,250,000
Year 7 $40,000,000
</TABLE>
provided, however, that notwithstanding the foregoing, the final
principal installment shall occur no later than the Term Loan B
Termination Date and shall be in an amount equal to the aggregate
principal amount of the Term Loan B Advances outstanding on such date.
(iii) TERM LOAN C ADVANCES. The Borrower shall repay to the
Administrative Agent for the ratable account of the Term Loan C
Lenders the aggregate outstanding principal amount of the Term Loan C
Advances as follows: the first payment date shall be April 3, 2000,
the second payment date shall be July 1, 2000, and the third payment
date and each payment date subsequent thereto shall be the first day
of each third month thereafter. Each payment shall be made in equal
quarterly installments (except that the payments on April 3, 2000 and
July 1, 2000 shall be one-half of the aggregate amount for Year 1)
based upon the annual amounts set forth below (which amounts shall be
reduced as a result of the application of prepayments in accordance
with the order of priority set forth in Section 2.06):
<TABLE>
<CAPTION>
YEAR AMOUNT
---- ------
<S> <C>
Year 1 $ 500,000
Year 2 $ 500,000
Year 3 $ 500,000
Year 4 $ 500,000
Year 5 $ 500,000
Year 6 $ 500,000
Year 7 $17,000,000
Year 8 $30,000,000
</TABLE>
provided, however, that notwithstanding the foregoing, the final
principal installment shall occur no later than the Term Loan C
Termination Date and shall be in an amount equal to the aggregate
principal amount of the Term Loan C Advances outstanding on such
date."
2.5 Section 2.05 (Termination or Reduction of the Commitments) of
the Credit Agreement is hereby amended by deleting subsections (b)(i) and
(b)(ii) thereof in their entirety and substituting the following therefor:
<PAGE> 9
"(b) MANDATORY.
(i) (A) On the date of the Term Loan A
Borrowing, after giving effect to such Term Loan A Borrowing, and from
time to time thereafter upon each repayment or prepayment of the Term
Loan A Advances, the aggregate Term Loan A Commitments of the Term
Loan A Lenders shall be automatically and permanently reduced, on a
pro rata basis, by an amount equal to the amount by which the
aggregate Term Loan A Commitments immediately prior to such reduction
exceed the aggregate unpaid principal amount of the Term Loan A
Advances then outstanding; provided, however, that the Term Loan A
Commitments shall terminate, and all Term Loan A Advances made
thereunder shall be repaid in full, no later than the Term Loan A
Termination Date.
(B) On the date of the Term Loan B
Borrowing, after giving effect to such Term Loan B Borrowing, and from
time to time thereafter upon each repayment or prepayment of the Term
Loan B Advances, the aggregate Term Loan B Commitments of the Term
Loan B Lenders shall be automatically and permanently reduced, on a
pro rata basis, by an amount equal to the amount by which the
aggregate Term Loan B Commitments immediately prior to such reduction
exceed the aggregate unpaid principal amount of the Term Loan B
Advances then outstanding; provided, however, that the Term Loan B
Commitments shall terminate, and all Term Loan B Advances made
thereunder shall be repaid in full, no later than the Term Loan B
Termination Date.
(C) On the date of the Term Loan C
Borrowing, after giving effect to such Term Loan C Borrowing, and from
time to time thereafter upon each repayment or prepayment of the Term
Loan C Advances, the aggregate Term Loan C Commitments of the Term
Loan C Lenders shall be automatically and permanently reduced, on a
pro rata basis, by an amount equal to the amount by which the
aggregate Term Loan C Commitments immediately prior to such reduction
exceed the aggregate unpaid principal amount of the Term Loan C
Advances then outstanding; provided, however, that the Term Loan C
Commitments shall terminate, and all Term Loan C Advances made
thereunder shall be repaid in full, no later than the Term Loan C
Termination Date.
(ii) On and after the date that all Term Loan
Advances shall have been repaid in full, the Revolving Credit Facility
shall be automatically and permanently reduced on each date on which
prepayment thereof is required to be made pursuant to Section
2.06(b)(i), (ii), (iii), (iv) or (v) in an amount equal to the
applicable Reduction Amount, provided that each such reduction of the
Revolving Credit Facility shall be made ratably among the Revolving
Credit Lenders in accordance with their Revolving Credit Commitments."
2.6 (a) Section 2.06 (Prepayments and Repayments) of
the Credit Agreement is hereby amended by deleting subsection (c) thereof in
its entirety and substituting the following therefor:
"(c) APPLICATION OF PREPAYMENTS AND REPAYMENTS.
All prepayments or repayments, as the case may be, made pursuant to
clause (b) of this Section 2.06 shall be applied to the outstanding
Advances as follows:
(i) All mandatory prepayments and repayments
pursuant to clauses (i), (iii) or (iv) of clause (b) of this Section
2.06 shall be applied:
(A) first, an amount of such prepayment
or repayment which, when added to any prior prepayments pursuant to
clauses (i), (iii) or (iv) of clause (b) of this Section 2.06 shall
equal $10,000,000, shall be applied to prepay Term Loan A Advances,
Term Loan B Advances and Term Loan C Advances, then outstanding on a
pro rata basis in the direct order of the maturity of the principal
payments due in respect thereof;
<PAGE> 10
(B) second, to prepay or reduce any Term
Loan A Advances, Term Loan B Advances and Term Loan C Advances, then
outstanding on a pro rata basis in the inverse order of the maturity
of the principal payments due in respect thereof until all such Term
Loan Advances are paid in full;
(C) third, to prepay Letter of Credit
Advances then outstanding until all such Letter of Credit Advances are
paid in full;
(D) fourth, to prepay Revolving Credit
Advances then outstanding (whereupon the Revolving Credit Facility
shall be permanently reduced as set forth in Section 2.05(b)(ii) in
the amount of such prepayment) until such Revolving Credit Advances
are paid in full; and
(E) fifth, deposited in the L/C Cash
Collateral Account to cash collateralize 100% of the Available Amount
of the Letters of Credit then outstanding.
(ii) All mandatory prepayments and repayments
pursuant to clauses (ii) or (v) of clause (b) of this Section 2.06
shall be applied:
(A) first, to prepay Term Loan A
Advances, Term Loan B Advances and Term Loan C Advances, then
outstanding on a pro rata basis in the inverse order of the maturity
of the principal payments due in respect thereof until all such Term
Loan Advances are paid in full;
(B) second, to prepay Letter of Credit
Advances then outstanding until all such Letter of Credit Advances are
paid in full;
(C) third, to prepay Revolving Credit
Advances then outstanding (whereupon the Revolving Credit Facility
shall be permanently reduced as set forth in Section 2.05(b)(ii) in
the amount of such prepayment) until such Revolving Credit Advances
are paid in full; and
(D) fourth, deposited in the L/C Cash
Collateral Account to cash collateralize 100% of the Available Amount
of the Letters of Credit then outstanding.
(b) Section 2.06 (Prepayments and Repayments) of the
Credit Agreement is hereby amended by adding a new subsection (e) thereto as
follows:
"(e) Notwithstanding the foregoing application of proceeds
of prepayments and repayments, any Term Loan B Lender or Term Loan C
Lender may, with respect to any voluntary or mandatory prepayment, so
long as Term Loan A Advances are outstanding (after giving effect to
the application of such prepayment to the Term Loan A Advances), by
notice to the Administrative Agent by telephone (confirmed by
telecopy) not later than 10:00 a.m. (New York time) one Business Day
prior to the prepayment date, elect not to have all or any part of any
prepayments applied to such Lender's Term Loan B Advances or Term Loan
C Advances, as the case may be, in which case the Administrative Agent
shall immediately by telephone (confirmed by telecopy) notify the
Borrower thereof and, subject to the proviso set forth below, the
aggregate amount of such prepayments so declined shall be applied to
the remaining scheduled installments of payments on the Term Loan A
Advances in accordance with the instructions of the Borrower, with
respect to an optional prepayment, or in accordance with Section
2.06(c), with respect to a mandatory prepayment (to the extent that
the aggregate principal amount of the Term Loan A Advances after
giving effect to such prepayment is less than the aggregate amount so
declined by the Term Loan B Lenders and the Term Loan C Lenders, such
amount of the Term Loan A Advances shall be allocated pro rata to such
declining Lenders based on the aggregate amount declined); provided,
however, that in the event that the Borrower determines not to accept
such election by such Term Loan B Lenders or Term Loan C Lenders not
to have all or any part of any prepayments applied to such Lender's
Term Loan
<PAGE> 11
B Advances or Term Loan C Advances, as the case may be, the Borrower
may, not later than 12:00 noon (New York time) on such Business Day
prior to the prepayment date, notify the Administrative Agent by
telephone (confirmed by telecopy) of such determination not to accept
such Lenders' election, whereupon the Administrative Agent shall
notify such Lenders by telephone (confirmed by telecopy) that such
Lenders' election to decline is not available; provided further,
however, that in the event that the Borrower fails to so notify the
Administrative Agent within the specified time period, such election
to decline shall be available to the Term Loan B Lenders and the Term
Loan C Lenders."
2.7 Section 3.02 (Conditions Precedent to Initial
Funding) of the Credit Agreement is hereby amended by deleting
subsection (a) thereof in its entirety and substituting the following
therefor:
"(a) NOTES. The Notes in substantially
the form of Exhibit B, Exhibit C-1, Exhibit C-2, Exhibit C-3, and
Exhibit D payable to the order of the applicable Lender Parties duly
executed by the Borrower."
2.8 Section 3.02 (Conditions Precedent to Initial Funding
Date) of the Credit Agreement is hereby amended by deleting subsection
(g)(i)(E) thereof in its entirety and substituting the following therefor:
"(E) in the case of Bidco, all action
necessary to allow the Administrative Agent to obtain a valid and
enforceable, first priority, perfected security interest in sixty-five
(65%) percent of the capital stock of Target including, without
limitation, the execution and delivery to the Administrative Agent of
one or more pledge agreements in form and substance satisfactory to
the Administrative Agent (in each case as amended, supplemented or
otherwise modified from time to time in accordance with its terms,
each a "PLEDGE AGREEMENT")."
2.9 Section 5.02(b)(iii)(E) (Debt) of the Credit
Agreement is hereby amended by adding the following parenthetical
immediately following the words "Subordinated Debt" appearing on the
second line thereof: "(other than Subordinated Debt issued in
connection with the financing of the portion of the Target Shares
constituting the preference shares)".
2.10 Section 5.02(e) (Sales, Etc. of Assets) of the Credit
Agreement is hereby amended by adding to the end of clause (iii) thereof
(immediately before the semicolon) the following: ", but only as and to the
extent permitted under Section 1(a) of the Security Agreement;".
2.11 Section 5.02(f) (Investments in Other Persons) of the
Credit Agreement is hereby amended by deleting in its entirety clause (x)
thereof and substituting therefor "(x) Intentionally Omitted".
2.12 Section 5.02(k) (Prepayments, Etc. of Debt) of the
Credit Agreement is hereby amended by deleting in its entirety the following:
"and (D) the prepayment or repayment of Subordinated Debt issued in connection
with the original financing of the portion of the Target Shares constituting
the preference shares", and inserting immediately before clause (C) contained
therein, the word "and".
2.13 Section 5.02(p) (Capital Expenditures) of the Credit
Agreement is hereby amended by decreasing the dollar limitation contained
therein from "$25,000,000" to "$20,000,000".
2.14 Section 5.04(a) (Consolidated Total Funded Debt to
EBITDA Ratio) of the Credit Agreement is hereby deleted in its entirety and the
following is substituted therefor:
"(a) CONSOLIDATED TOTAL FUNDED DEBT TO EBITDA RATIO.
Maintain as of the last day of each fiscal quarter of the Borrower
commencing with the first complete fiscal quarter after the Initial
Funding Date a ratio of (i) Consolidated Total Funded Debt to (ii)
EBITDA for the most recently completed four fiscal quarters of the
Borrower of not more than the ratio set forth below:
<PAGE> 12
<TABLE>
<CAPTION>
FOUR FISCAL QUARTERS ENDING ON: RATIO
- ------------------------------- -------
<S> <C>
First Quarter 5.25:1.00
Second Quarter 5.25:1.00
Third Quarter 5.25:1.00
Fourth Quarter 5.00:1.00
Fifth Quarter 4.75:1.00
Sixth Quarter 4.75:1.00
Seventh Quarter 4.50:1.00
Eighth Quarter 4.25:1.00
Ninth Quarter 4.00:1.00
Tenth Quarter 4.00:1.00
Eleventh Quarter 3.75:1.00
Twelfth Quarter 3.75:1.00
Thirteenth Quarter 3.75:1.00
Fourteenth Quarter 3.75:1.00
Fifteenth Quarter 3.75:1.00
Sixteenth Quarter 3.75:1.00
Seventeenth Quarter 3.75:1.00
Eighteenth Quarter 3.75:1.00
Nineteenth Quarter 3.50:1.00
Twentieth Quarter 3.25:1.00
Twenty-first Quarter 3.00:1.00
Twenty-second Quarter 2.75:1.00
Twenty-third Quarter and each
Fiscal Quarter Thereafter 2.50:1.00"
</TABLE>
2.15 Section 5.04(b) (Consolidated Senior Debt to EBITDA
Ratio) of the Credit Agreement is hereby deleted in its entirety and the
following is substituted therefor:
"(b) CONSOLIDATED SENIOR DEBT TO EBITDA RATIO. Maintain as
of the last day of each fiscal quarter of the Borrower commencing with
the first complete fiscal quarter after the Initial Funding Date a
ratio of (i) Consolidated Senior Debt to (ii) EBITDA for the most
recently completed four fiscal quarters of the Borrower of not more
than the ratio set forth below:
<TABLE>
<CAPTION>
FOUR FISCAL QUARTERS ENDING ON: RATIO
- ------------------------------- -----
<S> <C>
First Quarter 4.25:1.00
Second Quarter 4.25:1.00
Third Quarter 4.25:1.00
Fourth Quarter 4.00:1.00
Fifth Quarter 3.75:1.00
Sixth Quarter 3.75:1.00
Seventh Quarter 3.50:1.00
Eighth Quarter 3.25:1.00
Ninth Quarter 3.00:1.00
Tenth Quarter 3.00:1.00
Eleventh Quarter 2.75:1.00
Twelfth Quarter 2.75:1.00
Thirteenth Quarter 2.75:1.00
Fourteenth Quarter 2.75:1.00
Fifteenth Quarter 2.75:1.00
Sixteenth Quarter 2.75:1.00
</TABLE>
<PAGE> 13
<TABLE>
<S> <C>
Seventeenth Quarter 2.75:1.00
Eighteenth Quarter 2.75:1.00
Nineteenth Quarter 2.75:1.00
Twentieth Quarter 2.50:1.00
Twenty-first Quarter 2.25:1.00
Twenty-second Quarter 2.00:1.00
Twenty-third Quarter and each
Fiscal Quarter Thereafter 1.75:1.00"
</TABLE>
2.16 Section 5.04(d) (Fixed Charge Coverage Ratio) of the
Credit Agreement is hereby deleted in its entirety and the following is
substituted therefor:
"(d) FIXED CHARGE COVERAGE RATIO. Maintain as of the last
day of each fiscal quarter of the Borrower commencing with the first
complete fiscal quarter after the Initial Funding Date a ratio of (i)
EBITDA for the most recently completed four fiscal quarters of the
Borrower, less cash Capital Expenditures made by the Borrower and its
Subsidiaries during such four fiscal quarters less the aggregate
amount of federal, state, local and foreign income taxes paid by the
Borrower and its Subsidiaries in cash during such four fiscal
quarters, less cash dividends, if any, paid by the Borrower to the
holders of its common stock during such four fiscal quarters, to the
(ii) sum of (x) cash interest paid by the Borrower and its
Subsidiaries on all Debt during such four fiscal quarters plus (y)
scheduled payments of principal amounts of all Debt paid by the
Borrower and its Subsidiaries during such four fiscal quarters, at not
less than the ratio set forth below for such period:
<TABLE>
<CAPTION>
FOUR FISCAL QUARTERS ENDING ON: RATIO
- ------------------------------- -----
<S> <C>
First Quarter 1.20:1.00
Second Quarter 1.20:1.00
Third Quarter 1.20:1.00
Fourth Quarter 1.20:1.00
Fifth Quarter 1.30:1.00
Sixth Quarter 1.30:1.00
Seventh Quarter 1.30:1.00
Eighth Quarter 1.30:1.00
Ninth Quarter and
Each Fiscal Quarter Thereafter 1.40:1.00"
</TABLE>
2.17 Section 8.01 (Amendments, Etc.) of the Credit
Agreement is hereby amended by (a) deleting the reference to "the Borrower"
contained in the second line thereof and substituting "any Loan Party"
therefor, and (b) deleting the reference to "the Term Loan Facility" contained
in subsection (b) thereof and substituting "any Term Loan Facility" therefor.
2.18 Section 8.02 (Notices Etc.) of the Credit Agreement
is hereby amended by deleting the following reference contained in clause (ii)
thereof:
"Winston & Strawn
200 Park Avenue
New York, New York 10166
Attention: Richard S. Talesnick, Esq.
Telephone No.: (212) 294-6729
Facsimile No.: (212) 294-4700"
<PAGE> 14
and substituting the following therefor:
"Emmet, Marvin & Martin, LLP
120 Broadway
New York, New York 10271
Attention: Richard S. Talesnick, Esq.
Telephone No.: (212) 238-3046
Facsimile No.: (212) 238-3100"
2.19 Section 8.07 (Assignments and Participations) of the
Credit Agreement is hereby amended by deleting subsection (a)(i) thereof in its
entirety and substituting the following therefor: "(i) with respect to the Term
Loan A Facility and the Revolving Credit Facility, each such assignment shall
be of a uniform, and not a varying, percentage of all rights and obligations
under and in respect of such Facilities on a pro rata basis with respect to
such Facilities".
2.20 Exhibit C (Form of Term Loan Note) to the Credit
Agreement is hereby deleted in its entirety and there is substituted therefor
Exhibit C-1 (Form of Term Loan A Note), Exhibit C-2 (Form of Term Loan B Note),
and Exhibit C-3 (Form of Term Loan C Note), each annexed to this First
Amendment.
3. ACKNOWLEDGMENTS AND CONFIRMATIONS.
3.1 Collateral Documents. The Borrower and each Guarantor
that is a party thereto, hereby acknowledges and confirms that the Liens
granted or to be granted pursuant to the Collateral Documents secure or will
secure, without limitation, the Indebtedness, liabilities and obligations of
the Borrower and such Guarantors to the Lender Parties and the Administrative
Agent under the Credit Agreement as amended hereby, whether or not so stated in
the Collateral Documents, and that the terms "Obligations" and "Liabilities" as
used in the Collateral Documents (or any other term used therein to describe or
refer to the Indebtedness, liabilities and obligations of the Borrower to the
Lender Parties and/or the Administrative Agent) include, without limitation,
the Indebtedness, liabilities and obligations of the Borrower and the
Guarantors under the Credit Agreement as amended hereby and the Guaranty as
acknowledged and confirmed hereby.
3.2 Guaranty. Each of the Guarantors hereby acknowledges
and confirms that the term "Guaranteed Obligations" as used and defined in the
Guaranty (or any other term used therein to describe or refer to the
Indebtedness, liabilities and obligations of the Borrower to the Lender Parties
and/or the Administrative Agent), include, without limitation, the
Indebtedness, liabilities and obligations of the Borrower under the Credit
Agreement as amended hereby.
4. REPRESENTATIONS AND WARRANTIES. The Borrower
represents and warrants to the Lender Parties and the Administrative Agent
that:
4.1 No Default. After giving effect to this First
Amendment, no Default or Event of Default shall have occurred or be continuing.
4.2 Existing Representations and Warranties. As of the
date hereof and after giving effect to this First Amendment, each and every one
of the representations and warranties set forth in the Loan Documents is true,
accurate and complete in all respects and with the same effect as though made
on the date hereof, and each is hereby incorporated herein in full by reference
as if restated herein in its entirety, except for any representation or
warranty limited by its terms to a specific date and except for changes in the
ordinary course of business which are not prohibited by the Credit Agreement
(as amended hereby) and which do not, either singly or in the aggregate, have a
Material Adverse Effect.
<PAGE> 15
4.3 Authority; Enforceability. (i) The execution,
delivery and performance by each Loan Party of this First Amendment are within
its organizational powers and have been duly authorized by all necessary
corporate action, (ii) this First Amendment is the legal, valid and binding
obligation of each Loan Party, enforceable against such Loan Party in
accordance with its terms and (iii) this First Amendment and the execution,
delivery and performance by each Loan Party thereof does not: (A) contravene
the terms of such Loan Party's organizational documents; (B) conflict with or
result in any breach or contravention of, or the creation of any Lien (other
than Liens under the Loan Documents) under, any document evidencing any
contractual obligation to which such Loan Party is a party or any order,
injunction, writ or decree to which it or its respective property is subject;
or (C) violate any requirement of law.
5. REFERENCE TO AND EFFECT UPON THE CREDIT AGREEMENT.
5.1 Effect. Except as specifically amended hereby, the
Credit Agreement and the other Loan Documents shall remain in full force and
effect in accordance with their terms and are hereby ratified and confirmed.
5.2 No Waiver; References. The execution, delivery and
effectiveness of this First Amendment shall not operate as a waiver of any
right, power or remedy of the Administrative Agent or any Lender under the
Credit Agreement, nor constitute a waiver of any provision of the Credit
Agreement, except as specifically set forth herein. Upon the effectiveness of
this First Amendment, each reference in:
(i) the Credit Agreement to "this Agreement",
"hereunder", "hereof", "herein" or words of similar import shall mean and be a
reference to the Credit Agreement as amended hereby;
(ii) the other Loan Documents to the Credit
Agreement shall mean and be a reference to the Credit Agreement as amended
hereby;
(iii) the Loan Documents to the Loan Documents
shall be deemed to include this First Amendment;
(iv) the Credit Agreement to Exhibit C shall be
deemed to refer to Exhibit C-1, Exhibit C-2, or Exhibit C-3, as applicable; and
(v) the Loan Documents to the Term Loan Note
shall be deemed to refer to the Term Loan A Note, the Term Loan B Note, or the
Term Loan C Note, as applicable.
6. MISCELLANEOUS.
6.1 Expenses. The Borrower agrees to pay the
Administrative Agent upon demand for all reasonable expenses, including
reasonable attorneys' fees and expenses of the Administrative Agent, incurred
by the Administrative Agent in connection with the preparation, negotiation and
execution of this First Amendment.
6.2. Headings. Section headings in this First Amendment
are included herein for convenience of reference only and shall not constitute
a part of this First Amendment for any other purposes.
6.3 Law. THIS FIRST AMENDMENT SHALL BE CONSTRUED IN
ACCORDANCE WITH AND GOVERNED BY THE INTERNAL LAWS OF THE STATE OF NEW YORK.
6.4 Successors. This First Amendment shall be binding
upon the Borrower, the Lender Parties and the Administrative Agent and their
respective successors and assigns, and shall inure to the benefit of the
Borrower, the Lender Parties and the Administrative Agent and the successors
and assigns of the Lender Parties and the Administrative Agent.
<PAGE> 16
6.5 Execution in Counterparts. This First Amendment may
be executed in any number of counterparts and by different parties hereto in
separate counterparts, each of which when so executed and delivered shall be
deemed to be an original and all of which taken together shall constitute one
and the same instrument.
[Signature Page to Follow]
<PAGE> 17
IN WITNESS WHEREOF, the parties hereto have caused this First
Amendment to be executed and delivered by their respective officers thereunto
duly authorized on the date first written above.
APPLIED GRAPHICS
TECHNOLOGIES, INC.
By:
-----------------------------
Name:
----------------------------
Title:
---------------------------
FLEET BANK, N.A., AS A BANK,
AS ADMINISTRATIVE AGENT, INITIAL
ISSUING BANK AND SWING LINE BANK
By:
------------------------------
Name:
-----------------------------
Title:
----------------------------
Acknowledged and Consented to:
AMUSEMATTE CORP.
MIRAMAR EQUIPMENT, INC.
DEVON 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.
PORTAL PUBLICATIONS, LTD.
THE WINN ART GROUP, LTD.
COLOR CONTROL, INC.
AGILE ENTERPRISE, INC.
AGT SYSTEMS SERVICES, INC.
RETAIL PROFIT SOLUTIONS, INC.
For each of the forgoing corporations
By:
------------------------------
Name:
-----------------------------
Title:
----------------------------
<PAGE> 18
EXHIBIT C-1 TO THE
CREDIT AGREEMENT
FORM OF TERM LOAN A 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 amount of the Term Loan A Advances owing to the Lender by
the Borrower pursuant to the Amended and Restated Credit Agreement, dated as of
March 10, 1999 (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 party
thereto, 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 Term Loan A Advance from the date of such Term Loan A 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 1185 Avenue of the Americas, New York, New York 10036, Account No.
1510352, Attention: Loan Administration, in same day funds.
This Promissory Note is one of the Term Loan A 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 a Term Loan A Advance by the
Lender to the Borrower in an amount not to exceed the U.S. dollar amount first
above mentioned, the indebtedness of the Borrower resulting from such Term Loan
A 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. The
obligations of the Borrower under this Promissory Note, and the obligations of
the other Loan Parties under the Loan Documents, are secured by the Collateral
as provided in the Loan Documents.
<PAGE> 19
This Promissory Note shall be governed by and construed in accordance
with the laws of the State of New York.
APPLIED GRAPHICS TECHNOLOGIES, INC.
By:
--------------------------------------
Name:
------------------------------------
Title:
-----------------------------------
<PAGE> 20
EXHIBIT C-2 TO THE
CREDIT AGREEMENT
FORM OF TERM LOAN B 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 amount of the Term Loan B Advances owing to the Lender by
the Borrower pursuant to the Amended and Restated Credit Agreement, dated as of
March 10, 1999 (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 party
thereto, 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 Term Loan B Advance from the date of such Term Loan B 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 1185 Avenue of the Americas, New York, New York 10036, Account No.
1510352, Attention: Loan Administration, in same day funds.
This Promissory Note is one of the Term Loan B 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 a Term Loan B Advance by the
Lender to the Borrower in an amount not to exceed the U.S. dollar amount first
above mentioned, the indebtedness of the Borrower resulting from such Term Loan
B 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. The
obligations of the Borrower under this Promissory Note, and the obligations of
the other Loan Parties under the Loan Documents, are secured by the Collateral
as provided in the Loan Documents.
<PAGE> 21
This Promissory Note shall be governed by and construed in accordance
with the laws of the State of New York.
APPLIED GRAPHICS TECHNOLOGIES, INC.
By:
--------------------------------------
Name:
------------------------------------
Title:
-----------------------------------
<PAGE> 22
EXHIBIT C-3 TO THE
CREDIT AGREEMENT
FORM OF TERM LOAN C 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 amount of the Term Loan C Advances owing to the Lender by
the Borrower pursuant to the Amended and Restated Credit Agreement, dated as of
March 10, 1999 (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 party
thereto, 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 Term Loan C Advance from the date of such Term Loan C 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 1185 Avenue of the Americas, New York, New York 10036, Account No.
1510352, Attention: Loan Administration, in same day funds.
This Promissory Note is one of the Term Loan C 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 a Term Loan C Advance by the
Lender to the Borrower in an amount not to exceed the U.S. dollar amount first
above mentioned, the indebtedness of the Borrower resulting from such Term Loan
C 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. The
obligations of the Borrower under this Promissory Note, and the obligations of
the other Loan Parties under the Loan Documents, are secured by the Collateral
as provided in the Loan Documents.
<PAGE> 23
This Promissory Note shall be governed by and construed in accordance
with the laws of the State of New York.
APPLIED GRAPHICS TECHNOLOGIES, INC.
By:
--------------------------------------
Name:
------------------------------------
Title:
-----------------------------------
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THE 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, 1999, AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> JUN-30-1999
<CASH> 9,598
<SECURITIES> 0
<RECEIVABLES> 143,184
<ALLOWANCES> 15,485
<INVENTORY> 45,742
<CURRENT-ASSETS> 262,588
<PP&E> 161,864
<DEPRECIATION> 39,529
<TOTAL-ASSETS> 930,851
<CURRENT-LIABILITIES> 110,005
<BONDS> 308,631
0
0
<COMMON> 224
<OTHER-SE> 420,305
<TOTAL-LIABILITY-AND-EQUITY> 930,851
<SALES> 264,386
<TOTAL-REVENUES> 264,386
<CGS> 175,517
<TOTAL-COSTS> 175,517
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 7,744
<INCOME-PRETAX> 5,757
<INCOME-TAX> 2,879
<INCOME-CONTINUING> 2,878
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,312
<EPS-BASIC> 0.10
<EPS-DILUTED> 0.10
</TABLE>
