SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarter ended June 30, 1998
Commission File Number 000-24021
CUNNINGHAM GRAPHICS INTERNATIONAL, INC.
(Exact name of registrant as specified in its charter)
New Jersey 22-3561164
(State of incorporation) (I.R.S. Employer
Identification Number)
629 Grove Street
Jersey City, NJ
(Address of principal executive offices)
07310
(Zip Code)
201-217-1990
(Registrant's telephone number, including area code)
Not Applicable
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether 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 Common Stock, no par value, of the Registrant
outstanding at August 6, 1998 was 5,295,000
<PAGE>
CUNNINGHAM GRAPHICS INTERNATIONAL, INC.
FORM 10-Q FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1998
INDEX
<TABLE>
<CAPTION>
Page
----
<S> <C>
Part I -- Financial Information
Item 1 -- Consolidated Financial Statements (Unaudited)
Condensed Consolidated Balance Sheets as of December 31, 1997
and June 30, 1998 ............................................. 1
Condensed Consolidated Statements of Income for the Three Months
and Six Months Ended June 30, 1997 and 1998 ................... 2
Condensed Consolidated Statements of Cash Flows for the Six Months
Ended June 30, 1997 and 1998 .................................. 3
Notes to Condensed Consolidated Financial Statements ............. 4
Item 2 -- Management's Discussion and Analysis of Financial Condition
and Results of Operations ............................................ 7
Part II -- Other Information
Item 2 -- Changes in Securities and Use of Proceeds .................. 14
Item 6 -- Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit 10.17 - Credit and Security Agreement dated July 9, 1998
between Summit Bank and Cunningham Graphics International, Inc.
Exhibit 27 - Financial Data Schedule
(b) Reports on Form 8-K
None
</TABLE>
<PAGE>
Part I. FINANCIAL INFORMATION
CUNNINGHAM GRAPHICS INTERNATIONAL, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except share amounts)
<TABLE>
<CAPTION>
December 31, June 30,
1997 1998
------- -------
(Note) (Unaudited)
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents ........................................... $ 67 $13,737
Accounts receivable (net of allowance for doubtful accounts
of $50 in 1997 and $214 in 1998) .................................. 5,673 8,589
Inventories ......................................................... 940 1,313
Prepaid expenses and other current assets ........................... 78 728
Notes and advances receivable -- stockholder/officers ............... 136 --
Deferred income taxes ............................................... 47 282
------- -------
Total current assets ................................................... 6,941 24,649
Property and equipment -- net .......................................... 3,579 7,119
Excess of cost over net assets acquired, net of accumluated amortization -- 10,908
Other assets ........................................................... 418 147
------- -------
$10,938 $42,823
======= =======
Liabilities and stockholders' equity
Current liabilities:
Current portion of long-term debt ................................... $ 407 $ 756
Revolving lines of credit ........................................... 300 703
Current portion of obligations under capital leases ................. 178 630
Accounts payable .................................................... 3,854 3,838
Accrued expenses .................................................... 1,474 3,558
------- -------
Total current liabilities .............................................. 6,213 9,485
Long-term debt -- net of current portion ............................... 1,185 1,024
Obligations under capital leases -- net of current portion ............. 332 1,359
Deferred income taxes .................................................. 57 612
Other liabilities ...................................................... -- 115
Commitments and contingencies
Stockholders' equity:
Preferred stock, no par value, 10,000,000 authorized,
none issued ...................................................... -- --
Common stock, no par value, 30,000,000 authorized,
5,295,000 issued and outstanding ................................. 6 29,432
Additional paid-in capital .......................................... 734 --
Cummulative foreign currency translation adjustment ................. -- 12
Retained earnings ................................................... 2,411 784
------- -------
3,151 30,228
------- -------
$10,938 $42,823
======= =======
</TABLE>
The accompanying notes are an integral part of the condensed financial
statements.
Note: The balance sheet as of December 31, 1997 has been derived from the
audited financial statements at that date but does not include all of the
information and footnotes required by generally accepted accounting principles
for complete financial statements.
1
<PAGE>
CUNNINGHAM GRAPHICS INTERNATIONAL, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(in thousands, except shares and per share amounts)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
1997 1998 1997 1998
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Net sales ........................................ $ 8,506 $ 13,080 $ 17,175 $ 23,930
Operating expenses:
Costs of production .......................... 6,227 9,349 12,766 17,473
Selling, general and administration .......... 1,562 1,890 2,925 3,491
Depreciation and amortization ................ 187 283 326 466
----------- ----------- ----------- -----------
7,976 11,522 16,017 21,430
Income from operations ........................... 530 1,558 1,158 2,500
Interest income (expense) .................... (60) 18 (137) (42)
Other income (expense) ....................... (21) 12 19 19
----------- ----------- ----------- -----------
Income before income taxes ....................... 449 1,588 1,040 2,477
Provision for income taxes ................... 27 724 62 797
----------- ----------- ----------- -----------
Net income ....................................... $ 422 $ 864 $ 978 $ 1,680
=========== =========== =========== ===========
Pro Forma Data (unaudited)
Income before income taxes ....................... $ 449 $ 1,588 $ 1,040 $ 2,477
Pro forma provision for income taxes ......... 184 753 426 1,117
----------- ----------- ----------- -----------
Pro forma net income ............................. $ 265 $ 835 $ 614 $ 1,360
=========== =========== =========== ===========
Pro forma earnings per common share:
Basic ........................................ $ 0.17 $ 0.35
=========== ===========
Diluted ...................................... $ 0.17 $ 0.35
=========== ===========
Proforma weighted average number of common shares:
Basic ........................................ 4,757,190 3,865,793
=========== ===========
Diluted ...................................... 4,822,418 3,898,587
=========== ===========
</TABLE>
The accompanying notes are an integral part of the condensed financial
statements.
2
<PAGE>
CUNNINGHAM GRAPHICS INTERNATIONAL, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOW
Six Months Ended June 30, 1997 and 1998
(in thousands)
(Unaudited)
<TABLE>
<CAPTION>
1997 1998
-------- --------
<S> <C> <C>
Cash flows from operating activities
Net income ................................................. $ 978 $ 1,680
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization .......................... 325 466
Deferred income taxes .................................. (11) 154
Changes in operating assets and liabilities:
Decrease (Increase) in accounts receivable ............. 69 (1,334)
Increase in inventory .................................. (371) (176)
Decrease (Increase) in prepaid expenses and other assets 42 (501)
(Increase) decrease in other assets .................... (3) 271
Decrease in advance to officers ........................ 158 136
Decrease in accounts payable ........................... (381) (905)
Increase in accrued expenses ........................... 699 1,275
-------- --------
Net cash provided by operating activities .................. 1,505 1,066
Cash flows from investing activities
Proceeds from the disposition of equipment ............. 1,325 --
Acquisition of property and equipment .................. (1,458) (1,532)
Acquisition of Roda Limited, net of cash acquired ...... -- (6,127)
-------- --------
Net cash used in investing activities ...................... (133) (7,659)
Cash flows from financing activities
Net proceeds from sale of common stock ................. -- 29,426
Net principal payments on revolving lines of credit .... (1,050) (70)
Proceeds from long-term borrowings, third party ........ 38 --
Principal payments on long-term borrowings, third-party (49) (2,716)
Principal payments on obligations under capital lease .. (90) (188)
Principal payments on notes payable - related parties .. (227) --
Distrubuted to stockholders ............................ (211) (6,189)
Net cash (used in) provided by financing activities ........ (1,589) 20,263
-------- --------
Net (decrease) increase in cash and cash equivalent ........ (217) 13,670
Cash and cash equivalents, beginning of year ............... 543 67
-------- --------
Cash and cash equivalents, end of second quarter ........... $ 326 $ 13,737
======== ========
Supplemental disclosure of noncash investing and
financing activities
Acquisition of equipment under capital leases .............. $ -- $ 967
======== ========
</TABLE>
The accompanying notes are an integral part of the condensed financial
statements.
3
<PAGE>
CUNNINGHAM GRAPHICS INTERNATIONAL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
June 30, 1998
1. Organization and Basis of Presentation
Cunningham Graphics International, Inc. (the "Company") was incorporated in New
Jersey on January 12, 1998 with an authorized capital of 30,000,000 shares of
Common Stock, no par value (the "Common Stock") and 10,000,000 shares of
Preferred Stock, no par value. The Company provides a wide range of graphic
communication services to financial institutions and corporations, focusing on
producing and distributing time-sensitive analytical research and marketing
materials and on providing on-demand printing.
On April 22, 1998 Cunningham Graphics, Inc. (the "Predecessor") reorganized (the
"Reorganization") such that all the stockholders of the Predecessor contributed
all of the outstanding shares of common stock of the Predecessor to Cunningham
Graphics International, Inc., in exchange for a total of 2,595,260 shares of
common stock, no par value (the "Common Stock") and promissory notes (the
"Exchange Notes") in the aggregate principal amount of $2.6 million. In the
Reorganization, the Company also assumed the Predecessor's obligations under
promissory notes in the aggregate principal amount of $2.2 million, representing
undistributed S corporation taxable income (the "Distribution Notes").
Collectively the Exchange Notes and Distribution Notes are known as the
"Reorganization Notes." The Company's Registration Statement on Form S-1 (File
No. 333-46541) was declared effective by the Securities and Exchange Commission
on April 21, 1998. The Company's Registration Statement on Form S-1 (File No.
333-50713), filed pursuant to Rule 462(b) under the Securities Act of 1933, as
amended, became effective on April 22, 1998. Pursuant to the foregoing
Registration Statements, the Company's initial public offering (the "Offering")
of 2,530,000 shares of Common Stock, no par value per share, began on April 22,
1998 (See Note 4). Accordingly, the financial statements in this Quarterly
Report on Form 10-Q reflect the results of operations of the Predecessor through
April 22, 1998 (the effective date of the Offering) and the combined results of
the Company from April 23,1998 through June 30, 1998.
On April 27, 1998, the Company closed the acquisition (the "Acquisition") of the
outstanding ordinary share capital of Roda Limited, an English corporation
("Roda") for consideration consisting of cash in the amount of $4.1 million and
169,739 shares of Common Stock, valued at the Offering price of $13.00 per
share. In addition, the Company placed into custody of its lawyers in London
$1.8 million, to be utilized to acquire the outstanding preference share capital
of Roda on or before June 30, 1998. The outstanding preference share capital of
Roda was acquired on June 4, 1998 for $1.8 million. The excess of the purchase
price over the net assets acquired totaled approximately $11.0 million and was
recorded as goodwill. The goodwill is being amortized over a 40-year period.
The accompanying unaudited condensed consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information and
4
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with the instructions to Form 10-Q and Article 10 of Regulation S-X of the
Securities and Exchange Commission (the "SEC"). Accordingly, they do not include
all of the information and footnotes required by generally accepted accounting
principles for complete financial statements. In the opinion of management, all
adjustments (consisting of normal recurring accruals) considered necessary for a
fair presentation have been included. The condensed unaudited financial
statements should be read in conjunction with the final prospectus of Cunningham
Graphics International, Inc. dated April 22, 1998. Operating results for the
three month and six month periods ended June 30, 1998 are not necessarily
indicative of the results that may be expected for the entire year ending
December 31, 1998.
2. Pro forma Income Taxes
The Company elected to be taxed as an S corporation pursuant to the Internal
Revenue Code and certain state and local tax regulations. Therefore, with
regards to the Company's actual results through June 30, 1998, no provision has
been made in the accompanying financial statements for federal and certain state
and local income taxes up to April 22, 1998, since such income taxes are the
liability of the Predecessor's stockholders.
As a result of the Reorganization, the Company's S corporation election
terminated on April 22, 1998. Accordingly, in the quarter ended June 30, 1998
the Company recorded additional deferred tax assets of $235,000 and additional
deferred tax liabilities of $329,000 and a corresponding net tax charge of
$94,000 in the statement of income in accordance with the provisions of
Financial Accountings Standards Board issued Statement No. 109.
The accompanying condensed consolidated statement of operations for the three
months and six months ended June 30, 1998 and 1997 include a provision for
income taxes on an unaudited pro forma basis as if the Company had been a C
corporation subject to applicable federal and state income taxes.
3. Pro Forma Earnings Per Share
Pro forma earnings per share is computed using pro forma net income and pro
forma shares outstanding and has been determined based on the methodology
outlined immediately below. However, after April 22, 1998, the number of shares
utilized in determining earnings per share exclude the number of common shares
that the Predecessor would have needed to issue in order to settle the
Reorganization Notes.
The pro forma shares used is based on the weighted average of (i) the initial
Cunningham Graphics International, Inc. founding share, (ii) 2,595,260 shares
issued to stockholders of the Predecessor in the Reorganization, (iii) 369,231
shares, representing the value of the $4.8 million principal amount of the
Reorganization Notes at the Offering price of $13.00 per share, (iv) 169,739
shares issued in connection with the Acquisition, and (v) the 2,530,000 shares
issued in connection with the Offering, inclusive of 330,000 shares subject to
an over-allotment option.
5
<PAGE>
4. Initial Public Offering
On April 27, 1998, the Company closed the Offering of 2,530,000 shares of Common
Stock inclusive of 330,000 shares subject to an over-allotment option, at a
price of $13.00 per share. The Reorganization Notes were paid from the net
proceeds of the Offering.
5. Pro Forma Consolidated Results of Operations
The following table presents the unaudited pro forma consolidated results of
operations for the year ended December 31, 1997 and the three months and six
month periods ended June 30, 1998, as if the Acquisition had occurred on January
1, 1997: (in thousands, except earnings per share)
Ended June 30, 1998
-------------------
December 31, Three Six
1997 months months
---- ------ ------
Sales $42,705 $13,747 $26,669
Pro forma net income $ 1,576 $ 677 $ 1,329
Pro forma earnings per share common share $ .44 $ .12 $ .30
The pro forma net income amounts reflect (i) the elimination of Roda's goodwill
amortization of $90,000 for the full year 1997, $8,000 for the three months and
$31,000 for the six months ended June 30, 1998 related to the 1996 management
buyout of Roda, (ii) the Company's recognition of amortization of goodwill from
the Acquisition of $272,000 for full year 1997 and $23,000 for the period April
1 through April 26 (the Acquisition date) and $92,000 for the period January 1
through April 26, (iii) the elimination of $106,000 for full year 1997 of
minority interest in the earnings of Roda and (iv) a pro forma provision for
income taxes for the Company and Roda on a combined basis computed utilizing
effective tax rates of 41% for United States income taxes and 31% for United
Kingdom income taxes for both the full year 1997 and the three months and six
month period ended June 30, 1998. The pro forma results are not necessarily
indicative of the results of operations that would have occurred had the
acquisition taken place at the beginning of the periods presented nor are they
intended to be indicative of results that may occur in the future.
The pro forma shares used for both the full year 1997 and for the three months
and six months periods ended June 30, 1998 has been determined based on the
methodology outlined immediately below. However, after April 22, 1998, the
number of shares utilized in determining earnings per share exclude the number
of common shares that the Predecessor would have needed to issue in order to
settle the Reorganization Notes and after April 27, 1998 the number of shares
exclude the number of common shares corresponding to the $5.9 million cash paid
to Roda stockholders in connection with the Acquisition.
Pro forma shares used is based on the weighted average of (i) the initial
Cunningham Graphics International, Inc. founding share, (ii) 2,595,260 shares to
be issued in the Reorganization, (iii) 369,231 shares representing the number of
shares having a value, at the initial public offer price
6
<PAGE>
of $13.00, corresponding to the principal amount of the Reorganization Notes,
(iv) 169,739 shares issuable in connection with the Acquisition, and (v) 456,992
shares, representing the number of shares having a value at the offering price
of $13.00 per share, corresponding to the $5.9 million liability for cash
payable to the Roda stockholders in connection with the Acquisition and (vi) the
2,530,000 shares issued in connection with the Offering, inclusive of 330,000
shares subject to an over-allotment option.
6. Reporting Comprehensive Income:
The Company adopted Statement of Financial Standards (SFAS) No. 130, "Reporting
Comprehensive Income" in April 1998. SFAS No. 130 establishes standards for
reporting and display of comprehensive income (all changes in equity during a
period except those resulting from investments by owners and distributions to
owners) and its components in the financial statements. This new standard is
effective for the Company for 1998 and it is currently anticipated to only
impact the Company's financial statements related to the reporting of exchange
rate translation gains and losses of Roda. For the three and six months ended
June 30, 1998 the Company reported comprehensive income totaling $871,000, and
$1,687,000 respectively, consisting of net income plus equity adjustments from
foreign currency translations on an after-tax basis. There were no non-owner
investments and distributions changes in equity for all of 1997, therefore
comprehensive income equaled net income for the three and six month periods
ended June 30, 1997.
Item 2. Management's Discussion and Analysis and Analysis of Financial
Conditions of Operations.
Overview
Unless otherwise indicated or the context otherwise requires, all references
herein to the "Company" mean Cunningham Graphics International, Inc. and its
subsidiaries collectively subsequent to its initial public offering and the
acquisition (the "Acquisition") of Roda Limited, English company ("Roda"), and
Cunningham Graphics, Inc. (the "Predecessor") alone, with respect to periods
prior thereto.
The Company provides a wide range of graphic communications services to
financial institutions and corporations, focusing on producing and distributing
time-sensitive analytical research and marketing materials and providing
on-demand printing services.
The Company commenced its domestic operations in 1989 when it opened a printing
facility in New Jersey to provide overnight printing and delivery of
time-sensitive analytical research and marketing reports for its financial
institution customers in the New York City area. To date, the Company has
experienced significant domestic growth through the (i) expansion of its
existing customer base, (ii) addition of products and services, (iii)
assimilation of in-house printing operations, (iv) acquisition of selected
assets and (v) establishment of strategic alliances which, in the case of Roda,
led to the Acquisition on April 27, 1998.
7
<PAGE>
On April 22, 1998 the Predecessor reorganized (the "Reorganization") such that
it became a wholly owned subsidiary of the Company. On April 27, 1998, the
Company completed an initial public offering of 2,530,000 shares of its Common
Stock (the "Offering") at a price of $13.00 per share. The net proceeds of the
Offering to the Company after deducting underwriting discounts and commissions
and other expenses were $29.4 million.
Until the Reorganization, the Predecessor was taxed as an S corporation. The
Reorganization caused a termination of the S corporation status. As a result,
the Company became subject to additional federal and state income taxes. The
Company recorded additional deferred tax assets of approximately $235,000 and
additional deferred tax liabilities of approximately $329,000 and a
corresponding net tax charge of approximately $94,000 in its statement of
income. This special tax expense is reflected in the Company's provision for
income taxes on the Condensed Statement of Income for the three and six months
ended June 30, 1998.
The Company's five largest customers, all of which are financial institutions,
accounted for approximately 61% of its net sales for the six months ended June
30, 1998 and 68% for the same period in 1997. The Company's largest customer,
Goldman, Sachs & Co. accounted for approximately 24% of the Company's net sales
for the six months ended June 30, 1998 and 20% for the same period in 1997.
Although the Company has had long-term relationships with its significant
customers, the Company's customers may terminate their relationships upon
minimal, if any, advance notice and there can be no assurance that these
relationships will continue. In addition, given the concentration of customers
in the financial services industry, the Company's results will be particularly
sensitive to fluctuations in the economy or financial markets affecting this
industry.
The Company's net sales are derived primarily from providing printing and
distribution services for customers in the financial services, insurance and
publishing industries, a substantial component of which is the printing and
distribution of financial and analytical research and marketing materials for
the financial services industry. The Company also derives part of its net sales
from providing fulfillment services, including labeling, mailing, inserting, kit
assembly, and inventory management for its customers. Finally the Company
provides computer and data output services and other document related services
for customers.
The Company's operating expenses consist of the following: (i) costs of
production, (ii) selling, general and administrative expenses and (iii)
depreciation and amortization. Costs of production consist primarily of the cost
of paper and other production materials, labor, outside services, insurance and
other production expenses including repairs and maintenance and rent. Selling,
general and administrative expenses consist primarily of management,
administrative and marketing expenses, salaries for officers, salaries and
commissions earned by sales persons and professional fees.
The Company's quarterly operating results have been and will continue to be
subject to variation, depending upon factors such as the mix of business among
the Company's services, the cost of materials, labor and technology,
particularly in connection with the delivery of business services, the costs
associated with initiating new outsourcing contracts or opening new
8
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offices, the economic condition of the Company's target markets, seasonal
concerns and the cost of acquiring and integrating new businesses.
Results of Operations
The following tables set forth certain items from the Company's Statements of
Income as a percentage of net sales for the periods indicated:
Three Months ended June 30, 1998 compared to three months ended June 30, 1997
For Three Months Ended June 30,
-------------------------------
1997 1998
------ ------
Net sales 100.0% 100.0%
Costs of production 73.2 71.5
Selling, general and administrative 18.4 14.4
Depreciation and amortization 2.2 2.2
------ ------
Income from operations 6.2 11.9
Interest income (expense) (0.7) 0.1
Other income (expense) (0.2) 0.1
------ ------
Income before income taxes 5.3 12.1
Provision for income taxes 0.3 5.5
------ ------
Net Income 5.0% 6.6%
====== ======
Pro Forma Data:
Income before income taxes 5.3% 12.1%
Pro forma provision for income taxes 2.2 5.8
------ ------
Pro forma net income 3.1% 6.4%
====== ======
Net sales. The Company reported net sales of $13.1 million for the three months
ended June 30, 1998 compared to $8.5 million for the same period in 1997, an
increase of $4.6 million or 54.1%. The increase was attributable to the
inclusion of $1.9 million of Roda's net sales after the Acquisition, together
with an increase of $2.7 million in net sales from domestic operations. Domestic
sales increased in same customer base sales and value-added revenue.
Impressions, which is the Company's unit of measure and equates to total pages
printed, increased domestically by 17.5% for the three months ended June 30,
1998 over the same period in 1997.
Costs of production. Costs of production were $9.3 million for the three months
ended June 30, 1998, as compared to $6.2 million for the same period in 1997, an
increase of $3.2 million or 50.0%. Costs of production were approximately 71.5%
of net sales for the three months ended June 30, 1998, compared to 73.2% for the
same period in 1997. The reduction of costs of production as a percentage of net
sales was attributable to the inclusion of Roda's lower percentage costs of
production for the period subsequent to the Acquisition.
Selling, general and administrative expenses. Selling, general and
administrative expenses were $1.9 million for the three months ended June 30,
1998, as compared to $1.6 million for the same period in 1997, an increase of
approximately $0.3 million or 18.8%. Selling, general and
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administrative expenses were 14.4 % of net sales for the three months ended June
30, 1998 compared to 18.4% for the same period in 1997. The increase was
attributable to the inclusion of Roda's selling, general and administration
expenses after the Acquisition. The 4.0% decrease of selling, general and
administrative expenses, as a percentage of net sales was attributable to both
improved operational efficiencies in domestic operations and the inclusion of
Roda's lower selling, general and administrative expenses as a percentage of its
net sales.
Depreciation and amortization: Depreciation and amortization expenses were
$283,000 for the three months ended June 30, 1998, as compared to $187,000 for
the same period in 1997, an increase of $96,000, or 51.3% as compared to the
same period in 1997. The increase was the result of the inclusion of Roda's
expenses after the Acquisition, goodwill amortization associated with the
Acquisition and the purchase of new equipment for use in domestic operations.
Pro forma provision for income taxes. On April 22, 1998 the Company converted
from an S corporation to a C corporation for tax purposes (the "Conversion") in
conjunction with the Reorganization. For comparative purposes pro forma
provision for income taxes was calculated as if the Conversion had occurred on
January 1, 1997. The pro forma provision for income taxes was $753,000 for the
three months ended June 30, 1998, as compared to $184,000 for the same period in
1997. As a percentage of profits before taxes the tax rate was 47.4% for the
three months ended June 30, 1998 and 41.0% for the same period in 1997. The
increase in pro forma provision of income taxes as a percentage of profit before
taxes was due to a special one time $94,000 charge attributable to Conversion,
partially offset by the inclusion of Roda's operations with a tax rate of 31%.
Pro forma net income. As a result of the foregoing, pro forma net income
decreased to $835,000 from actual net income of $864,000 for the three months
ended June 30 1998 and for the same period in 1997 pro forma net income
decreased to $265,000 from actual net income of $422,000. As a percentage of net
sales, pro forma net income decreased to 6.4% from actual net income of 6.6% for
the three months ended June 30, 1998 and for the same period in 1997 pro forma
net income decreased to 3.1% from actual net income of 5.3%.
10
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Six Months ended June 30, 1998 compared to six months ended June 30, 1997
For Six Months Ended June 30,
-----------------------------
1997 1998
------ ------
Net sales 100.0% 100.0%
Costs of production 74.3 73.0
Selling, general and administrative 17.0 14.6
Depreciation and amortization 1.9 1.9
------ ------
Income from operations 6.7 10.4
Interest income (expense) (0.8) (0.2)
Other income (expense) 0.1 0.1
------ ------
Income before income taxes 6.1 10.4
Provision for income taxes 0.4 3.3
------ ------
Net income 5.7% 7.0%
====== ======
Pro Forma Data:
Income before income taxes 6.1% 10.4%
Pro forma provision for income taxes 2.5 4.7
------ ------
Pro forma net income 3.6% 5.7%
====== ======
Net sales. The Company reported net sales of $23.9 million for the six months
ended June 30, 1998 compared to $17.2 million for the same period in 1997, an
increase of $6.7 million or 39.0%. The increase was attributable to, the
inclusion of $1.9 million of Roda's net sales after the Acquisition together
with an increase of $4.8 million in net sales from domestic operations. Domestic
sales increased in same customer base sales and value-added revenue.
Impressions, which is the Company's unit of measure and equates to total pages
printed, increased domestically by 12.5% for the six months ended June 30, 1998
compared to same period in 1997.
Costs of production. Costs of production were $17.5 million for the six months
ended June 30, 1998, as compared to $12.8 million for the same period in 1997,
an increase of $4.7 million or 36.7%. Costs of production were approximately
73.0% of net sales for the six months ended compared to 74.3% for the same
period in 1997. The reduction of costs of production as a percentage of net
sales was attributable to the inclusion of Roda's lower percentage costs of
production for the period subsequent to the Acquisition.
Selling, general and administrative expenses. Selling, general and
administrative expenses were $3.5 million for the six months ended June 30,
1998, as compared to $2.9 million for the same period in 1997, an increase of
approximately $0.6 million or 20.7%. Selling, general and administrative
expenses were 14.6 % of net sales for the six months ended June 30, 1998
compared to 17.0% for the same period in 1997. The increase in expenses was
attributable to the inclusion of Roda's selling, general and administration
expenses after the Acquisition and the hiring of additional personnel in
domestic operations to support growth. The 2.4% decrease in selling, general and
administrative expenses, as a percentage of net sales, was the result of lower
11
<PAGE>
domestic selling expenses as a percentage of net sales, and the inclusion after
the Acquisition of Roda's lower selling, general and administrative expenses as
a percentage of net sales.
Depreciation and amortization: Depreciation and amortization expenses were
$466,000 for the six months ended June 30, 1998, as compared to $326,000 for the
same period 1997, an increase of $140,000, or 42.9%. The increase was the result
of, the inclusion of Roda's expenses after the Acquisition, goodwill
amortization associated with the Acquisition and the purchase of new equipment
for use in the Company's domestic operations.
Pro forma provision for income taxes. On April 22, 1998 the Company converted
from an S corporation to a C corporation for tax purposes (the "Conversion") in
conjunction with the Reorganization. For comparative purposes pro forma
provision for income taxes was calculated as if the Conversion occurred on
January 1, 1997. The pro forma provision for income taxes was $1.1 million for
the six months ended June 30, 1998, as compared to $426,000 for the same period
in 1997. As a percentage of profit before taxes the tax rate was 45.1% for the
six month period ended June 30, 1998, as compared to 41% for same period in
1997. The increase in pro forma provision for income taxes, as a percentage of
profit before taxes, was due to a special one time charge of $94,000 charge
attributable to the Conversion, partially offset by inclusion of Roda's
operations at a 31% tax rate after the Acquisition.
Pro forma net income. As a result of the foregoing, pro forma net income
decreased to $1.4 from actual net income of $1.7 million for the six months
ended June 30 1998 and pro forma net income decreased to $614,000 from actual
net income of $978,000 for the same period in 1997. As a percentage of net
sales, pro forma net income decreased 5.7% of net sales from actual net income
of 7.0% for the six months ended June 30, 1998 and pro forma net income
decreased to 3.6% from actual net income of 6.1% for the same period in 1997.
Liquidity and Capital Resources
As a result of the Offering, the Company received approximately $29.4 million
net proceeds, after deducting underwriting discounts and commissions and other
offering expenses. The Company used $6.1 million to pay for the acquisition of
Roda, $4.8 million to pay notes to stockholders of the Predecessor, $3.6 million
to repay indebtedness of the Company and Roda, $2.2 million for payment to trade
creditors to take advantage of discounts, and $1.3 million for equipment
purchases. See "Part II, Item 2, Changes in Securities and Use of Proceeds." The
Company expects to use the remaining net proceeds from the Offering to fund its
growth strategy.
Until the closing of the Offering, the Company financed its operations,
including working capital and equipment acquisitions, using bank borrowing,
vendor financing, financing lease transactions, as well as from cash flow
generated from operating activities, and stockholder debt and equity
contributions.
Net cash provided by operating activities was $1.1 million for the six months
ended June 30, 1998 and $1.5 for the same period in 1997.
12
<PAGE>
Net cash used in investing activities was $7.7 million for the six months ended
June 30, 1998 and $ 1.5 million for the same period in 1997. Net cash of $1.3
million was provided by investing activities for the six month period ended June
30, 1997. Net cash provided by investing activities for the six months ended
June 30, 1997 was attributable to cash generated from the sale and leaseback of
certain equipment for $1.3 million.
Net cash provided by financing activities was $20.3 million for the six months
ended June 30, 1998, as compared to a net cash used in financing activities of
$1.6 million for the same period in 1997. Net cash provided by financing
activities is attributable to the $29.4 million net proceeds of the Offering,
reduced by, $2.2 million to repay the Summit Bank indebtedness, $1.4 million to
repay certain indebtedness of Roda and $4.8 million to repay indebtedness to the
stockholders of the Predecessor incurred in the Reorganization.
On July 9, 1998 the Company entered into a $30.0 million revolving line of
credit facility with Summit Bank. The revolving line of credit may be used for
acquisitions and includes sub-limits of $5.0 million for purchase of equipment
and $7.5 million for working capital. The facility is for three years, maturing
July 9, 2001 and has annual extension options. The covenants of the revolving
line of credit include, among other things, limitations on the disposition of
material amounts of assets and the incurrence of additional indebtedness. In
addition certain financial covenants, as to minimum net worth, maximum leverage
and debt coverage ratios must be maintained. Complying with the net worth
covenant could restrict the ability of the Company to pay dividends on Common
Stock, although the Company does not have the intention of paying dividends for
the foreseeable future. As at August 10, 1998, $27.9 million remained available
for borrowing under the line of credit.
At June 30, 1998 the Company had a $2.0 million revolving credit facility with
Summit Bank that would have expired on July 31, 1998. At June 30, 1998, there
are no outstanding borrowings under such facility. This $2.0 million credit
facility terminated upon the parties entering into the new credit facility.
Roda has a credit facility with the Bank of Scotland (the "Roda Facility")
consisting of a $2.0 million ((pound)1.2 million) term loan and a $750,000
((pound)450,000) revolving line of credit. The line of credit is reviewed by the
bank annually for renewal, but is payable on demand. The debt is collateralized
by substantially all of Roda's assets. As of June 30, 1998, approximately
$700,000 ((pound)420,000) was outstanding on the credit facility and $1.4
million ((pound)840,000) was outstanding under the term loan. The term loan is
payable in equal monthly installments through October 20, 2001. Certain
technical defaults under the Roda Facility existed as of June 30, 1998 but have
been waived by the Bank. On August 10, 1998 the Company, through its revolving
credit facility with Summit Bank, issued a Standby Letter of Credit to Bank of
Scotland to guarantee the Roda Facility and in consideration therefor, the Bank
of Scotland eliminated existing financial covenants under such line of credit.
13
<PAGE>
Recent Pronouncements of the Financial Accounting Standards Board
Recent pronouncements of the Financial Accounting Standards Board ("FASB") which
were not required to be adopted at December 31, 1997, include the following
Statements of Financial Accounting Standards ("SFAS").
SFAS No. 131, "Disclosure about Segments of an Enterprise and Related
Information" which will be effective for the Company for the year ending
December 31, 1998, establishes standards for reporting information about
operating segments in the annual financial statements, selected information
about operating segments in the interim financial reports and disclosures about
products and services, geographic areas and major customers. This new standard
will require the Company to report financial information on the basis that is
used internally for evaluating segment performance and deciding how to allocate
resources to segments, which may result in more detailed information in the
notes to the Company's financial statements than is currently required and
provided. The Company has not yet determined the effects, if any, of
implementing SFAS 131 on its reporting financial information.
Forward Looking Statements
When used in this and in future filings by the Company with the Securities and
Exchange Commission, in the Company's press releases and in oral statements made
with the approval of an authorized executive officer of the Company, the words
or phrases "will likely result." "expects," "plans," "will continue," " is
anticipated," "estimated," "project" or "outlook" or similar expressions
(including confirmations by an authorized executive officer of the Company of
any such expressions made by a third party with respect to the Company) are
intended to identify forward-looking statements within the meaning of the
Private Securities Litigation Reform Act of 1995. The Company wishes to caution
readers not to place undue reliance on any such forward-looking statements, each
of which speak only as of the date made. Such statements are subject to certain
risks and uncertainties that could cause actual results to differ materially
from historical earnings and those presently anticipated or projected. The
Company has no obligation to publicly release the result of any revisions that
may be made to any forward-looking statements to reflect anticipated or
unanticipated events or circumstances occurring after the date of such
statements.
PART II OTHER INFORMATION
Item 2. Changes in Securities and Use of Proceeds.
(d) The Company's Registration Statement on Form S-1 (File No. 333-46541) was
declared effective by the Securities and Exchange Commission on April 21, 1998.
The Company's Registration Statement on Form S-1 (File No. 333-50713), filed
pursuant to Rule 462(b) under the Securities Act of 1933, as amended, became
effective on April 22, 1998. Pursuant to the foregoing Registration Statements,
the Company's initial public offering (the "Offering") of Common Stock, no par
value per share, began on April 22, 1998. All of the 2,530,000 shares of Common
Stock offered by the Company, inclusive of 330,000 shares subject
14
<PAGE>
to an over-allotment option, were sold on April 22 and 23, 1998. The managing
underwriters for the Offering were Schroder & Co. Inc. and Prudential Securities
Incorporated.
The aggregate offering price of the securities sold was $32,890,000. The
Company incurred underwriting discounts and commissions of $2,302,300 and
reasonably estimates that it incurred $1,150,000 on account of Securities and
Exchange Commission registration fees, NASD filing fee, Nasdaq National Market
Fee, "Blue Sky" fees, legal and accounting fees, printing costs and transfer
agent fees. None of the expenses were incurred to directors, officers or persons
owning 10% or more of any class of the Company's securities.
The net proceeds of the Offering after deducting expenses was $29,437,700,
which has been applied to date, as follows:
(A) Acquisition of ordinary share capital
of Roda Limited, an English corporation
("Roda"): $ 4,103,148
(B) Acquisition of preference share capital
of Roda: $ 1,837,745
(C) Advance to Roda for repayment of
indebtedness: $ 1,429,305
(D) Acquisition cost associated with Roda $ 166,000
(E) Payment of indebtedness due to
stockholders of the Company prior to
the offering: $ 4,800,000
(F) Payment of indebtedness to bank: $ 2,200,000
(G) Payment of trade creditors to take
advantage of discounts: $ 2,162,391
(H) Equipment purchases $ 1,323,000
-----------
TOTAL $18,021,589
===========
The remaining $11.4 million net proceeds have been invested in short term high
grade Commercial Paper and money market funds.
15
<PAGE>
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit 10.17 - Credit and Security Agreement dated July 9, 1998
between Summit Bank and Cunningham Graphics International, Inc.
Exhibit 27 - Financial Data Schedule
(b) Reports on Form 8-K
None
16
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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.
CUNNINGHAM GRAPHICS INTERNATIONAL, INC.
(Registrant)
By: /s/ Michael R. Cunningham August 11, 1998
- ------------------------------------- -------------------
Michael R. Cunningham (Date)
President and Chief Executive Officer
(Duly authorized officer)
By: /s/ Robert M. Okin August 11, 1998
- ------------------------------------- -------------------
Robert M. Okin (Date)
Chief Financial Officer
(Principal Financial Officer)
17
Exhibit 10.17
SUMMIT BANK
TO
CUNNINGHAM GRAPHICS INTERNATIONAL, INC.
$30,000,000 REVOLVING CREDIT FACILITY
JULY 9, 1998
CREDIT AND SECURITY AGREEMENT
<PAGE>
INDEX
PAGE
Section 1 DEFINITIONS ................................................... 3
Section 2 AMOUNTS AND TERMS OF LOAN ..................................... 8
Section 3 SECURITY ...................................................... 13
Section 4 CONDITIONS PRECEDENT .......................................... 13
Section 5 REPRESENTATIONS AND WARRANTIES ................................ 15
Section 6 COVENANTS BY BORROWER ......................................... 19
Section 7 EVENTS OF DEFAULT ............................................. 28
Section 8 BANK'S RIGHTS AND REMEDIES .................................... 29
Section 9 BORROWER'S RIGHTS AND REMEDIES ................................ 31
Section 10 MISCELLANEOUS PROVISIONS ...................................... 31
ENVIRONMENTAL RIDER ...................................................... 39
2
<PAGE>
CREDIT AND SECURITY AGREEMENT
THIS AGREEMENT entered into this 9th day of July, l998 between Cunningham
Graphics International, Inc., a corporation organized under the laws of the
State of New Jersey, and Summit Bank, a banking association, organized and
existing under and by virtue of the laws of the State of New Jersey.
SECTION 1
DEFINITIONS
1.1 The following terms as used in this Agreement shall have the meanings
hereinafter provided:
(a) "Advances": Extensions of credit under any loan.
(b) "Affiliate": Any Person or any group acting in concert in respect
of such Person that directly or indirectly, through one or more Persons, is
in control of, is controlled by, or is under common control with such
Person.
(c) "Agreement": The contents hereof together with the contents of any
and all Schedules and Riders annexed hereto and all other agreements,
instruments or documents executed or delivered in connection herewith,
including without limitation, the Loan Documents.
(d) "Alternate Base Rate": The higher of (i)the Bank's Base Rate or
(ii) the Federal Funds rate in effect on the date the interest rate is
computed plus one-half (0.5%)percent, minus, in either case, the Applicable
Margin.
(e) "Applicable Margin": The Applicable Margin for Eurodollar Loans or
Base Rate Loans, as the case may be, as computed in accordance with
Schedule 1.1(e) annexed hereto.
(f) "Bank": Summit Bank, a banking association, organized and existing
under and by virtue of the laws of the State of New Jersey.
(g) "Bank's Base Rate": The rate announced from time to time by the
Bank as its "base rate", "floating base rate" or "base lending rate" at its
main office as a means of pricing some loans to its customers, from which
rate other borrowing rates may be determined but which rate is neither tied
to any external rate of interest or base nor does it necessarily represent
the lowest rate of interest charged by the Bank to any particular class or
category of customers. The Base Rate may be changed from time to time by
the Bank and shall be effective on the date any such change occurs without
notice to the Borrower.
(h) "Base Rate Loan": Any Advance made hereunder
3
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which bears interest at a rate based on the Bank's Base Rate.
(i) "Bank's Rights and Remedies": All of the rights and remedies of
the Bank described in Section 8.
(j) "Borrower": Unless the context otherwise indicates, Borrower shall
mean Cunningham Graphics International, Inc., a New Jersey corporation and
its successors and assigns.
(k) "Business Day": Any day except Saturday or Sunday or other day on
which Banks in the State of New Jersey are authorized or required to close.
(l) "Collateral" means:
(i) EQUIPMENT of the Borrower financed with funds loaned to the
Borrower under the $5,000,000 sublimit for equipment purchases under
the Revolving Line of Credit provided for herein (the "Equipment").
(ii) CAPITAL STOCK: Sixty-six (66%) percent of the capital stock
of Roda Limited as represented by Certificate No. 15 or any
subsequently issued certificates.
(iii) RECORDS which means all of the Borrower's records
evidencing Borrower's ownership of the Collateral whether in printed,
written, electronic, magnetic, optical or other form, in all of the
above cases, whether now or hereafter existing or arising;
(iv) PROCEEDS which means all additions, substitutions,
replacements, and increments to the above-listed Collateral, as well
as proceeds of all of the above-listed Collateral in whatever form,
including cash, negotiable instruments and other instruments for the
payment of money, chattel paper, security agreements or other
documents, insurance or condemnation awards and other Collateral
purchased with proceeds.
(m) "Controlled Group": As such term is defined in the Section 414 of
the Internal Revenue Code of 1986, as amended.
(n) "Default": An event or condition, which with the passage of time
or the giving of notice, or both, would constitute an Event of Default.
(o) "Demand Deposit Account": The Borrower's operating accounts
established and maintained by the Borrower with the Bank pursuant to
Section 2.1(b).
(p) "EBITDA": As at the end of any measuring period specified herein,
the consolidated earnings of the Borrower before interest, taxes,
depreciation and amortization, computed in accordance with GAAP.
4
<PAGE>
(q) "Eurodollar Business Day": Any Business Day on which commercial
banks are open for international business (including dealings in dollar
deposits) in London, England.
(r) "Eurodollar Loan": Any Advance made hereunder which bears interest
at a rate based on LIBOR.
(s) "Eurodollar Period": As to each Eurodollar Loan, the thirty (30),
sixty (60) or ninety (90) day period commencing on the date specified by
the Borrower in the applicable Notice of Borrowing, provided that:
(i) The first day of any Eurodollar Period shall be a Eurodollar
Business Day;
(ii) Any Eurodollar Period that would otherwise end on a day that
is not a Eurodollar Business Day shall be extended to the next
succeeding Eurodollar Business Day; and
(iii) No Eurodollar Period shall extend beyond the Maturity Date.
(t) "ERISA": The Employee Retirement Income Security Act of 1974, as
amended.
(u) "Event of Default": Any one of the occurrences described in
Section 7.
(v) "GAAP": Generally accepted accounting principles in the United
States of America consistently applied.
(w) "Guarantor": Cunningham Graphics, Inc. and any U.S. Subsidiary
hereafter organized or acquired, and their respective successors and
assigns.
(x) "LIBOR": With respect to any Eurodollar loan, the rate at which
the Bank is offered deposits in U.S. dollars 11:00 a.m., London time, on
the second Eurodollar Business Day preceding the date of the making of such
Eurodollar Loan in the London Interbank Eurodollar Market for the relevant
Eurodollar Period and in an amount approximately equal to the amount of
such Eurodollar Loan and in like funds. The Bank's determination of LIBOR
shall be conclusive in the absence of manifest error.
(y) "Liens": All mortgages, chattel mortgages, liens, judicial liens,
encumbrances, security interests, charges, pledges, hypothecations,
assignments, assignments of accounts receivable, conditional sale or other
title retention agreements, and the like, relating to any personal and
moveable property interest of the Borrower, whether legal or equitable.
(z) "Loan Documents": This Agreement, the Revolving Credit Note, the
Reimbursement and Security Agreement for
5
<PAGE>
Continuing Commercial Letters of Credit, the Powers of Attorney, the
Guaranty, the Security Agreement, the Funds Transfer Agreement, the Letter
Authorization, and any other document, agreement, instrument or writing
executed and delivered pursuant hereto or thereto.
(aa) "Maturity Date": July 9, 2001 or such later date as the same may
be from time to time extended at the sole option of the Bank.
(bb) "Notice of Borrowing": A notice signed by the president, chief
financial officer, vice president of finance, treasurer or comptroller of
the Borrower requesting an Advance and setting forth the information
required pursuant to Section 2.1(b).
(cc) "Obligations": All loans, advances, indebtedness, notes, letters
of credit, guaranties, agreements, liabilities and amounts, liquidated or
unliquidated, each of every kind, nature and description, of the Borrower
and its Subsidiaries to or with the Bank, whether arising under this
Agreement or otherwise, including, without limitation, principal and
interest, charges, expenses, attorney's fees, and whether secured or
unsecured, direct or indirect, absolute or contingent, joint or several,
due or to become due, now existing or hereafter contracted (including
without limitation any participation or interest of the Bank in any
obligation of the Borrower or such Subsidiaries to others) acquired
outright, conditionally or as collateral security from another, and whether
incurred by the Borrower as principal, surety, endorser, guarantor,
accommodation party or otherwise, together with any extensions, renewals or
modifications thereof, and also including any relationship whereby the
obligor is bound to render a performance in favor of an obligee.
(dd) "PBGC": The Pension Benefit Guaranty Corporation.
(ee) "Permitted Lien":
(i) Liens for taxes, assessments or other governmental charges
not yet due and payable;
(ii) Statutory Liens of Landlords, carriers, warehousemen,
mechanics, materialmen and other similar Liens imposed by law, which
are incurred in the ordinary course of business for sums not more than
thirty (30) days delinquent or which are being contested in good
faith; provided that a reserve or other appropriate provision shall
have been made therefor and the aggregate amount of liabilities
secured by such Liens is less than $50,000.00.
(iii) Liens (other than any Lien imposed by ERISA or any rule or
regulation promulgated thereunder) incurred or deposits made in the
ordinary course of business in connection with workers compensation,
unemployment insurance and other types of social security, or to
secure the performance of tenders,
6
<PAGE>
statutory obligations, surety, stay, customs and appeal bonds, bids,
leases, government contracts, trade contracts, performance and return
of money bonds and other similar obligations(exclusive of obligations
for the payment of borrowed money);
(iv) Deposits, in an aggregate amount not to exceed $100,000.00
made in the ordinary course of business to secure liability to
insurance carriers;
(v) Liens for purchase money obligations, provided that: (a) the
purchase of the asset subject to any such Lien is permitted under
Section 2.2; (b) the indebtedness secured by any such Lien is
permitted under Subsection 6.20; and (c) any such Lien encumbers only
the asset so purchased;
(vi) Any attachment or judgment Lien not constituting an Event of
Default under Section 7;
(vii) Easements, rights of way, restrictions, and other similar
charges or encumbrances not interfering in any material respect with
the ordinary conduct of the business of Borrower or any of its
Subsidiaries;
(viii) Any interest or title of a lessor or sublessor under any
lease permitted by Section 6.20(d);
(ix) Liens in favor of the Bank; and
(x) Liens existing on the date hereof and renewals and extensions
thereof, which Liens are set forth on Schedule 5.8 hereof.
(ff) "Person": Any individual, sole proprietorship, corporation,
partnership, association, limited liability company, joint stock company,
trust, estate, unincorporated organization, joint venture, company, entity,
party, court or government or political subdivision or agency thereof.
(gg) "Plan": Any plan subject to the minimum funding requirements of
Section 412 of the Internal Revenue Code of 1986, as amended.
(hh) "Powers of Attorney": The Powers of Attorney executed by the
Borrower and Guarantor substantially in the form annexed hereto as Schedule
4.1(n).
(ii) "Reportable Event": As such term is defined in Title IV of ERISA.
(jj) "Revolving Credit Note": The Master Revolving Credit Note
described in Schedule 4.1(b) and any revolving credit notes in renewal
thereof or substitution or replacement therefor.
(kk) "Revolving Line of Credit": The line of credit described in
Subsection 2.1.
7
<PAGE>
(ll) "Revolving Loan" or "Loan". The revolving loan or loans made
pursuant to this Agreement.
(mm) "Subsidiary": Any corporation more than a majority (by number of
shares or votes) of the common stock which is at the time owned or
controlled by the Borrower or a direct or indirect Subsidiary of the
Borrower.
(nn) "Total Funded Debt": The outstanding principal amount of all
borrowings of the Borrower, including without limitation, bank borrowings
and borrowings from other lenders, and borrowings made pursuant to
securities issued and sold by the Borrower, and borrowings where interest
is inputed in accordance with GAAP plus the outstanding amounts due under
capitalized leases, but excluding, however, trade debt incurred in the
ordinary course of Borrower's business.
(oo) "U.S. Subsidiary": Any Subsidiary of Borrower organized under the
laws of a state within the United States of America.
1.2 Any accounting terms used in this Agreement which are not specifically
defined shall have the meanings customarily given thereto in accordance with
GAAP.
1.3 Terms such as "accounts", "accounts receivable", "con-tract rights",
"letters of credit", "advices", "confirmations", inventory", "equipment",
"instruments", "chattel paper", "docu-ments of title", "goods", "general
intangibles", "account debt-ors", "proceeds", "products", and the like, shall,
unless other-wise specifically defined herein, have the meanings applicable to
them for the purposes of Article 9 (Secured Transactions) of the Uniform
Commercial Code in force and effect in the State of New Jersey at the date of
this Agreement.
SECTION 2
AMOUNTS AND TERMS OF LOAN
2.1 Subject to the terms and conditions of this Agreement and provided no
event or condition constituting a Default or an Event of Default has occurred:
(a) The Bank agrees to lend and to make Advances to the Borrower from
time to time until the Maturity Date in amounts which shall not exceed in
the aggregate at any one time the sum of THIRTY MILLION DOLLARS
($30,000,000.00).
(b) Advances made to the Borrower shall be effected by the Bank
automatically crediting the Borrower's Demand Deposit Account (or other
demand deposit account), which shall be opened and maintained with
sufficient funds for all required payments and kept in good standing by the
Borrower at the Bank for the entire term of the Loans or any other loan
made by Bank to Borrower for
8
<PAGE>
all principal and interest payments due under the Revolving Credit Note.
Borrower shall, at least two (2) Eurodollar Business Days prior to each
Eurodollar Loan and by ten thirty (10:30) a.m. New Jersey Time on the
Business Day any other Advance is requested, deliver to each Bank a Notice
of Borrowing setting forth the following information:
(i) The date, which shall be a Business Day, on which such
Advance is to be made;
(ii) The total principal amount of such Advance;
(iii) The interest rate option selected; and
(iv) The applicable Eurodollar Period, in the event said Advance
is in the form of a Eurodollar Loan. In the event that Borrower
requests a Eurodollar Loan and such Eurodollar Loan is not drawn down,
Borrower shall compensate the Bank in accordance with Section 10.5(a)
as if such Eurodollar Loan had been prepaid on the date of the
borrowing applicable thereto. Notwithstanding anything contained
herein to the contrary, no Eurodollar Loan advanced hereunder shall be
less than $200,000.
(c) The unpaid principal amount of the Advances from time to time
outstanding under the Revolving Loan shall bear interest at a rate of
interest per annum equal to: (i) the Alternate Base Rate for each Base Rate
Loan; or (ii) LIBOR plus the Applicable Margin for each Eurodollar Loan,
each computed daily, for the actual number of days elapsed as if each full
calendar year consisted of three hundred sixty (360) days. Each time the
Bank's Base Rate shall change, the rate of interest associated with such
rate shall change contemporaneously without notice to the Borrower, but in
no event shall the rate exceed the maximum rate of interest permitted by
law. The rate of interest on each Eurodollar Loan shall not change and
shall remain constant for the entire Eurodollar Period.
(d) Except as otherwise set forth in this Subsection, the unpaid
principal balance of all Advances under the Revolving Loan and all unpaid
and accrued interest thereon shall be payable by Borrower to the Bank on
the Maturity Date in immediately available funds. For Eurodollar Loans
under the Revolving Loan, the unpaid principal balance of all such Advances
and all unpaid and accrued interest thereon shall be payable by the
Borrower to the Bank on the last Eurodollar Business Day of the applicable
Eurodollar Period. At least two (2) Eurodollar Business Days prior to the
expiration of the relevant Eurodollar Period, the Borrower shall notify the
Bank as to whether the Borrower intends to repay such Eurodollar Loan on
the last
9
<PAGE>
Eurodollar Business Day of such Eurodollar Period or if the Borrower wishes
to request a new Advance in the amount of such Eurodollar Loan. In the
event the Borrower has not made a request for a new Advance in the form of
a Eurodollar Loan in accordance with the terms hereof and the Borrower
fails to repay such Eurodollar Loan on the last Eurodollar Business Day of
such Eurodollar Period, said Eurodollar Loan at the end of its Eurodollar
Period shall automatically be converted to a Base Rate Loan. If the
Borrower notifies the Bank that it is requesting a new Advance, such
Advance shall be made in accordance with the provisions of Section 2.1(b).
Except for Eurodollar Loans, payment of interest on all outstanding
Advances shall occur monthly, in arrears, in immediately available funds,
on the first Business Day of each month beginning on the first Business Day
in the month next succeeding the date of this Agreement. For each
Eurodollar Loan, interest payable thereon shall be due and payable in
arrears, in immediately available funds, on the last day of the Eurodollar
Period for said Eurodollar Loan (unless such date is not a Eurodollar
Business Day, then the next Eurodollar Business Day). All payments of
interest and principal, however designated by the Borrower, shall be
applied first on account of accrued interest and the remainder of such
payments, if any, on account of the unpaid principal balance.
(e) In the event that any change in applicable law, regulation,
condition, directive or interpretation occurs which (i) subjects the Bank
to any tax with respect to any amount paid or to be paid by the Bank under
the Loan Documents or changes the basis of taxation of payments to the Bank
on any amounts payable under the Loan Documents (other than any tax
measured by or based upon the overall net income of the Bank); or (ii)
imposes, modifies or deems applicable any reserve or deposit requirements
against the assets held by the Bank in connection with advances or payments
by the Bank pursuant to the Loan Documents; or (iii) imposes upon the Bank
any other condition with respect to any amounts paid or payable to or by
the Bank; and the result of any of the foregoing is to increase the cost to
the Bank of making any loans under the Loan Documents, or to reduce the
rate of return on the Bank's capital to a level below that which the Bank
would have achieved but for such event, then and in such event the Bank
shall deliver to the Borrower written notice of the happening of such
event, and the Bank shall be entitled to adjust the terms of the Loan
Documents to make up any increased cost or reduction of payment or return
experienced by the Bank as a result of such event. In the event the
Borrower is not in agreement with said adjustment, the Borrower shall have
the right to pay in full all principal, interest, charges and sums due
under the Loan Documents, without consideration of such adjustment, within
ninety (90) days of such notice.
(f) The Borrower hereby directs the Bank to debit the Borrower's
Demand Deposit Account(s) on any date on which a payment is due under the
Revolving Credit Loan, in an amount equal to such payment. Any failure or
delay by the Bank in debiting said account for said payments shall not
discharge or relieve the Borrower's obligation to make such payments.
(g) The Bank shall also issue upon the request of the Borrower standby
and/or documentary letters of credit; provided,
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however, that amounts available under the Revolving Loan shall be reduced
by an amount equal to the aggregate amounts letters of credit issued by the
Bank for the benefit of the Borrower. The Borrower also agrees to pay all
standard fees and charges required by the Bank in accordance with its
announced schedule of standard fees and charges applicable to letters of
credit. Borrower shall comply with all the terms and conditions thereof in
connection with any letters of credit issued, such agreements and documents
being fully incorporated herein by reference. At least once each month, the
Bank shall render and send to Borrower a statement of account showing
amounts loaned, all other charges, expenses and items chargeable to the
Borrower, payments made by the Borrower against the Obligations arising
pursuant to the Revolving Loan, other appropriate debits and credits and
the total of the Obligations of the Borrower to the Bank as of the date of
the statement of account for loans pursuant to the Revolving Loan. The
statement of account shall be conclusively presumed to be correct in all
respects, except for specific objections which the Borrower makes in
writing within thirty (30) days from the date upon which the statement of
account is sent.
(h) The maximum amount of the Revolving Credit Loan shall be evidenced
by the Revolving Credit Note substantially in the form attached hereto as
Schedule 4.1(b), and the balance due from time to time on the Revolving
Credit Note shall be conclusively evidenced by the Bank's records of
disbursements and repayments.
(i) The Bank shall not be obligated to lend to the Borrower hereunder
unless at the time of any such loan:
(A) The Borrower shall have complied and shall be then in
material compliance with all the terms, covenants and conditions of
this Agreement which are binding upon it;
(B) All representations and warranties contained herein and
otherwise made by Borrower in connection herewith shall be true and
correct with the same effect as though such representations and
warranties were made on and as of the date of the Borrowing;
(C) No condition, event or act exists which would constitute an
Event of Default as defined herein, and no condition, event or act
exists which with the giving of notice or the lapse of time, or both,
would constitute an Event of Default; and
(D) No litigation and no proceeding nor investigation by or
before any court, public body, agency or authority is impending or
threatened, of which is aware, which may adversely affect the
financial condition, business or operations of Borrower and its
Subsidiaries taken as a whole.
(j) The Revolving Line of Credit shall expire on the
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Maturity Date unless extended, and all unpaid principal together with all
accrued and unpaid interest, charges, fees and all other sums computed in
accordance with this Agreement and the Revolving Credit Note shall become
due and payable on the Maturity Date.
(k) After the Borrower shall have provided to the Bank its most recent
Form 10-K in accordance with Subsection 6.12(a), it may from time to time
request that the Bank extend the Maturity Date for an additional one-year
period. If at the time of any such request, the Borrower is in full
compliance with the terms and conditions of this Agreement, the Bank will
consider such request, and, at its sole option, may determine to extend the
Maturity Date for one year. In connection with the first one-year
extension, if any, of the Maturity Date, the Bank shall not charge the
Borrower a commitment or similar fee as a condition of such extension. The
Bank will notify the Borrower within sixty (60) days of the request as to
whether or not it will extend the Maturity Date.
2.2 (a) Subject to compliance with the terms and conditions of this
Agreement, the Borrower shall have the right to use up to $30,000,000 of the
Revolving Line of Credit for acquisitions of other businesses, provided that in
each case the acquiree is in the same or substantially similar line of business
as the Borrower and its Subsidiaries, as set forth in Section 5.5 hereof, and
further provided that the Borrower, prior to and immediately following the
acquisition, will be in compliance with the financial covenants set forth in
Section 6.21 hereof.
(b) Notwithstanding the foregoing, the Borrower may:
(i) Use up to $5,000,000 of the Revolving Line of Credit for the
purchase of Equipment for use by the Guarantor or any other U.S.
Subsidiary. Each such Borrowing shall be in the minimum amount of
$100,000. In the event that the Borrower purchases Equipment which
costs less than $100,000, it may, at its option, aggregate same with
other similar purchases for purposes of availing itself of the
$5,000,000 Equipment sublimit, provided that the total of such
purchases is at least $100,000. Up to five (5%) percent of the cost of
each purchase of Equipment may be used for setup, installation and
similar costs; and
(ii) Use up to $7,500,000 of the Revolving Line of Credit for
working capital.
2.3 Except with respect to Eurodollar Loans, amounts borrowed pursuant to
this Agreement and the Revolving Credit Note may be prepaid, in whole or in
part, without premium or penalty, provided that partial prepayments shall be in
multiples of $5,000.
2.4 During the term of this Agreement the Borrower shall also pay to the
Bank, quarter-annually in arrears, a commitment fee equal to one quarter (0.25%)
percent of the average daily unused portion of the Revolving Line of Credit
during the
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immediately preceding quarter (calculated on the basis of actual number of days
elapsed in a year of 360 days), commencing with the quarter-annual period
beginning January 1, 1999. Payments shall be due and payable on the fifteenth
day following the end of each calendar quarter, the first such payment due and
payable on April 15, 1999. The Borrower hereby directs the Bank to debit the
Borrower's Operating Account on any date on which a commitment fee is due, in an
amount equal to such payment. Any failure or delay by the Bank in debiting said
account for said payments shall not discharge or relieve the Borrower's
obligation to make such payments.
(j) Upon the occurrence and during the continuance of any Event of Default
hereunder, the rate used to calculate interest due with respect to any Loans
may, at the option of the Bank, increase to a rate of 2% over the rate of
interest established in this Agreement or in any Note. In no event, however,
shall the rate of interest exceed the maximum allowable by law.
(k) In the event any payment under the Loan Documents is received by the
Bank more than ten (10) days after the date due, the Borrower shall, to the
extent permitted by law, pay the Bank a late charge of 5% of the overdue
payment; provided, however, that in no event shall such charge be less than
$25.00 or more than $5,000.00. Any such late charge assessed is immediately due
and payable. Any payment received after 3:00 P.M. on a banking day shall be
deemed to have been received on the next succeeding banking day.
SECTION 3
SECURITY
3.1 In consideration of the Bank making a loan or loans under the Revolving
Line of Credit to Borrower, in accordance with the terms and conditions of this
Agreement, and to secure payment and performance of all Obligations of Borrower
to the Bank, Borrower hereby assigns to the Bank and mortgages and grants to the
Bank an undivided security interest in the Collateral.
SECTION 4
CONDITIONS PRECEDENT
4.1 The duty of the Bank to lend amounts to the Borrower pursuant to the
Revolving Line of Credit is conditioned upon prior delivery by the Borrower to
the Bank of the following:
(a) This Agreement properly executed;
(b) The Revolving Credit Note (the "Note"), in the form annexed
hereto, as Schedule 4.1(b);
(c) A certified copy of resolutions of the Board of Directors of the
Borrower in form satisfactory to the Bank,
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authorizing the execution, delivery and performance of this Agreement, the
Revolving Credit Note, the Reimbursement and Security Agreement for
Continuing Commercial Letter of Credit, the Letter Authorization, the
Guaranty, and any other documents, agreements, instruments or writings to
be delivered pursuant to this Agreement, the transactions contemplated by
all of the foregoing documents and all such other and further actions in
connection with this Agreement as designated officers of the Borrower may
deem necessary and proper;
(d) INTENTIONALLY LEFT BLANK;
(e) Certificates by the Secretaries of the Borrower and the
Subsidiaries as to the incumbency and signatures of the respective officers
of the Borrower and Subsidiaries designated to sign the documents described
in Section 4.1;
(f) Copy, certified by the respective Secretary of the Borrower and
each Subsidiary, of its Certificate of Incorporation (or equivalent charter
document) and any amendments thereto;
(g) Certificates of the Secretary of State of each state or
jurisdiction of organization of each Subsidiary dated within thirty (30)
days prior to the date of this Agreement, as to the good standing (or
equivalent status) of Borrower and each such subsidiary;
(h) Copy of the Borrower's and each Subsidiary's By-Laws, certified by
its respective Secretary.
(i) A Certificate, satisfactory to the Bank in form and substance, of
a reputable insurance company, licensed to conduct business in the State of
New Jersey and each jurisdiction where the Borrower and each Subsidiary has
an office evidencing appropriate insurance as required by Subsection 6.8;
(j) Letter Authorization in the form annexed hereto as Schedule
4.1(j);
(k) The opinions of Gibbons, Del Deo, Dolan, Griffinger & Vecchione
and Cameron McKenna, counsel to the Borrower, in form and substance
satisfactory to counsel for the Bank;
(l) UCC-1 Financing Statements relating to the Collateral in form and
substance satisfactory to counsel for Bank (to be delivered on each
drawdown under the Equipment Sublimit described in Subsection 2.2(b)(i));
(m) Waivers of Lien in the form annexed hereto as Schedule 4.1(m)
executed by the landlord and sublandlord for each location (excluding
locations in the State of New York) not owned by the Borrower where
Collateral is or may hereafter be located.
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(n) The Powers of Attorney in the form annexed hereto as Schedules
4.1(n)(i) and 4.1(n)(ii) executed by the Borrower and each U.S. Subsidiary.
(o) A certified copy of resolutions of the Board of Directors of the
Guarantor in form satisfactory to the Bank, authorizing the execution,
delivery and performance of the Guaranty, the Security Agreement and Power
of Attorney and all such other and further actions in connection therewith
as designated officers of the Guarantor may deem necessary and proper;
(p) Copy, certified by the Secretary of Borrower and each Subsidiary
of its Certificate of Authority to Transact Business (or equivalent) as a
foreign corporation in the states (or other jurisdictions) set forth in
Schedule 5.1 annexed hereto;
(q) Proof, satisfactory to the Bank in form and substance, of the
satisfaction, termination and discharge of any Liens other than the Liens
created by this Agreement and the other Loan Documents and Permitted Liens;
(r) UCC, federal tax lien, state tax lien, and upper court judgment
searches and franchise tax lien certificates (or their equivalent) for each
Borrower and Subsidiary;
(s) The Security Agreement in the form annexed hereto as Schedule
4.1(s), duly executed by the Guarantor;
(t) The Guaranty in the form annexed hereto as Schedule 4.1(t), duly
executed by the Guarantor;
(u) Funds Transfer Agreement in the form annexed hereto as Schedule
4.1(u) executed by the Borrower and the Guarantor;
(v) Reimbursement and Security Agreement for Continuing Commercial
Letters of Credit in the Form annexed hereto on Schedule 4.1(v) executed by
the Borrower.
(w) Any other documents and instruments reasonably required by the
Bank; and
(x) An initial commitment fee in the amount of $75,000, the prior
receipt of which is hereby acknowledged.
SECTION 5
REPRESENTATIONS AND WARRANTIES
The Borrower represents and warrants that:
5.1 The Borrower and each Subsidiary is a corporation duly organized,
validly existing and in good standing under the laws of its respective
jurisdiction of organization and is duly qualified
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to transact business as a foreign corporation in each jurisdiction in which the
character of the properties owned or the business transacted requires such
qualification, except where the failure to qualify would not have a material
adverse effect on the business or financial condition of the Borrower or such
Subsidiary. Set forth on Schedule 5.1 hereof is a list of the jurisdictions in
which the Borrower and each Subsidiary is qualified as a foreign corporation as
of the date hereof.
5.2 The Borrower has the requisite corporate power to execute, deliver and
perform this Agreement and to borrow hereunder and has taken all necessary
corporate action to authorize (i) the borrowing hereunder on the terms and
conditions of this Agreement and (ii) the execution, delivery and performance of
this Agreement. The Guarantor has the requisite corporate power to execute,
deliver and perform its Guaranty.
5.3 The Borrower and each Subsidiary possesses, in full force and effect,
all necessary franchises, franchise rights, patents, licenses, trademarks,
trademark rights, trade names, trade name rights, alternate or fictitious name
authorizations or certificates and copyrights to conduct its business as now
conducted ,except where the failure to possess same would not have a material
and adverse effect on its business, operations or financial condition. Neither
the Borrower nor any Subsidiary has received any written notice and Borrower's
and each Subsidiary's officers have received any oral or other notice of any
infringement of the franchises, patents, licenses, trademarks, trademark rights,
trade name, trade name rights, fictitious name authorizations or certificates
and copyrights of others, which infringement allegation, if adversely
determined, may materially and adversely affect the business, operations or
financial condition of the Borrower or such Subsidiary.
5.4 On the date hereof, the Borrower has no Subsidiaries except as set
forth on Schedule 5.1 hereof.
5.5 The Borrower and each Subsidiary is engaged in the business of graphic
communications and printing (or is a holding company solely for one or more
Subsidiaries so engaged) and conducts no other business or activities.
5.6 All federal, state and foreign tax returns of the Borrower and each
Subsidiary required by law to be filed have been duly filed or extensions
obtained. All federal, state and foreign taxes, assessments and governmental
charges or levies upon the Borrower and each Subsidiary or any of its
properties, income, profits or assets which are due and payable have been paid
or provided for, except such tax returns the non-filing of which, and such taxes
the nonpayment of which, would not have a material adverse effect upon the
business, assets, liabilities, financial condition, results of operation or
business prospects of the Borrower or such Subsidiary and except for such taxes
and assessments which the Borrower or such Subsidiary is disputing in
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good faith and for which the Borrower or such Subsidiary has established
adequate reserves on its books for the payment of such disputed taxes or
assessments in accordance with Generally Accepted Accounting Principles. The
Borrower and each Subsidiary shall cause all future tax returns to be timely
filed or extensions obtained therefor, and all future taxes and assessments to
be paid when due.
5.7 Except as set forth on Schedule 5.7 annexed hereto, there are no
outstanding judgments, actions, proceedings, claims or investigations pending
or, to the best of Borrower's knowledge after diligent inquiry, threatened
before any court or governmental body which, if adversely determined, may
materially and adversely affect the business, operations or affairs of the
Borrower or any Subsidiary.
5.8 The Borrower and each Subsidiary has good and marketable title to all
of the properties and assets owned by it, subject to no Liens except Permitted
Liens, including without limitation, the Liens set forth on Schedule 5.8 annexed
hereto.
5.9 No consent or approval of any person, landlord or mortgagee, no waiver
of any lien or right of distraint or other similar right, and no consent,
license, approval or authorization of or registration, qualification,
designation, declaration or filing with any governmental authority on the part
of the Borrower or any Subsidiary is required in connection with the execution,
delivery and performance of the Agreement or the consummation of any other
transactions contemplated hereby.
5.10 There is no term of any contract, bond, note, indenture or other
agreement or of any charter or other corporate restriction or of any judgment,
decree, order, or to the best of Borrower's knowledge, any statute, rule or
regulation which materially and adversely affects the business, operations or
affairs, as presently conducted, of the Borrower or any Subsidiary or any of
their respective assets, and to the best knowledge of the Borrower after
diligent inquiry, neither the Borrower nor any Subsidiary is now in violation of
any such term; and the execution, delivery and performance of, and compliance
with, this Agreement will not (with or without the giving of notice of lapse of
time, or both) result in any violation of, or be in conflict with, or constitute
a default under, any such term, or result in the creation of any Liens upon any
of the assets of the Borrower or any Subsidiary. The operations of the Borrower
and each Subsidiary comply in all material respects with all laws, statutes,
rules, regulations, ordinances and the like, applicable to them.
5.11 Neither the Borrower nor any Subsidiary has, within the six (6) year
period immediately preceding the date of this Agreement, changed its name, been
the surviving corporation of a merger or consolidation, or acquired all or
substantially all of the assets of any person or entity, except as set forth on
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Schedule 5.11 annexed hereto.
5.12 On the date hereof, the sole places of business of the Borrower and
each Subsidiary and their respective addresses are set forth on Schedule 5.12
annexed hereto.
5.13 The Borrower and each Subsidiary is in compliance in all respects with
the applicable provisions of ERISA (or comparable law) and all regulations
issued thereunder. No employee benefit plan as defined in ERISA (or such
comparable law) maintained and administered by the Borrower or any Subsidiary,
nor any trusts created thereunder, nor any trustee or administrator thereof, has
engaged in a prohibited transaction as defined in the Internal Revenue Code of
1986 (or comparable law), which could subject the Borrower, any such plan or
trust, or any trustee or administrator thereof, or any party dealing with any
such plan or trust to the tax or penalty on prohibited transactions imposed by
said Internal Revenue Code. Neither any of the plans nor trusts have been
terminated, nor has there been any Reportable Event or accumulated funding
deficiency as defined in ERISA (or comparable law), nor has the Borrower or any
Subsidiary incurred any liability to the Pension Benefit Guaranty Corporation
(or comparable authority).
5.14 This Agreement and the other Loan Documents have been duly executed
and delivered and constitutes the valid and legally binding obligation of the
Borrower and/or the Subsidiary and/or Guarantor executing same, enforceable in
accordance with their respective terms.
5.15 The Borrower and each Subsidiary is solvent on the date hereof. For
the purpose of this Agreement, the term "solvent" shall mean that: (a)the
liquidation value of its property is in excess of the total amount of its debts;
and (b) it is able to pay its debts as they mature.
5.16 The Borrower has furnished to the Bank predecessor consolidated
(audited) financial statements as of December 31, 1997 and consolidated
(audited) financial statements of Roda Limited as of December 31, 1997. The
financial statements of Borrower have been prepared in accordance with GAAP, and
the financial statements of Roda Limited have been prepared in accordance with
United Kingdom generally accepted accounting principles ("UK GAAP") consistently
applied with footnote adjustments to GAAP. Such financial statements fairly
present the financial condition and results of operations and changes in cash
flows of the Borrower and Roda Limited, respectively, on the dates and for the
periods involved. Such financial statements make full and adequate provision for
all obligations, liabilities and commitments, fixed and contingent, of the
Borrower and Roda as of the date of the financial statements. Since the date of
the latest balance sheet contained in the above-referenced financial statements,
there has been no material and adverse change in the financial condition of the
Borrower or any Subsidiary not
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reflected in the financial statements as of that date, and since such date the
business of the Borrower and each Subsidiary has not been materially and
adversely affected by any occurrence, whether or not insured against.
5.17 The advent of the year 2000 shall not adversely affect the Borrower's
or any Subsidiary's operations or the performance of its information technology.
Without limiting the generality of the foregoing, (i) the hardware and software
utilized by Borrower and each Subsidiary are designed to be used prior to,
during and after calendar year 2000 A.D. and such hardware and software will
operate during such time period without error relating to date data,
specifically including any error relating to, or the conduct of, date data which
represents or references different centuries or more than one century, (ii) the
hardware and software utilized by Borrower and each Subsidiary will not
abnormally end or provide invalid or incorrect results as a result of date data,
and (iii) the hardware and software utilized by Borrower have been designed to
ensure year 2000 A.D. compatibility, including date data, century recognition,
leap year, calculations which accommodate same century and multicentury formulas
and data values, and date data interface values that reflect the century.
5.18 All information, reports and other papers and data furnished to the
Bank were, at the time the same were so furnished, complete and correct in all
material respects. No document furnished or statement made to the Bank in
connection with the negotiation, preparation or execution of the Loan Documents
contains or will contain any untrue statement of material fact or omits or will
omit to state a material fact necessary in order to make the statements
contained therein not misleading. No fact is know to the Borrower which has had
or may in the future have a materially adverse effect upon the Borrower's or any
Subsidiary's business, assets, liabilities, condition, financial or otherwise,
or results of operations that has not been set forth in the financial statements
furnished to the Bank or other reports or other papers or data otherwise
disclosed in writing to the Bank.
5.19 All property owned or utilized by Borrower and each Subsidiary, as
well as all operations of Borrower and each Subsidiary, are to the best of
Borrower's knowledge and due diligence in compliance and will continue to be in
compliance with all federal, foreign, state, county, municipal and regulatory
agency and equivalent laws, rules, regulations, and ordinances including, but
not limited to, all applicable environmental laws and regulations.
SECTION 6
COVENANTS BY BORROWER
The Borrower covenants and agrees that:
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6.1 The Borrower and each Subsidiary shall preserve and keep in full force
and effect its respective corporate existence and all franchises, rights and
privileges necessary, in the reasonable judgment of the Borrower's management,
to the proper conduct of its respective business, including, without limitation,
all necessary franchises, patents, licenses, trademarks, trademark rights, trade
name rights, fictitious name authorizations or certificates and copyrights
without any unlawful conflict with such franchises, patents, licenses,
trademarks, trademark rights, fictitious name authorizations or certificates and
copyrights of others.
6.2 The Borrower shall promptly deliver to the Bank copies of any
amendments or modifications to its or any Subsidiary's certificate of
incorporation and by-laws (or equivalent documents), certified with respect to
the certificate of incorporation (or equivalent) by the Secretary of State of
the state or jurisdiction of incorporation (or similar authority), and, with
respect to the by-laws (or equivalent), by the Secretary of the Borrower and
each Subsidiary.
6.3 The Borrower and each Subsidiary shall comply in all material respects
with all laws, ordinances, rules and regulations, now or hereafter in effect,
applicable to it of any federal, state, regional or local government or any
instrumentality or agency thereof.
6.4 The Borrower and each Subsidiary shall pay and discharge, as they
become due, all its respective Obligations, in accordance with their terms,
including without limitation, all taxes, assessments, debts, claims and other
governmental or non-governmental charges lawfully imposed upon it or incurred by
it or its properties and assets and provide the Bank, if requested, evidence of
said taxes, assessments, debts, claims and charges, and of payment thereof,
except taxes, assessments, debts, claims and charges contested in good faith in
appropriate proceedings.
6.5 The Borrower and each Subsidiary shall maintain, preserve and keep all
its properties, equipment and assets reasonably necessary for its business in
good repair, working order and condition, reasonable wear and tear excepted, and
make, or cause to be made, all necessary or appropriate repairs, renewals,
replacements, substitutions, additions, betterments and improvements thereto so
that the efficiency of all such properties and assets shall at all times be
properly preserved and maintained.
6.6 The Borrower and each Subsidiary having its principal offices located
in the Bank's marketing area shall maintain its principal business operating
bank account at the Bank.
6.7 The Borrower and each Subsidiary shall execute and comply with the
terms of the Environmental Rider annexed hereto as Schedule 6.7.
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6.8 The Borrower and each Subsidiary shall keep its assets and business
insured against damage and loss in amounts and by insurance companies reasonably
acceptable to the Bank. Such insurance must cover such risks as the Bank may
reasonably request, in at least the amount of the full replacement value of such
assets without co-insurance. All insurance policies must name the Bank, its
successors or assigns, as loss-payee and additional insured or co-insured as its
interest may appear; include a breach of warranty clause whereby the insurer
agrees that a breach of the insuring conditions or any negligence by the
Borrower or any Subsidiary or any other person shall not invalidate the
insurance as to the Bank; provided that any insurance proceeds will be paid to
the Bank only with respect to the Collateral, as its interest may appear; and
provided that there can be no cancellation without 30 days' prior written notice
(except ten (10) days notice in the case of non-payment of premiums) to the
Bank. A certificate of insurance from Borrower's insurance agent or broker
summarizing all such policies must be delivered to the Bank at the time of
execution and delivery of the Loan Documents together with evidence that all
premiums due to date have been paid. Thereafter, the Borrower shall provide to
the Bank a paid premium receipt on each anniversary date of such policies. If
the Borrower fails to pay the premiums on any such insurance, the Bank shall
have the right (but shall be under no duty) to pay such premiums for the
Borrower's account. The Borrower shall repay to the Bank any sums which the Bank
shall have so paid, together with interest thereon at the rate payable by the
Borrower, at the time of payment by the Bank. The Borrower shall deliver to the
Bank, upon its request (but in no event more than once per year unless an Event
of Default has occurred and is continuing), a detailed list of insurance then in
effect, stating the names of the insurance companies, the amounts and rates of
the insurance, dates of expiration thereof and the properties and risks covered
thereby; and within fifteen (15) days after notice from the Bank, obtain such
additional insurance as the Bank may reasonably request.
6.9 Except for Permitted Liens, the Borrower shall not directly or
indirectly permit to exist any Liens with respect to any of its assets except
with the prior written consent of the Bank.
6.10 The Borrower shall promptly notify the Bank of any litigation,
actions, proceedings, claims or investigations pending or threatened against the
Borrower, wherein claimant seeks to recover in excess of $50,000.00 and of the
entry of any judgment in excess of $50,000.00 against the Borrower or the entry
of any Liens securing any obligation or obligations in excess of $50,000
(individually or in the aggregate), other than Permitted Liens, against any of
its assets.
6.11 Neither the Borrower nor any subsidiary shall engage in any business
other than the business specified in Section 5.5
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without the prior written consent of the Bank.
6.12 The Borrower shall deliver to the Bank the following financial and
other reports of the Borrower:
(a) At such time as the Borrower is required to file its Form 10-K
with the Securities Exchange Commission, an audited balance sheet as at the
end of such year and audited statements of income thereof for such year,
all in reasonable detail and prepared and certified by independent
certified public accountants acceptable to Bank.
(b) Not later than two (2) days after filing same with the Securities
and Exchange Commission, copies of the Borrower's Annual Report to
Stockholders, Annual Report on Form 10-K, Quarterly Reports on Form 10-Q,
Current Reports on Form 8-K, Proxy Statement and any other reports filed
with or filings made with the Securities and Exchange Commission. With
respect to the financial statements included in the Reports on Form 10-Q,
the chief financial officer of the Borrower shall certify same as complete
and correct, which certificate shall include a statement of his examination
(which shall include a review of the relevant provisions of this Agreement)
and stating whether his examination has disclosed the existence of any
condition or event which constitutes an Event of Default, and, if so,
specifying the nature and period of existence thereof; and
(c) Within ten (10) days after the Bank's request therefor, such
additional information regarding the financial condition and affairs of the
Borrower as the Bank shall reasonably require;
6.13 The Borrower agrees to pay by check or bank account debit at the time
of execution of the Loan Documents the Bank's attorneys' fees in addition to
disbursements in connection with the preparation of this Agreement and all
related documents (i.e., search fees, filing fees, etc.), and to pay, reimburse,
indemnify and hold harmless, the Bank, its directors, officers, employees,
agents and representatives from and against any and all actions, costs, damages,
disbursements, expenses (including reasonable attorneys' fees), judgments,
liabilities, losses, obligations, penalties and suits of any kind or nature
whatsoever with respect to: (i) the reasonable costs of the administration,
enforcement, interpretation, amendment, modification, waiver or consent of any
of the Loan Documents; (ii) the reasonable costs of the exercise of any right or
remedy granted in any of the Loan Documents, the collection or enforcement of
any of the Obligations and the proof or allowability of any claim or
receivership proceeding or otherwise; (iii) any proceeding or any investigation
or claim and the prosecution or defense thereof, arising out of or in any way
connected with any of the Loan Documents whether or not the Bank is a party
thereto; (iv) any liabilities with respect thereto, or resulting from any delay
in paying stamp and other taxes, if any, which may be payable or determined to
be payable in connection
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with the Loan Documents; and (v) the failure of the Bank to take action in
respect of any transaction effected under this Agreement or in connection with
the Lien provided for herein.
6.14 The obligations of the Borrower under Section 6.13 shall survive the
termination of this Agreement.
6.15 The Borrower shall, at all times and in accordance with generally
accepted accounting principles, consistently applied, keep complete and accurate
books and records concerning its business, affairs and operations and concerning
its properties and assets.
6.16 The Borrower shall from time to time permit the Bank and its agents
during Borrower's regular business hours to make field audits of the Borrower or
otherwise to inspect or examine the properties and assets of the Borrower and
further to examine, check, audit, make copies of or extracts from any of the
Borrower's books, records, journals, receipts, orders, correspondence or other
data and to independently verify the orders and accounts receivable of Borrower.
Unless and until an Event of Default shall have occurred and be continuing,
audits shall be at the expense of the Bank.
6.17 In the event Borrower shall institute a "defined benefit Plan", as
defined in Section 414(j) of the Code, the Borrower shall furnish to the Bank:
(i) as soon as possible and in any event within thirty (30) days after the
Borrower or a duly appointed administrator of a defined benefit Plan knows or
has reason to know that any Reportable Event has occurred with respect to any
defined benefit Plan, a statement of the chief financial officer of the Borrower
setting forth details as to such Reportable Event and the action which the
Borrower proposes to take with respect thereto, together with a copy of the
notice of such Reportable Event given to the PBGC; (ii) promptly after the
filing thereof with the United States Department of Labor, the Internal Revenue
Service or the PBGC, copies of each annual and other report or notice with
respect to each defined benefit Plan; and(iii) promptly after receipt thereof, a
copy of any notice the Borrower or any other member of a Controlled Group of the
Borrower may receive from the United States Department of Labor, the Internal
Revenue Service or the PBGC with respect to any defined benefit Plan. The above
shall apply as nearly as possible to any foreign Subsidiary under the laws,
rules and regulations applicable to it.
6.18 The Borrower shall use the advances made pursuant to the Revolving
Line of Credit only for the purposes set forth in Section 2.2. In connection
with Advances made for purchases of Equipment, the Borrower shall as soon as
practicable in advance of such purchase provide the Bank with a detailed
description of such Equipment, including without limitation, serial or
registration numbers, where applicable, and promptly execute and deliver to the
Bank such UCC-1 Financing Statements as may be required by the
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Bank to perfect its security interest in such Equipment.
6.19 The Bank may from time to time in the Bank's sole discretion hold and
treat any deposits or other sums at any time credited by or due from the Bank to
the Borrower and any securities or other property of the Borrower in possession
of the Bank, whether for safekeeping or otherwise, as collateral security for
and apply or set off the same against any of the Obligations of the Borrower to
the Bank. Without limiting the generality of the foregoing, if at any time the
amount of the loans or advances by the Bank as allowed by this Agreement shall
be exceeded, the Borrower shall pay to the Bank, in immediately available funds,
the amount of such excess if the Bank so requests, or the Bank may charge such
amount against any deposit account of the Borrower with the Bank.
6.20 Except as otherwise expressly provided herein, without the prior
written consent of the Bank, neither the Borrower nor any Subsidiary shall:
(a) Create, incur or assume any liability for borrowed money, except
(i) up to $5,000,000 in the aggregate may be borrowed or assumed by the
Borrower and/or any U.S. Subsidiary, (ii) up to $4,000,000 in the aggregate
may be borrowed by one or more non-U.S. Subsidiaries, (iii) debt fully
subordinate to the Obligations (as evidenced by a Subordination Agreement
or other evidence of subordination reasonably acceptable to the Bank),
whether such debt is convertible or other subordinated debt, (iv) debt
between the Borrower and a Subsidiary or between a Subsidiary and another
Subsidiary, and (v) liabilities heretofore or hereinafter incurred in favor
of the Bank. The Borrower shall give the Bank the right of first refusal to
loan all or part of the additional $5,000,000 of permitted debt described
above (other than liabilities assumed in connection with any acquisition
permitted hereby) on the terms offered by any other lender. Borrower shall
provide to the Bank the written commitment or other proposal made by any
other lender, and the Bank shall have ten (10) business days to match such
offer. Borrower may, notwithstanding the foregoing, but subject to
applicable financial covenants set forth herein, acquire new machinery and
equipment through lease financings so long as the lessor shall not have a
lien on any assets of Borrower or any Subsidiaries except the equipment and
machinery which is the subject of the lease.
(b) Assume, guarantee, endorse or otherwise become liable, in
connection with the Obligations of any person, firm or corporation except:
(i) Liabilities resulting from product warranties made in the
ordinary course of business;
(ii) Liabilities resulting from its endorsement of items or
instruments for deposit or collection in the ordinary course of
business; or
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(iii) Assumptions, guarantees, endorsements or other liabilities
for obligations which in the aggregate do not exceed $5,000,000 at any
time outstanding; or
(c) Sell, lease, abandon, or otherwise dispose of any part of its
properties or assets, except (i) sales of equipment not exceeding $500,000
per transaction or equipment sales incident to Borrower's relocation of its
principal production facility made to a person, firm or corporation in
commercially reasonable and bona fide arm's length transactions for fair
consideration; (ii) sales of finished goods in the ordinary course of
business to such persons and in the manner set forth above,
(iii)dispositions of raw materials, finished goods inventory and equipment
deemed to be obsolete and in respect of which a charge to income has been
reflected in the Borrower's financial statements and (iv) the factoring of
certain foreign receivables in the ordinary course of the Borrower's
business, all of which shall be excluded from the restrictions set forth in
this Subsection 6.20(c), provided that in the case of sales of Equipment
which constitutes Collateral hereunder, the Bank is given at least ten (10)
days written notice of any sale of Equipment and the entire amount of
proceeds of such sale of Equipment is paid to the Bank to reduce the
principal amount outstanding under the Revolving Line of Credit;
(d) Purchase, lease, or otherwise acquire the capital stock,
properties, assets or real estate, or any interest therein, of any Person,
except purchases, leases or other acquisitions of inventory and equipment
made in the ordinary course of business in bona fide arm's length
transactions and acquisitions of capital stock or assets so long as the
Borrower will be in compliance with Sections 2.2, 6.21(c) and 6.21(e) and
the other provisions of this Agreement, and further provided that at least
ten (10) Business Days prior to entering into any agreement, whether
written or oral, to acquire such capital stock or assets, the Chief
Financial Officer of the Borrower shall provide to Bank a notice containing
the material terms of such acquisition and a computation showing that such
acquisition will comply with the financial covenants set forth in Section
6.21 and will be in compliance with the other terms of this Agreement.
Notwithstanding the foregoing, no such notice need be given if the Borrower
is not using the Revolving Line of Credit to fund all or part of such
acquisition and the cash portion of the Purchase Price is less than
$1,000,000.
(e) Consolidate with, merge into, or participate in any joint venture
with, any person, firm or corporation, or permit any person, firm or
corporation to consolidate with, merge into or participate in any joint
venture with the Borrower or any Subsidiary without the consent of Bank
except that the foregoing shall not restrict the Borrower from engaging in
its "World Research Link" joint marketing venture with Workable Co., Ltd
and additional Persons, and that Borrower or any Subsidiary may be the
surviving corporation in a merger so long as Borrower will be in compliance
with the financial covenants set forth in Section 6.21 and the other terms
of this Agreement and the Borrower provides
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the certificate referred to in Section 6.20(d) above.
(f) Acquire, or permit the acquisition of, any Subsidiary, except in
connection with acquisitions permitted hereby, or create or permit the
creation of any Subsidiary without ten (10) days prior written notice to
the Bank;
(g) Purchase or acquire the obligations, securities or stock of
(except stock purchases in connection with acquisitions permitted
hereunder), or make loans, advances or capital contributions to, any
person, firm or corporation, except:
(i) Marketable direct obligations of the United States of
America;
(ii) Commercial paper issued by corporations conducting
substantially all of their business in the United States of America,
maturing within 180 days from the date of the original issue thereof,
and rated "prime" by the National Credit Office;
(iii) Bonds of any state, county, or municipality of the United
States of America, (w) which mature within two years from the date of
acquisition thereof, and (x) which are not in default as to principal
or interest, and (y) which are rated AA, or better, by Moody's
Investors Service, and (z) the interest of which is exempt from
federal income tax;
(iv) Customer's notes, chattel paper, or the like received as
non-cash proceeds of the sale of any inventory in the ordinary course
of business;
(v) Certificates of deposit and repurchase agreements; or
(h) Make any new loans or advances (individually or in the aggregate
exceeding at any one time the sum of $50,000.00) to any of its officers,
directors or shareholders, or to any other person, firm or entity;
(i) Alter or permit the alteration of Roda Limited's existing capital
stock structure by creation of new classes of stock, issuing additional
shares of its existing capital stock or otherwise;
(j) Sell, assign, transfer, lease, or otherwise dispose of all or
substantially all of its assets or any Collateral, except in the ordinary
course of business; and
(k) Locate or place or install any Equipment in any facility or
location outside the State of New Jersey.
6.21 Without the prior written consent of the Bank, the Borrower shall not
cause, suffer or permit on a consolidated
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basis:
(a) Net Worth, at the end of each fiscal quarter to be less than the
sum of $24,000,000 plus (i) ninety (90%) percent of aggregate positive net
income earned since January 1, 1998, and (ii) one hundred (100%) percent of
the total of the net proceeds of any equity issuances by the Borrower
effected from and after the date of this Agreement;
(b) The Maximum Leverage Ratio, defined as the ratio of Total Funded
Debt to EBITDA, at the end of any fiscal quarter, to exceed 3.0:1;
(c) The Acquisition Pro Forma Maximum Leverage Ratio, measured prior
to acquisition of the target company, but as of the end of the most
recently completed fiscal quarter, and defined as the pro forma Total
Funded Debt (defined as Borrower's Total Funded Debt (after accounting for
borrowings necessary to complete the acquisition) divided by the (i) EBITDA
of Borrower for the four most recently completed fiscal quarters prior to
acquisition, plus (ii) the recast EBITDA of the acquisition target for its
four most recently completed fiscal quarters, to exceed 3.0:1;
(d) The Minimum Fixed Charge Coverage Ratio at the end of each fiscal
quarter, defined as EBITDA for the four most recently completed fiscal
quarters minus unfunded capital expenditures, divided by all interest
expense and all scheduled principal payments of Total Funded Debt for the
four most recently completed fiscal quarters, to be less than 2.5:1 through
December 31, 1998 or less than 3:0:1 thereafter;
(e) The Acquisition Pro Forma Minimum Fixed Charge Coverage Ratio,
measured prior to acquisition of the target company, but as of the end of
the most recent fiscal quarter, and defined as EBITDA of the Borrower for
the four most recently completed fiscal quarters plus the recast EBITDA of
the acquisition target for its four most recently completed fiscal quarters
(as determined by the mutual agreement of the Bank and the Borrower)
divided by consolidated pro forma interest expense and pro forma principal
payments of all Total Funded Debt, after accounting for borrowings
necessary to complete the acquisition, to be less than 2.5:1 through
December 31, 1998 or less than 3:0:1 thereafter.
(f) During fiscal year 1998 only, all of the financial covenants set
forth in this Section 6.21 shall be based on 1998 fiscal quarters only, and
where necessary the 1998 fiscal quarters shall be annualized until and
including December 31, 1998.
6.22 The Borrower and each Subsidiary shall, upon becoming aware thereof,
immediately notify the Bank of the occurrence of an Event of Default and shall
further notify the Bank of the nature and period of existence thereof.
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6.23 The Borrower and each Subsidiary shall observe, perform and comply
with, and shall continue, until all Obligations of the Borrower to the Bank
pursuant to this Agreement are fully paid and satisfied, to observe, perform and
comply with, all of its covenants made in this Agreement.
6.24 The Borrower shall not directly or indirectly apply any part of the
proceeds of any loan under this Agreement which violates or which is
inconsistent with the provisions of any regulations of the Board of Governors of
the Federal Reserve System or any regulations, interpretations or rulings
thereunder as from time to time in effect, or any substantially similar orders
or regulations in substitution therefor or in addition thereto.
SECTION 7
EVENTS OF DEFAULT
There shall be an Event of Default by the Borrower under this Agreement
upon the occurrence of any one of the following:
7.1 The Borrower's failure to pay, when due, on demand or at maturity
(whether as stated or by acceleration), as the case may be, any payment of
principal, interest or other charges due and owing to the Bank pursuant to any
Obligations of the Borrower to the Bank, which breach remains uncured for a
period of ten (10) days from the date such payment is due.
7.2 A material breach by the Borrower, any Guarantor or any Subsidiary of
any other covenant contained in this Agreement or the other Loan Documents,
including, without limitation, those covenants contained in Section 6, which
breach remains uncured for a period of thirty (30) days following notice thereof
from the Bank to the Borrower.
7.3 If any warranty or representation made by the Borrower to the Bank,
whether past, contemporaneous or future, including, without limitation, the
warranties and representations contained in Section 5, shall be false or
misleading in any material respect when made, or if any financial statement
given by the Borrower to the Bank shall be false or misleading in any material
respect.
7.4 Upon dissolution, termination of existence, insolvency, appointment of
a trustee, receiver or custodian of all or any part of the properties or assets
of the Borrower or any Subsidiary, upon an assignment for the benefit of
creditors by, the calling of a meeting of creditors of, or the commencement of
any proceeding under any bankruptcy or insolvency laws of any state or of the
United States or any foreign jurisdiction applicable to any Subsidiary by the
Borrower or any Subsidiary or the commencement of any proceeding under any
bankruptcy or insolvency laws of any state, or of the United States, or any
foreign jurisdiction applicable to any Subsidiary against the Borrower or any
Subsidiary, which proceeding is not vacated within thirty (30)
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days of its commencement, or upon the entry of an adjudication of insolvency or
order for relief therein.
7.5 The occurrence of any event of default, after giving effect to any
applicable grace periods, on the part of the Borrower or any Subsidiary in
connection with any loans, advances or other extensions of credit by the Bank to
the Borrower or any Subsidiary other than those made pursuant to this Agreement.
7.6 If, in the good faith opinion of the Bank, there is any material
adverse change in the Borrower's business or financial condition.
7.7 A final judgment in excess of $250,000,000 (net of insurance coverage)
is entered against the Borrower and same remains undischarged for a period of
sixty (60) days, unless such judgment is being contested in good faith and the
judgment debtor has posted any required bond with respect thereto.
SECTION 8
BANK'S RIGHTS AND REMEDIES
8.1 Upon the occurrence of an Event of Default the Bank shall have the
following rights and remedies and may take the following action, to be exercised
within its discretion without further demand, presentation or notice, of any
kind:
(a) All of those rights and remedies provided in this Agreement, in
the Uniform Commercial Code and other applicable law in force and effect in
New Jersey and any other jurisdiction in which the Borrower maintains
assets;
(b) The Bank's duty to make any further loans pursuant to this
Agreement, or otherwise, shall cease, and all of the Obligations of the
Borrower and any Subsidiary to the Bank shall immediately become due and
payable;
(c) Sign financing statements in the name of the Borrower, or file
financing statements without the Borrower's signature in any relevant state
to perfect or maintain the Bank's security interest in any or all of the
Collateral;
(d) Receive and have access to printouts and all other information
respecting financial records of the Borrower and each Subsidiary maintained
by external computer service companies;
(e) Require the Borrower and each Subsidiary to assemble the
Collateral and make it available at its principal place of business or such
other place as the Bank shall direct to allow the Bank to take possession
or dispose of the Collateral or to render it temporarily unusable;
(f) Take possession of and sell in a commercially
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reasonable manner in accordance with applicable law and/or dispose of any
or all of the Collateral (including without limitation the Stock described
in Subsection 8.1(i) hereof) at public or private sale without notice or
advertisement (if permitted by law) and bid and become a purchaser at such
sale, and if notice of such sale or of other action by the Bank is required
by applicable law, the Borrower agrees that ten (10) days notice to the
Borrower shall be sufficient, which the Bank and the Borrower herewith
agree to be commercially reasonable;
(g) Subrogate to all of the Borrower's and each Subsidiary's interest,
rights and remedies in respect to the Collateral; dispose of the goods;
(h) Apply the proceeds of any disposition of the Collateral available
for satisfaction of the Obligations in the order, amounts, and manner which
Bank may determine in its sole discretion.
(i) (A) vote all or any of the shares of Capital Stock of Roda Limited
constituting part of the Collateral hereunder (the "Stock"), and give all
consents, waivers and ratifications with respect thereto and otherwise act
in all matters with respect thereto as the outright owner thereof;
(B) receive all dividends and all other distributions of any kind
on the Stock; and
(C) exercise any and all rights of collection, conversion or
exchange, and any and all other rights, privileges, options or powers
of the owner of the Stock pertaining or relating thereto.
(j) To the extent permitted by applicable law ,do such other and
further acts and deeds in the name of the Borrower and each subsidiary
which the Bank may deem reasonably necessary or advisable to the extent
necessary for the Bank to protect its interest and rights.
(k) Borrower hereby designates and appoints Bank and its designees as
attorney-in-fact of the Borrower, irrevocably and with power of
substitution, with authority, to the fullest extent permitted by applicable
law, upon the occurrence and during the continuance of an Event of Default,
to receive, open and dispose of all mail addressed to the Borrower; to
notify the postal authorities to change the address for delivery of mail
addressed to Borrower to such other address for delivery of mail addressed
to Borrower to such other address as Bank designates; to endorse Borrower's
name on any notes, acceptances, checks, drafts, money orders, instruments
or other evidences of payment or proceeds of the Collateral that may come
into Bank's possession; to sign Borrower's name on any invoices, documents,
drafts against and notices to account debtors or other obligors of Borrower
and requests for verification of accounts; to execute proofs of claim
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and loss; to execute any endorsements, assignments or other instruments of
conveyance or transfer; to vote all or any of the Stock, give all consents,
waivers and ratifications with respect thereto, otherwise act in all
matters with respect thereto as the outright owner thereof, receive all
dividends and all other distributions of any kind on the Stock, and
exercise any and all rights of collection, conversion or exchange and any
and all other rights, privileges, options or powers of the owner of the
Stock pertaining or relating thereto; to adjust and compromise any claims
under insurance policies; to execute releases; and to perform all other
acts necessary and advisable, in Bank's sole discretion, to carry out and
enforce its rights under this Agreement. The Bank will promptly turn over
originals or provide copies of all correspondence opened by Bank. The Bank,
in the exercise of this Power of Attorney, shall not unreasonably interrupt
the operations of the Borrower. All acts of said attorney or designee are
hereby ratified and approved by Borrower and said attorney or designee
shall not be liable for any acts of commission or omission nor for any
error of judgment or mistake of fact or law. This power of attorney is
coupled with an interest and is irrevocable so long as any of the
Obligations remain unpaid or unperformed.
8.2 In addition to the above remedies, if an Event of Default under this
Agreement has occurred, the Bank shall have the right and remedy, without
posting bonds or other security, to have any provision of the Loan Documents
specifically enforced by any court having equity jurisdiction, it being
acknowledged and agreed that any such Event of Default will cause irreparable
injury to the Bank and that money damages will not provide an adequate remedy
thereto.
SECTION 9
BORROWER'S RIGHTS AND REMEDIES
9.1 The Borrower and each Guarantor shall have all of the rights and
remedies provided in this Agreement and by the Uniform Commercial Code and other
applicable law.
SECTION 10
MISCELLANEOUS PROVISIONS
10.1 (a) Notice of default and presentment, demand, protest and notice of
dishonor as to any provision of this Agreement or any other agreement or
instrument is hereby waived by the Borrower, except as may be otherwise
specifically provided in this Agreement or in any other Loan Document.
(b) To the extent it may be lawful to do so, each Borrower for itself and
for any Person who may claim through or under it hereby:
(i) agrees that neither it nor any such Person will
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set up, plead, claim or in any manner whatsoever take advantage of, any
appraisement, valuation, stay, extension or redemption laws, now or
hereafter in force in any jurisdiction, which may delay, prevent or
otherwise hinder (i) the performance or enforcement of, or foreclosure
under, this Agreement or the other Loan Documents, (ii) the sale of any of
the Collateral or (iii) the putting of the purchaser or purchasers thereof
into possession of such property immediately after the sale thereof;
(ii) waives all benefit or advantage of any such laws;
(iii) waives and releases all rights to have the Collateral marshaled
upon any foreclosure, sale or other enforcement of this Agreement; and
(iv) waives all claims, damages and demands against the Bank's
repossession, retention or sale of the Collateral and all defenses, rights
of set off and rights to interpose counterclaims of any nature.
10.2 "Bank", "Borrower", "Subsidiary" and "Guarantor", as used in this
Agreement, shall include the successors, representatives and assigns of those
parties; provided, however, that the Borrower shall not assign or delegate any
of its rights, remedies, warranties, representations or covenants arising under
this Agreement without the prior written consent of the Bank, and any purported
assignment or delegation without such consent shall be void.
10.3 The provisions of this Agreement shall be in addition to those of any
guaranty, security agreement, note or other evidence of liability held by the
Bank, all of which shall be construed as complementary to each other. In the
event of ambiguity or inconsistency between this Agreement, and any other Loan
Document, then the terms of this Agreement will govern.
10.4. The Bank and the Borrower agree that the relationship of the Bank to
the Borrower is that of a lender only. The intent of this provision is to
clarify and stipulate that the Bank is not a partner or a co-venturer of the
Borrower and that Bank's sole interest in the Collateral is for the purpose of
security for repayment of the Obligations of the Borrower.
10.5 (a) The Borrower may at any time prepay any Loan without premium or
penalty; provided however, that in the event that any Eurodollar Loan is prepaid
prior to the expiration of the applicable Eurodollar Period, any prepayment of
the principal of any such Loan shall be accompanied by a payment of all accrued
and unpaid interest on the principal so prepaid plus a payment of a prepayment
premium equal to the amount, if any, by which (a) the installments of principal
being prepaid plus the installments of interest which would have been payable
thereon when discounted to a present value at a rate per annum equal to the
yield to maturity of the "Applicable Treasury Bond Obligation(s)" exceeds (b)
the
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principal amount being prepaid. The "Applicable Treasury Bond Obligation(s)"
shall mean the debt obligation(s) of the United States Treasury having a
maturity date(s) nearest in time to the expiration of the applicable Eurodollar
Period and the maturity date(s) and yield(s) to maturity of such Applicable
Treasury Bond Obligation(s) shall be determined by the Bank in its sole
discretion on the basis of quotations published in The Wall Street Journal (or
comparable source) on the date of prepayment. A certificate of the Bank setting
forth such amount or amounts as shall be necessary to reimburse the Bank for any
loss, cost or expense incurred hereunder shall be delivered to the Borrower and
shall be conclusive absent manifest error.
(b) If on or prior to the first day of any Eurodollar Period with respect
to a Eurodollar Loan, deposits in dollars (in the applicable amounts) are not
being offered to the Bank in the relevant market for such Eurodollar Period, the
Bank shall forthwith give notice thereof to the Borrower, whereupon until the
Bank notifies such Borrower that the circumstances giving rise to such
suspension no longer exist, the obligations of the Bank to make Eurodollar Loans
shall be suspended. Unless the Borrower notifies the Bank at least two (2)
Business Days before the date of any Eurodollar Loan for which a Notice of
Borrowing has previously been given that it elects not to borrow on such date,
such Borrower shall instead borrow a Base Rate Loan.
(c) If, after the date of this Agreement, the adoption of or any change in
any applicable law, rule or regulation, or any change in the interpretation or
administration thereof by any governmental authority, central bank or comparable
agency charged with the interpretation or administration thereof, or compliance
by the Bank with any request or directive (whether or not having the force of
law) of any such authority, central bank or comparable agency shall make it
unlawful or impossible for the Bank to make, maintain or fund Eurodollar Loans
whereupon, until the Bank notifies the Borrower that the circumstances giving
rise to such suspension no longer exist, the obligation of the Bank to make
Eurodollar Loans shall be suspended. If the Bank shall determine that it may not
lawfully continue to maintain and fund any of its outstanding Eurodollar Loans
to maturity and shall so specify in such notice, the appropriate Borrower shall
immediately prepay in full the then outstanding principal amount of each such
Eurodollar Loan, together with accrued interest thereon and all other amounts to
be paid thereon as if such prepayment were to be made pursuant to Section
10.5(a). Concurrently with prepaying each such Eurodollar Loan, the Borrower
shall borrow a Base Rate Loan in an equal principal amount from the Bank (on
which interest and principal shall be payable contemporaneously with the related
Eurodollar Loans), and the Bank shall make such a Base Rate Loan.
(d) If after the date hereof, the adoption of, or any change in any
applicable law, rule or regulation, or any change in the interpretation or
administration thereof by any governmental authority, central bank or comparable
agency charged with the
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interpretation or administration thereof, or compliance by the Bank (provided
that the Bank will be the agent bank), with any request or directive (whether or
not having the force of law) of any such authority, central bank or comparable
agency: (i) shall subject the Bank to any tax, duty or other charge with respect
to its Eurodollar Loans or its obligation to make Eurodollar Loans, or shall
change the basis of taxation of payments to the Bank of the principal of or
interest on its Eurodollar Loans or any other amounts due under this Agreement
in respect of its Eurodollar Loans or its obligation to make Eurodollar Loans
(except for changes in the rate of tax on the overall net income of the Bank);
or (ii) shall impose, modify or deem applicable any reserve, special deposit or
similar requirement (including, without limitation, any such requirement imposed
by the Board of Governors of the Federal Reserve System) against assets or
deposits with or for the account of, or credit extended by, the Bank; or (iii)
shall impose on the Bank or on the London interbank market any other condition
affecting its Eurodollar Loans or its obligation to make Eurodollar Loans; and
the result of any of the foregoing is to increase the cost to the Bank of making
or maintaining any Eurodollar Loan, or to reduce any amount received or
receivable by the Bank under this Agreement by an amount deemed by the Bank to
be material, then within fifteen (15) days after written demand by the Bank, the
Borrower shall pay to the Bank such additional amount or amounts as will
compensate the Bank for such increased cost or reduction. The Bank shall use its
best efforts to provide to the Borrower reasonable evidence to support the
Bank's determination of the amount demanded.
(e) The Bank will promptly notify the Borrower of any event of which it has
knowledge, occurring after the date hereof, which will entitle the Bank to
compensation pursuant to Section 10.5(a) and will designate a different lending
office if such designation will avoid the need for, or reduce the amount of,
such compensation and will not, in the reasonable judgment of the Bank, be
otherwise disadvantageous to the Bank. A certificate of the Bank claiming
compensation under Section 10.5(a) and setting forth the additional amount or
amounts to be paid to it hereunder shall be conclusive in the absence of
manifest error. The Bank shall use its best efforts to provide to the Borrower
reasonable evidence to support the Bank's determination of the amount demanded.
In determining such amount, the Bank may use any reasonable averaging and
attribution methods.
10.6 Borrower and the Guarantor agree that they will, from time to time,
execute, acknowledge and deliver, or cause to be executed, acknowledged and
delivered, such supplements hereto and such further documents and instruments as
may reasonably be required for carrying out the intention of or facilitating the
performance of this Agreement or as requested by the Bank to perfect or preserve
any interests or liens granted to it pursuant to the Loan Documents.
10.7 In the event there is more than one Borrower, all
34
<PAGE>
representations, warrants, covenants, rights granted hereunder and provisions
contained herein shall apply to each Borrower severally as well as to all
Borrowers jointly.
10.8 Anything to the contrary notwithstanding, the Bank shall be entitled
to retain all sums paid by or on behalf of Borrower pursuant to the terms of
this Agreement and any other agreement, document, or instrument executed in
connection herewith despite the filing of any insolvency proceeding under
federal or state law, it being acknowledged by Borrower that all such payments
made to the Bank did not constitute a preference, was given in exchange for
contemporaneous value, permitted Borrower to continue to operate, did not favor
the Bank over other creditors, and resulted in Borrower obtaining substantial
value and benefits.
10.9 The Bank shall be under no duty to any Borrower or anyone else to, nor
shall the Bank have any liability whatsoever to any Borrower or anyone else for
failing to: (i) preserve, protect or marshal any of its Collateral; (ii)
preserve or protect the rights of any Obligor against any person claiming an
interest in any of the Collateral adverse to that of any Obligor; (iii) realize
upon any of the Collateral or in any particular order or manner or seek
repayment of the Obligations from any particular source; or (iv) permit any
substitution or exchange of all or any part of any of the Collateral or release
any part of any of the Collateral from any lien, even if that substitution or
release would leave the Bank inadequately secured.
10.10. Without limitation of the Bank's rights at law, the Borrower hereby
agrees that so long as Bank remains the lead lender and there is no additional
costs or fees payable by the Borrower, the Bank shall have the right to sell
participations in any Obligation in the sole discretion of the Bank, and the
Borrower shall provide, or cause to be provided, all required assistance to the
Bank in selling and closing any participation, including permitting any
prospective participant to inspect any Obligor's books, records, or Collateral.
10.11 The within Agreement and the other Loan Documents are to be executed
and delivered within the State of New Jersey, are to be principally performed
within the State of New Jersey, and the Borrower and the Bank elect that the
laws of New Jersey (without regard to its principles of conflicts of law) shall
govern the construction of this Agreement and the rights, remedies, warranties,
representations, covenants and provisions hereof. The Borrower hereby
irrevocably consents to the exclusive jurisdiction of the state courts of the
State of New Jersey and any federal court located in the State of New Jersey in
connection with any action or proceeding arising out of or relating to this
Agreement or any other Loan Document. The Borrower hereby waives the defenses of
forum non conveniens and improper venue.
10.12 If any of the provisions of this Agreement shall contravene or be
held invalid under the laws of any jurisdiction,
35
<PAGE>
the Agreement shall be construed as if not containing such provisions and the
rights, remedies, warranties, representations, covenants and provisions hereof
shall be construed and enforced accordingly in such jurisdiction and shall not
in any manner affect such provision in any other jurisdiction, or any other
provisions in this Agreement in any jurisdiction.
10.13 The Events of Default, rights, remedies, warranties, representations,
covenants and provisions set forth in this Agreement, or as may be provided by
applicable law, shall be cumulative and not alternative or exclusive, and the
Bank's Rights and Remedies may be exercised by the Bank at such time or times,
in such order of preference, as the Bank in its sole discretion may determine.
10.14 Section and Subsection headings are for reference only and shall not
affect the interpretation or meaning of any provision of this Agreement.
10.15 This Agreement embodies the entire agreement and understanding
between the Borrower and the Bank and supersedes all prior agreements and
understandings relating to the subject matter hereof. All warranties,
representations and covenants incorporated or made herein shall survive the
execution and delivery of this Agreement. No delay or omission of the Bank in
exercising or enforcing any of the Bank's Rights and Remedies hereunder shall
constitute a waiver thereof; and no waiver by the Bank of any Event of Default
should operate as a waiver of any other Event of Default. No term or provision
hereof shall be waived, altered or modified except with the prior written
consent of the Bank, which consent makes explicit reference to this Agreement.
Except as provided in the preceding sentence, no other agreement or transaction,
of whatsoever nature, entered into between the Bank and the Borrower at any time
(whether before, during or after the effective date of this Agreement), shall be
construed in any particular as a waiver, modification or limitation of any of
the Bank's Rights and Remedies under this Agreement nor shall anything in this
Agreement be construed as a waiver, modification or limitation of any of the
Bank's Rights and Remedies, not only under the provisions of this Agreement, but
also of any such other agreement or transaction.
10.16 Any and all references to "days" in this Agreement shall mean
"calendar days" except as otherwise specifically provided herein or by law.
10.17 All notices, requests and other communications pursuant to this
Agreement shall be in writing, either by letter sent certified mail, return
receipt requested or by telefax, with electronically generated receipt, followed
by regular mail, or by hand delivery or overnight courier service addressed to
the Bank at "210 Main Street, Hackensack, NJ 07601" or to Borrower at its
principal place of business as described in Subsection 5.13 or at such other
address as either may give notice to the other as
36
<PAGE>
herein provided. Any notice, request or communication hereunder shall be deemed
to have been given three (3) days after its deposit in the mails, postage
prepaid, or in the case of hand delivery or overnight courier, when delivered,
or in the case of telefax, when received as evidenced by electronically
generated receipt, provided, however, that notice of a change of address, as
hereinabove provided, shall be deemed to have been given only when actually
received by the party to which it is addressed.
10.18 THE BANK AND BORROWER HEREBY KNOWINGLY, VOLUNTARILY AND INTENTIONALLY
WAIVE THE RIGHT THEY MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY CIVIL
LITIGATION BASED HEREIN, OR ARISING OUT OF, UNDER OR IN CONNECTION WITH THIS
AGREEMENT AND ANY AGREEMENT CONTEMPLATED TO BE EXECUTED IN CONJUNCTION HEREWITH,
OR ANY COURSE OF CONDUCT, COURSE OF DEALING, STATEMENTS (WHETHER VERBAL OR
WRITTEN) OR ACTIONS OF ANY PARTY. THIS PROVISION IS A MATERIAL INDUCEMENT FOR
THE BANK ENTERING INTO THIS AGREEMENT EXECUTED AT HACKENSACK, NEW JERSEY ON THE
DATE FIRST ABOVE MENTIONED.
ATTEST: CUNNINGHAM GRAPHICS
INTERNATIONAL, INC.
BY: ________________________ BY: __________________________
Timothy Mays, Robert M. Okin,
Secretary Senior Vice President and
Chief Financial Officer
SUMMIT BANK
By: __________________________
Rick DeBel, Vice President
37
<PAGE>
SCHEDULE 1.1(e)
Maximum Leverage Applicable Margin Applicable Margin
Ratio For Eurodollar Loans For Base Rate Loans
(to be added) (to be deducted)
Less than .50 90 BP 150 BP
Greater than or equal to .50 but 90 BP 125 BP
less than 1.0
Greater than or equal to 1.0 but 115 BP 100 BP
less than 1.5
Greater than or equal to 1.5 but 150 BP 75 BP
less than 2.0
Greater than or equal to 2.0 but 175 BP 50 BP
less than 2.5
Greater than 2.5 175 BP 25 BP
38
<PAGE>
SCHEDULE 6.7
ENVIRONMENTAL RIDER
ENVIRONMENTAL REPRESENTATIONS AND COVENANTS
1. Definitions. As used in this Rider, the following terms shall have the
following meanings:
(a) Clean-up: Removal and/or remediation of, or other response to, Contamination
to the satisfaction of all applicable governmental agencies, in compliance with
Environmental Laws.
(b) Contamination: The presence on, or Release on, from or to, the Property of
any Hazardous Substance.
(c) Environmental Documents: (i) Any and all documents received by the Borrower
or any subsidiary from or submitted by the Borrower or any subsidiary to the
United States Environmental Protection Agency, the New Jersey Department of
Environmental Protection and/or any state, or foreign county, municipal or
foreign environmental or health agency concerning the environmental condition of
the Property or the environmental aspects of the Borrower's or any Subsidiary's
operations upon the Property; and (ii) any and all reviews, audits, reports, or
other analyses concerning environmental conditions, including but not limited to
Contamination that have been prepared by or on behalf of the Borrower or any
Subsidiary. The Bank will take all reasonable steps, at Borrower's cost,
necessary to assist the Borrower or any Subsidiary in maintaining any privilege
the Borrower or such Subsidiary may claim with respect to such reviews, audits,
reports or other analyses.
(d) Environmental Laws: Any and all federal, state, local and foreign laws,
statutes, codes, ordinances, regulations, rules or other requirements
(including, but not limited to, consent decrees and judicial or administrative
orders affecting the Property), relating to environmentally related human health
or safety concerns ("Human Health or Safety Concerns") or to the environment,
including, but not limited to, those applicable to the storage, treatment,
disposal, handling and release of any Hazardous Substances, all as may be
amended or modified from time to time. The following statutes and all rules and
regulations relating thereto are a part (but are not to be deemed all) of the
Environmental Laws: the Comprehensive Environmental Response, Compensation and
Liability Act ("CERCLA" or the "Federal Superfund Act") as amended by the
Superfund Amendments and Reauthorization Act of 1986 ("SARA") (42 U.S.C. ss.
6901-9675); the Resource Conservation and Recovery Act of 1976, as amended
("RCRA") (42 U.S.C. ss. 6901 et seq.); the Clean Water Act, as amended (33
U.S.C. ss. 1251, et seq.); the Federal Insecticide, Fungicide and Rodenticide
Act, as amended ("FIFRA") (7 U.S.C. ss. 136 et seq.); The Hazardous Materials
Transportation Act, as amended (49 U.S.C. Section 1801, et seq.); the Toxic
Substances Control Act (15 U.S.C. 2601, et seq.); the New Jersey Spill
Compensation and Control Act, as amended (the "Spill Act")
39
<PAGE>
(N.J.S. 58:10-23.11, et seq.); the New Jersey Industrial Site Recovery Act, as
amended ("ISRA") (N.J.S. 13:1K 8(d), et seq.); the New Jersey Solid Waste
Management Act, as amended (N.J.S. 13:1E-1, et seq.);the Underground Storage of
Hazardous Substances Act, N.J.S. 58:10A-21, et seq., as amended ("New Jersey
Tank Registration Act"); the New Jersey Water Pollution Control Act, as amended
(N.J.S. 58:10A-21, et seq.); the New Jersey Air Pollution Control Act (N.J.S.
26:2C-1 et seq.); the Safe Drinking Water Act (33 U.S.C. 1251, et seq.); the
Occupational Safety and Health Act (29 U.S.C. 2601, et seq.); the New Jersey
Worker and Community Right to Know Act (N.J.S. 34:5A-1, et seq.); and the New
Jersey Toxic Catastrophe Prevention Act (N.J.S. 13:1-19, et seq.).
(e) Hazardous Substances: Any dangerous, toxic or hazardous pollutant,
contaminant, chemical, waste, material or substance as defined in or governed by
any Environmental Law or otherwise relating to Human Health or Safety Concerns
or the environment, and also including, but not limited to, urea-formaldehyde,
polychlorinated biphenyls, asbestos and asbestos-containing materials, nuclear
or radioactive fuel or waste, radon, explosives, known carcinogens, petroleum,
petroleum products, or any other waste, material, substance, pollutant or
contaminant that might cause any injury to human health or safety or to the
environment or that might subject the owner or operator of the Property to any
claims, causes of action, costs, damages, penalties, expenses, demands, or
liabilities, however defined, under any applicable Environmental Law.
Notwithstanding the foregoing, for purposes of this Article IV, Hazardous
Substances shall not include de minimis quantities of janitorial and cleaning
supplies or other retail goods sold or stored in the ordinary course of
business.
(f) Property: All real property owned, leased, occupied or otherwise used by the
Borrower, including without limitation, the real property owned by the Borrower
and the Subsidiaries at 629 Grove Street, Jersey City, New Jersey, 111 Eighth
Avenue, New York, NY and 29/33 Choumert Grove and Unit 9, Print Village
Industrial Estate, Peckham, London, England.
(g) Regulatory Actions: Any investigation, inquiry, claim, demand, action or
proceeding brought or instigated by any governmental authority in connection
with any Environmental Law, including, without limitation, civil, criminal
and/or administrative proceedings, and whether or not seeking costs, damages,
penalties or expenses.
(h) Release: The spilling, leaking, disposing, discharging, emitting,
depositing, injecting, leaching, escaping, or any other release, or threatened
release, however defined, and whether intentional or unintentional, of any
Hazardous Substance.
(i) Third Party Claims: Third party claims, actions, demands or proceedings
(other than Regulatory Actions) based on breach of
40
<PAGE>
contract, negligence, trespass, strict liability, nuisance, toxic tort or
detriment to human health or safety due to Contamination, and whether or not
seeking costs, damages, penalties or expenses.
2. Representations and Warranties. The Borrower represents and warrants to the
best of its knowledge, after due investigation and inquiry:
(a) No part of the Property was ever used, nor is it being used now, as a
landfill, dump or other disposal, storage, transfer or handling area for
Hazardous Substances for industrial, military or manufacturing purposes; or as a
gasoline service station or a facility for selling, dispensing, storing,
transferring or handling petroleum and/or petroleum products, except for the
storage, transfer and handling of Hazardous Substances in amounts reasonably
necessary in connection with the Borrower's current business; and
(b) There are no underground or above-ground storage tanks (whether or not
currently in use), urea-formaldehyde materials, asbestos, asbestos-containing
materials, polychlorinated biphenyls (PCBs) or nuclear fuels or wastes, located
on or under the Property, and no underground tank previously located on the
Property has been removed therefrom; and
(c) Except as previously disclosed in writing to the Bank, there has not been or
is now occurring, any Release of any Hazardous Substance on, to or under the
Property; and
(d) The Borrower's and each Subsidiary's use, if any, and/or disposal, if any,
of Hazardous Substances on the Property and/or disposal elsewhere, if any, of
Hazardous Substances generated on or from the Property, has been in material
compliance with all applicable Environmental Laws; and
(e) Except as previously disclosed in writing to the Bank, the Property and the
use and operation thereof, are currently, and at all times during the Borrower's
and each Subsidiary's occupancy or operation of the Property, have been in
material compliance with all applicable Environmental Laws.
(f) Except as previously disclosed in writing to the Bank, no Third Party Claims
and/or Regulatory Actions have been asserted or assessed against the Borrower
and/or the Property, and no Third Party Claims and/or Regulatory Actions are
pending or threatened against the Borrower or any Subsidiary and/or the
Property.
(g) The Property is not listed in the United States Environmental Protection
Agency's National Priorities List of Hazardous Waste Sites or any similar
domestic or foreign list, schedule, log, inventory or record, however defined,
maintained by any federal, state or local governmental agency with respect to
sites from which there is or has been, a Release of any Hazardous Substance.
41
<PAGE>
Except as disclosed by the Borrower to the Bank in writing, neither the Borrower
nor any Subsidiary has transported or arranged for the transportation of any
Hazardous Substances from the Property to any location which is: (i) listed on
the National Priorities List Under CERCLA or any similar domestic or foreign
list; (ii) listed for possible inclusion on the National Priorities List by the
Environmental Protection Agency in CERCLIS or on any similar state or foreign
list; or (iii) the subject of any Regulatory Action.
(h) Neither the Borrower nor any Subsidiary has received and is not in
possession of any Environmental Documents except as to (x) matters disclosed in
Schedule 5.7 to the Agreement and (y) routine reports in the ordinary course of
business that do not disclose or relate to any matter that does or could have a
material adverse effect on the assets, business or financial condition of the
Borrower or such Subsidiary.
(i) None of the real property owned and/or occupied by the Borrower or any
Subsidiary including, but not limited to, the Property, has been or is now being
used as a "Major Facility" as such term is defined in N.J.S. 58:10-23.11b(1).
Neither the Borrower nor any Subsidiary will use the Property in the future as a
"Major Facility."
(j) There are no liens against the Property arising under any Environmental Law
or based upon a Regulatory Action and/or Third Party Claim; and further, no lien
has been attached to any revenues or any real or personal property owned by the
Borrower or any Subsidiary including, but not limited to, the Property, as a
result of the Chief Executive of the New Jersey Spill Compensation Fund
expending monies from said fund pursuant to N.J.S. 58:10-23.11g, and/or to pay
for "Cleanup and Removal Costs" as such term is defined in N.J.S.
58:10-23.11b(d), arising from an intentional or unintentional action or omission
of the Borrower or any Subsidiary or any previous owner and/or operator of the
Property.
3. Covenants.
(a) Neither the Borrower nor any Subsidiary will permit or conduct on the
Property either the generation, treatment, manufacture, use, storage or disposal
of any Hazardous Substance, except in compliance with all Environmental Laws. In
addition, neither the Borrower nor any Subsidiary will permit the Property to be
used for any of the purposes set forth in Section 2(a) hereof, except as
otherwise permitted by said Section 2(a).
(b) The Borrower and each Subsidiary will promptly notify the Bank in writing,
of any material existing, pending or, to the knowledge of Borrower or such
Subsidiary, threatened (i) Regulatory Actions (ii) Third Party Claims, and/or
(iii) Contamination.
42
<PAGE>
(c) In the event that any investigation and/or Clean-up of any Hazardous
Substance or other environmental condition on or under the Property is required
pursuant to Environmental Laws as a result of or relating to any of the
following, then the Borrower shall complete or cause to be completed, as its own
expense, such investigation and/or Clean-Up of: (i) any Release of any Hazardous
Substance on or under the Property or the presence of any Hazardous Substance
which has come to be located on or under the Property from another location;
(ii) any injury to human health or safety or the environment by reason of the
environmental condition of, or activities on or under the Property; or (iii) any
violation, or alleged violation, of any applicable Environmental Law.
(d) After the date of this Rider, the Borrower and each Subsidiary will
deliver to the Bank so long as any Obligations are outstanding and the Borrower
or any Subsidiary has any interest in the Property, complete copies of any and
all Environmental Documents.
(e) The Borrower and each Subsidiary will keep the Property free of any
lien imposed pursuant to any Environmental Law. In the event that there shall be
filed a lien against the Property by the New Jersey Department of Environmental
Protection, pursuant to and in accordance with the provisions of the New Jersey
Spill Compensation and Control Act (specifically, N.J.S. 58:10-23.11(f), as a
result of the Chief Executive of the New Jersey Spill Compensation Fund having
expended monies from said fund pursuant to N.J.S. 58:10-23.11g and/or to pay
"Cleanup and Removal Costs," as such term in defined in N.J.S. 58:10-23.11(d),
arising from an intentional or unintentional action or omission of the Borrower
and any Subsidiary, resulting in the releasing, spilling, pumping, pouring,
emitting, emptying or dumping of "Hazardous Substances," as such term is defined
in N.J.S. 58:10-23.11b(k), into waters of the State of New Jersey or onto lands
from which it might flow or drain into said waters, then the Borrower or such
Subsidiary shall, within sixty (60) days from the date that the Borrower or such
subsidiary is given notice that the lien has been placed against the Property
(or within such shorter period of time in the event that the State of New Jersey
has commenced steps to cause the Property to be sold pursuant to the lien),
either (i) pay the claim and remove the lien from the Property, or (ii) furnish
to the Bank either (A) a bond satisfactory to the Bank in the amount of the
claim out of which the lien arises, (B) a cash deposit in the amount of the
claim out of which the lien arises, or (c) other security reasonably
satisfactory to the Bank in the amount sufficient to discharge the claim out of
which the lien arises.
(f) In the event facts become known to the Borrower or any Subsidiary
and/or the Bank indicating a possible violation of any of the environmental
representations, warranties, covenants and indemnities set forth in this Rider,
the Borrower or such Subsidiary shall have an environmental review, audit and/or
43
<PAGE>
report prepared for the Bank if none has previously been so provided. The duty
of the Borrower or such Subsidiary to provide such environmental review, audit
and/or report shall continue after the occurrence of and during the continuance
of any Event of Default under the terms of this Agreement, or the Revolving
Credit Note.
(g) The Bank, before exercising its rights under the Agreement and after
the occurrence of any Event of Default as aforesaid, may itself, or by its
employees, agents, contractors or representatives, enter upon the Property for
the purposes of conducting such soil and chemical tests or other investigations,
examinations, or analyses (hereafter referred to as "Investigation") as the Bank
may reasonably desire. The Bank shall provide the Borrower or the appropriate
Subsidiary with reasonable notice before entering the Property to conduct any
such investigation, and the Borrower and each such Subsidiary shall cooperate
fully in such investigation.
(h) The Bank and its employees, agents, contractors, consultants and/or
representatives shall conduct any such Investigation in a manner which does not
unreasonably interfere with the Borrower's or any Subsidiary's use of and
operations of the Property.
(i) The Borrower and each Subsidiary shall use its best efforts to assure
compliance with all Environmental Laws by all lessees, tenants, subtenants,
occupants, licensees and users of the Property.
4. Indemnities.
(a) The Borrower agrees to, and does hereby, indemnify, defend (with
counsel reasonably acceptable to the Bank) and hold harmless the Bank, its
directors, officers, employees and agents (all being included in the word "Bank"
for the purpose of this Section 4 (a)) from any and all claims, causes of
action, damages, demands, fines, liabilities, losses, penalties, settlements,
expenses and/or costs, however defined and of whatever kind of nature, known or
unknown (including, but not limited to, attorneys' fees, consultants' fees,
laboratory fees, and related expenses, all of which shall be reasonable), which
may be asserted against, imposed on, suffered or incurred by, the Bank, arising
out of or in any way related to or due to (i) Contamination or Release (ii) any
injury to human health or safety (including wrongful death) or the environment
by reason of Contamination or Release(iii) any violation, or alleged violation,
by the Borrower or any Subsidiary of any Environmental Law; (iv) any material
misrepresentation by the Borrower in this Rider and/or the Agreement pertaining
to environmental matters or in any other documents or materials furnished by the
Borrower or any Subsidiary to the Bank and/or its representatives in connection
with the Agreement pertaining to environmental matters; (v) any breach of, or
other failure to comply with, or any default after expiration of applicable
grace and cure periods
44
<PAGE>
under, any provision of this Rider; (vi) any lawsuit brought or threatened,
settlement reached, or governmental order relating to Contamination or Release
or (vii) any lien imposed upon the Property in favor of any governmental entity
as a result of Contamination or Release. The duty of the Borrower to indemnify,
defend, and hold harmless includes, but is not limited to any Regulatory Action.
The Borrower further agrees that pursuant to its duty to indemnify under this
Section 4(a)a), it shall indemnify the Bank against all expenses incurred by the
Bank (including attorneys' fees and costs) as they become due and not wait for
the ultimate outcome of any litigation or administrative proceeding.
(b) If the Borrower or any Subsidiary fails to comply with any of the
provisions of this Section 4 and/or fails to initiate and diligently pursue any
Clean-Up required to be performed by the Borrower or such Subsidiary's at the
Property under Environmental Laws within thirty (30)days after receipt of
written notice from the Bank specifying Borrower's or such Subsidiary's failure
to comply or initiate and diligently pursue such Clean-up, the Bank, may, in its
sole direction, either (i) declare an Event of Default under the Agreement or
(ii) after notice to the Borrower, cause such Clean-Up of any Hazardous
Substances or other environmental condition on or under the Property, or both;
or (iii) pay on behalf of the Borrower or any subsidiary any costs, fines or
penalties imposed on the Borrower or such subsidiary as a result of any
Regulatory Actions; or (iv) make any other payment or perform any other
reasonable act which will prevent a lien in favor of any federal, state or local
governmental authority from attaching to the Property; or (v) pay, on behalf of
the Borrower or such Subsidiary, any damages, costs, fines or penalties imposed
on the Borrower or such Subsidiary's as a result of any Third Party Claims or
any one or more of the foregoing. The costs of such Clean-Up and/or exercise of
the remedies hereinabove set forth by the Bank shall be added to the
indebtedness under the Agreement (and whether or not any court has ordered the
Clean-Up), and, said costs shall become due and payable, with interest thereon,
at the Default Rate set forth in Section 2.1(b)(iii)of the Agreement. After the
occurrence an Event of Default hereunder, subject to Sections 3(g) and (h)
hereof, the Bank and its employees, agents, contractors and representatives
shall have access to the Property to conduct any Clean-Up that the Bank, in its
sole discretion, deems appropriate; however, the Bank has no affirmative
obligation to conduct any such Clean-Up, and this Rider shall not be construed
as creating any such obligation or any liability on the part of the Bank.
(c) Any partial exercise by the Bank of the remedies set forth in Section
4(b) hereof, or any partial undertaking on the part of the Bank to cure the
failure of the Borrower or any Subsidiary to comply with the Environmental Laws,
shall not obligate the Bank to complete the actions taken or require the Bank to
expend further sums to cure such non-
45
<PAGE>
compliance; nor shall the exercise of any such remedies operate to place upon
the Bank any responsibility for the operation, control, care, management or
repair of the Property or make the Bank the "operator" of the Property within
the meaning of the Environmental Laws". The Bank, by making any such payment or
incurring any such costs shall be subrogated to any rights of the Borrower or
such subsidiary to seek reimbursement form any third parties, including, without
limitation, a predecessor-in-interest to the Borrower's title to or interest in
the Property, who may be a "responsible party" or otherwise be liable under the
Environmental Laws.
CUNNINGHAM GRAPHICS SUMMIT BANK
INTERNATIONAL, INC.
By:_________________________ By: __________________________
Robert M. Okin, Rick DeBel,
Senior Vice President and Vice President
Chief Financial Officer
46
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This Schedule contains summary financial information extracted from the
unaudited predecessor financial statements for the six months ended June 30,
1998 and is qualified in its entirety by reference to such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1998
<PERIOD-END> JUN-30-1998
<CASH> 13,737,000
<SECURITIES> 0
<RECEIVABLES> 8,589,000
<ALLOWANCES> 0
<INVENTORY> 1,313,000
<CURRENT-ASSETS> 24,649,000
<PP&E> 7,119,000
<DEPRECIATION> 0
<TOTAL-ASSETS> 42,823,000
<CURRENT-LIABILITIES> 9,485,000
<BONDS> 0
0
0
<COMMON> 29,432,000
<OTHER-SE> 796,000
<TOTAL-LIABILITY-AND-EQUITY> 42,823,000
<SALES> 23,930,000
<TOTAL-REVENUES> 23,930,000
<CGS> 17,473,000
<TOTAL-COSTS> 21,430,000
<OTHER-EXPENSES> (19,000)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 42,000
<INCOME-PRETAX> 0
<INCOME-TAX> 1,117,000
<INCOME-CONTINUING> 1,360,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,360,000
<EPS-PRIMARY> 0.35
<EPS-DILUTED> 0.35
</TABLE>
