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SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
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FORM 10-K
FOR ANNUAL REPORT AND TRANSITION REPORTS PURSUANT
TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934
[X]ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended December 31, 1999
or
[_]TRANSITION REPORTS PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the Transition Period From to .
Commission File Number: 333-48821
IMPAC GROUP, INC.
(Exact Name of Registrant as Specified in Its Charter)
DELAWARE 23-2923682
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1950 North Ruby Street, Melrose Park, Illinois 60160
(Address of Principal Executive Offices)
Registrant's telephone number, including area code
(708) 344-9100
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Securities registered pursuant to Section 12(b) of the Act: None
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Name of each exchange
Title of each class on which registered
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None None
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Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
Yes [X]No [_]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-X is not contained herein, and will not be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [_]
Number of shares of Series A Common Stock, $0.001 par value per share (the
"Series A Common Stock") and Series B Common Stock, $0.001 par value per share
(the "Series B Common Stock" and, together with the Series A Common Stock, the
"Common Stock") outstanding as of the close of business on March 15, 2000:
<TABLE>
<CAPTION>
Class Number of Shares Outstanding
--------------------- ----------------------------
<S> <C>
Series A Common Stock 168,335
Series B Common Stock 4,500
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CONTENTS
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Page
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PART I
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Item 1. Business...................................................... 1
Item 2. Properties.................................................... 9
Item 3. Legal Proceedings............................................. 10
Item 4. Submission of Matters to Vote of Security Holders............. 10
PART II
Market for Registrant's Common Equity and Related Stockholder
Item 5. Matters....................................................... 11
Item 6. Selected Pro Forma and Historical Financial Data.............. 13
Management's Discussion and Analysis of Financial Condition
Item 7. and Results of Operations..................................... 15
Item 7A. Quantitative and Qualitative Disclosures About Market Risk.... 27
Item 8. Financial Statements and Supplementary Data................... 27
Changes in and Disagreements With Accountants on Accounting
Item 9. and Financial Disclosure...................................... 27
PART III
Item 10. Directors and Executive Officers of the Registrant............ 28
Item 11. Executive Compensation........................................ 31
Security Ownership of Certain Beneficial Owners and
Item 12. Management.................................................... 35
Item 13. Certain Relationships and Related Transactions................ 36
PART IV
Exhibits, Financial Statements Schedules and Reports on Form
Item 14. 8-K........................................................... 41
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PART I.
ITEM 1. BUSINESS
Company Overview
IMPAC Group, Inc. ("IMPAC" or the "Registrant", and, collectively with its
consolidated subsidiaries, the "Company") is an international designer,
manufacturer and marketer of high-end, value-added specialty printing and
packaging for various consumer products markets including entertainment,
cosmetics and personal care. Through its creative design work, specialized
manufacturing techniques, and diverse printing capabilities, the Company
offers innovative specialty packaging solutions for customers that seek to
differentiate their products in the retail marketplace. In addition, the
Company offers its products using a unique blend of materials including paper,
paperboard and transparent rigid plastic materials. As used in this Annual
Report on Form 10-K (the "Report"), the terms "fiscal 1997", "fiscal 1998",
"fiscal 1999" and "fiscal 2000" refer to the fiscal years of the Company ended
or ending on December 31 of the applicable calendar year.
The Company supplies high-end specialty printing and packaging to blue chip
customers in a diverse range of industries. IMPAC has developed long-standing
relationships with its key customers by providing superior quality and
customer service. IMPAC's manufacturing capabilities and its strategically
located plants enable it to offer fast turnaround times, high quality and
large volumes to satisfy customer demand. The Company's customers include,
among others, Universal Music Group (a business unit of the Seagram Company
Ltd.), EMI Group plc ("EMI"), BMG Entertainment (a division of a general
partnership controlled by Bertelsmann AG or "BMG"), Sony Music Entertainment
Inc. ("Sony"), Time Warner Inc., Fox Entertainment Group, Inc., Avon Products,
Inc. ("Avon"), Revlon Consumer Products Corporation ("Revlon"), The Estee
Lauder Companies Inc., Cosmair, Inc., The Procter & Gamble Company, Colgate-
Palmolive Company and Apple Computer, Inc. ("Apple"). In the entertainment
industry, examples of the Company's products include printed paper inserts for
standard compact disc ("CD") packaging as well as specialty paperboard-based
CD packaging and specialty packaging for home videos and digital versatile
discs ("DVD"). In the cosmetics and personal care industries, IMPAC offers
products such as paperboard and plastic folding cartons, transparent rigid
plastic toothbrush packages and windowed boxes made of paperboard and
transparent rigid plastic for face creams, lipsticks and other skin care
products. Specific examples of products manufactured by IMPAC include the
special edition collector's set of the hit movie Titanic, clear plastic
packaging for Totes(R) umbrellas, multi-product cosmetic paper and plastic-
based packaging for Polo Sport(R) and Ralph Lauren(R) fragrances, specialty
windowed folding cartons for Revlon's Colorstay(R) lipsticks and mascara,
standard music releases for leading artists such as Backstreet Boys and
Santana and specialty music releases such as Madonna's Ray of Light and The
Complete Hank Williams box set.
In March, 1998, KFI Holding Corporation ("KFI"), the parent company of
Klearfold, Inc. ("Klearfold"), acquired AGI Incorporated ("AGI"). Upon
completion of the acquisition of AGI, the Company changed its name to IMPAC
Group, Inc. This combination of AGI and Klearfold under common ownership is
referred to as the "Combination". AGI is a supplier of standard and specialty
printed packaging in the United States for the entertainment, cosmetics and
personal care industries. Klearfold is a supplier of innovative display
packaging using specialty windowed folding cartons that combine rigid plastic
film with paperboard for the cosmetics, personal care and other consumer
products industries. Subsequently, in September 1998, IMPAC expanded into the
international packaging market when it acquired the capital stock of Tinsley
Robor plc (together with its subsidiaries, "Tinsley", with the acquisition
referred to as the "Tinsley Acquisition"). Tinsley is a supplier of standard
and specialty printed packaging for the European music, multimedia and DVD
markets through its plants located in the U.K., Ireland, Austria and The
Netherlands. IMPAC further expanded its operations through several "tuck-in"
acquisitions, including the acquisitions of Music Print B.V. ("Music Print")
in November, 1998, Thamesdown Colour Limited ("Thamesdown") in November, 1999,
and Atlantic Packaging Corporation ("Atlantic") in January, 2000. Music Print
supplies printed packaging to the music and multimedia markets in The
Netherlands, Thamesdown provides high-end commercial printing services in the
U.K., and Atlantic
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manufactures high-end decorative corrugated packaging in Norwich, Connecticut.
Tinsley, Music Print and Thamesdown, together, are referred to hereinafter as
"IMPAC Europe".
In March, 1998, IMPAC issued $100 million of its 10 1/8% Senior Subordinated
Notes due 2008 (the "Original Notes") in a transaction exempt from the
registration requirements under the Securities Act of 1933, as amended (the
"Offering"). In October 1998, IMPAC exchanged $100 million of its 10 1/8%
Senior Subordinated Notes due 2008, Series B (the "Exchange Notes") that had
been registered under the Securities Act of 1933, as amended, for a like
principal amount of the Original Notes, which were retired. The Exchange Notes
are referred to hereinafter interchangeably with the Original Notes as the
"Senior Subordinated Notes". The Senior Subordinated Notes have been
guaranteed by certain of IMPAC's subsidiaries (the "Subsidiary Guarantors").
Business Information
Product and Services
The Company designs, manufactures and markets high-end specialty printing
and packaging for a variety of applications in the consumer products industry.
The Company believes it offers its customers one of the most extensive product
lines in the specialty packaging industry. Principal product areas include (i)
standard music packaging, (ii) specialty music packaging, (iii) multimedia and
video games packaging, (iv) specialty video packaging, (v) specialty DVD
packaging, (vi) paperboard folding cartons, (vii) plastic folding cartons,
(viii) specialty windowed folding cartons, (ix) rigid paperboard set-up boxes,
(x) decorative corrugated boxes, (xi) self-adhesive labels, and (xii) design,
pre-press and commercial print services. The following table details the
proprietary products sold by the Company:
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Product Description Sample Applications
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<C> <S> <C>
DIGIPAK(R) A paperboard-based
package that can fold
open in a variety of Music releases by leading artists such as Backstreet
ways and hold single or Boys, Beastie Boys, Counting Crows, Beck,
multiple CDs. Bruce Springsteen and R. Kelly.
Digilite(TM) A lighter version of the Music releases by leading artists such as 'N Sync,
DIGIPAK(R) typically Christina Aguilera and Kenny G.
utilized for packaging
CD singles.
Digilok(TM) A second generation Music releases by leading artists such as Kula
DIGIPAK(R) with unique Shaker, Prodigy and LTJ Bukem.
disc locking feature,
completely securing the
CD.
DVDigipak(R) A paperboard-based
package that can fold
open in a variety of Movie releases for major event titles and multi-
ways to hold single or title collections such as the Bruce Lee Master
multiple DVDs. Collection and the Spawn Special Edition sets.
DIGI-BOKS(R) A rigid one-piece
paperboard set-up box Multi-CD release by Frank Sinatra, multi-
used in a wide variety video release of Die Hard movies and multi-product
of applications. cosmetics packages for Ralph Lauren(R).
Klearfold(R) Plastic folding cartons Colgate's toothbrush line, Jockey(R) International,
produced from Inc. brand underwear, Clairol's haircolor products
transparent rigid and Totes(R) umbrellas.
plastic, offering
maximum visibility for
the consumer product at
the retail level.
Duofold(R) Durable, windowed boxes Chesebrough-Pond's(R) skin care products and
made from paperboard and Revlon's Colorstay(R) lipsticks and mascara.
scored rigid film.
Because the Company's
rigid film can wrap
around any edge,
Duofold(R) cartons allow
far more Visibility than
conventional windowed
cartons.
</TABLE>
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Product Description Sample Application
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<C> <S> <C>
KlearPOP(TM) Plastic folding cartons BIC(R) writing instruments, Andes(R) candies and
which utilize Klearfold other products frequently sold at impulse purchase
transparent packaging to locations.
provide multi-unit
dispensers and displays
that can be hung or
placed on shelves.
KlearForm(TM) An alternative type of Small consumer products such as pocket knives
plastic folding carton and personal care products.
which combines
thermoformed plastic
parts with printed film.
The result is a striking
package that holds the
packaged product
securely.
Hologravure(TM) Licensed three- Point-of-sale posters, packaging for CDs, and
dimensional printing other consumer products packaging such as labels
technology that provides for Apple's iMac(R) personal computers.
three-dimensional visual
effects to standard
transparent plastic
materials.
</TABLE>
Set forth below is a description of the categories of products sold by the
Company utilizing the proprietary products described above as well as various
other products.
Standard Music Packaging. The Company's standard music packaging products
for CDs and cassette tapes include paper inlay cards, folders and booklets for
CD jewel boxes and insert cards for cassette tape boxes, as well as the
Company's patented DIGIPAK(R), Digilok(TM) and Digilite(TM) products. The
Company provides standard CD and cassette packaging components to a wide
variety of customers in the recorded music industry. These products are
manufactured in a variety of size configurations and process printing color
combinations. Examples of the Company's recent standard music packaging
include the CD inserts for Backstreet Boy's Millenium and Santana's
Supernatural.
Specialty Music Packaging. The Company's creative staff often works in close
collaboration with music customers to create and develop ideas for unique or
unusual specialty packaging. These packages are designed to be highly
distinctive and often incorporate a variety of materials and advanced
manufacturing processes into a single package. The Company's patented
DIGIPAK(R), Digilite(TM), Digilok(TM) and DIGIBOKS(R) products have provided
the recorded music industry with the flexibility to create innovative and
interesting CD packaging. Specialty music packages have been used for music
releases such as Madonna's Ray of Light and The Complete Hank Williams box
set, both of which won Grammy Awards in 1999 for package design.
Multimedia and Video Games Packaging. The Company's multimedia packaging for
CD-ROM applications include many of the same CD packaging components sold to
music customers such as paper inlay cards, folders and booklets for CD jewel
boxes as well as DIGIPAK(R) products. In addition, the Company supplies
folding cartons to certain customers in this market. The Company also provides
paper packaging components such as booklets and tray cards for cassette based
video games. Examples of the Company's recent multimedia and video games
packaging include Sony Playstation's(TM) WWF Smackdown, Fisher Price's(TM)
ABC's & 123's and The Learning Company's(TM) Pokemon.
Specialty Video Packaging. In the home video market, the Company provides
paperboard packaging for major event titles and multi-title collections
combined for re-release principally directed to the sell-through market. The
Company manufactures specialty video packaging utilizing any combination of
its innovative manufacturing processes and its well-developed network of
specialized outside suppliers. Examples of the Company's recent specialty
video packaging include the Die Hard and James Bond 007 multi-title video
collections as well as the Titanic and Austin Powers International Man of
Mystery video releases.
Specialty DVD Packaging. In the DVD home video market, the Company provides
paperboard packaging for major event titles and multi-title collections
combined for re-release. The Company's trademarked DVDigipak(TM) products
provide the entertainment industry with the flexibility to create innovative
and interesting DVD packaging. Creative specialty DVD packages were recently
utilized for the Bruce Lee Master Collection and the Spawn Special Edition
multi-title DVD sets.
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Paperboard Folding Cartons. Premium paperboard folding cartons are
manufactured using a variety of production and design techniques including
special prints and coatings, foil stamping, laminates and other special
materials that help customers achieve product differentiation and add to the
perceived value of the product. Premium paperboard folding cartons are used to
package a wide variety of products for the Company's cosmetics and personal
care customers and are frequently included in packaging solutions for
multimedia industry customers.
Plastic Folding Cartons. The Company manufacturers plastic folding cartons
under the Klearfold(R), KlearPOP(TM) and KlearForm(TM) brand names. The vast
majority of these cartons are produced from transparent rigid plastic film,
offering maximum visibility of the product packaged in the carton. Like more
conventional folding cartons produced from paperboard, Klearfold(R) cartons
ship and store in flat form, minimizing storage space. The Company's patented
Soft Crease feature enables Klearfold(R) cartons to be used easily and
effectively in manual or automatic filling of its cartons on its customers'
packaging lines. In addition, the Company's manufacturing process produces a
Smooth Edge feature, which minimizes sharp edges along the perimeter of the
cartons and provides safer handling than most competitive products. The
Company prints on the plastic film used in the manufacture of its products,
offering a variety of printing processes to enhance the package's appearance.
Klearfold(R) cartons are also manufactured from tinted, opaque, or embossed
plastic film, increasing the options available to customers.
Specialty Windowed Folding Cartons. The Company has created its line of
Duofold(R) cartons in order to offer many of the benefits of its fully
transparent cartons, in combination with the advantages of additional graphics
capabilities and rigidity offered by incorporating paperboard into the
package. In addition, by substituting less expensive paperboard for plastic in
a portion of the carton, Duofold(R) cartons are more cost efficient than all-
plastic cartons. Unlike the typical thin film in windowed cartons, the rigid
film used in Duofold(R) cartons resists tearing and puncturing and contributes
to the stability of the carton. Additionally, the Duofold(R) manufacturing
process allows the transparent rigid plastic film to wrap around any edge of
the carton without compromising structural strength. Duofold(R) cartons are
available in a wide variety of structures that can be stacked, racked or hung
in virtually any configuration without sacrificing visual impact or display
density. Also, as with Klearfold(R) transparent cartons, Duofold(R) cartons
are shipped flat, can be easily set up manually or automatically, and can be
enhanced using a wide variety of processes, including printing directly on the
transparent film portion of the package. Examples of products utilizing
Duofold(R) cartons include Chesebrough-Ponds(R) Skin Cream and Revlon
Colorstay(R) lipsticks and mascara.
Rigid Paperboard Set-Up Boxes. The Company's licensed DIGIBOKS(R) product
and the Company's two-piece rigid setup boxes are used to provide creative
packaging solutions for special music releases, special promotions and
cosmetics boxed sets which include multiple products. Most notably, these
products have been used to package multi-CD boxed releases by John Lennon and
The Smashing Pumpkins and to package Ralph Lauren Safari(R) and Polo Sport(R)
multi-product sets.
Decorative Corrugated Boxes. The Company manufactures high-end decorative
corrugated boxes used to package a wide variety of products including
cosmetics, personal care, pharmaceuticals, beverages, computer software and
household goods. Decorative corrugated products combine the structural
integrity and protective characteristics of the traditional "brown box" with
the enhanced graphical presentation normally associated with folding cartons
and set-up boxes. Examples of the Company's products include cosmetics
packaging for Avon, software packaging for IBM and personal care packaging for
Chesebrough-Ponds(R).
Self-Adhesive Labels. The Company provides self-adhesive labels for various
consumer products in Europe including toiletries, drinks and foods. Examples
of the Company's products include labels for various toiletries for the Sara
Lee Corporation, shower gel and bathing solution labels for high profile
brands such as Radox(R) and Badedas(R), sandwich labels for Toft Foods, hair
product labels for Brylcreem(R) and paint labels for Cuprinol(R).
Design, Pre-Press and Commercial Print Services. The Company provides high
quality creative design, pre-press and commercial print services to customers
across all consumer products industries. Designers have
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access to a full range of computer graphics equipment, including digital print
capabilities. This enables the Company to provide competitive short run, fast
turnaround color print typically used for promotional literature such as
brochures, annual reports and direct mailings. Examples of customers that use
these services include The Walt Disney Company, Sony, EMI, BMG and Universal
Music Group.
Markets And Customers
The Company's markets are divided into three principal categories: (i)
entertainment, (ii) cosmetics, and (iii) other consumer products. The
following chart illustrates the Company's sales by market for each of the last
three fiscal years presented on an unaudited pro forma combined basis in 1997
and 1998 and on a historical consolidated basis in 1999:
<TABLE>
<CAPTION>
Years Ended December 31,
-----------------------------------------
1997 1998 1999
------------- ------------- -------------
(dollars in millions)
<S> <C> <C> <C> <C> <C> <C>
Entertainment......................... $164.5 58.5% $157.5 58.1% $182.5 59.3%
Cosmetics............................. 41.4 14.7% 39.9 14.7% 50.3 16.3%
Other Consumer Products............... 75.3 26.8% 73.6 27.2% 75.0 24.4%
------ ------ ------ ------ ------ ------
Total............................... $281.2 100.0% $271.0 100.0% $307.8 100.0%
====== ====== ====== ====== ====== ======
</TABLE>
Strategy
The Company's principal growth strategy is to leverage its reputation for
product innovation, high quality and customer service in order to expand into
new and existing markets and customers. Key elements of the Company's strategy
include:
Capitalize on Cross-Selling Opportunities. The Company believes that it will
create significant additional revenue opportunities with existing customers by
marketing its expanded array of high-end packaging solutions. The Company
believes that AGI, Klearfold and IMPAC Europe each bring a strong position in
certain closely related consumer products markets that the other companies
should be able to leverage. In particular, the Company believes that IMPAC
Europe represents an excellent platform from which to offer the Klearfold
product capabilities, while AGI and IMPAC Europe will each benefit from the
other's strong position in closely related entertainment markets such as
specialty video packaging and multimedia and video games packaging.
Further Integrate with Key Customers. Historically, the Company has enjoyed
cooperative integrated relationships with its key customers. The Company's
recent expansion into international markets through the Tinsley Acquisition
allows it to further integrate with its global customers in an environment in
which the general trend is to limit the number of outside suppliers.
Furthermore, in an effort to enhance its service and turnaround time, the
Company has strategically positioned several of its facilities in close
proximity to one or several major music or multimedia customers.
Pursue New Market Opportunities. The Company intends to expand into related
product lines that serve new markets, which will provide an opportunity for
additional revenue growth. As a result of the Combination, the Company's
creative design team has an enhanced capability to develop new packaging
products based on the most suitable type of materials or combinations. The
Company believes that its innovative product development experience positions
it to capture additional customers in new and existing markets.
Increase Operating Efficiencies. The Company believes that combining the
operations of AGI, Klearfold and IMPAC Europe presents opportunities to
effectively capitalize on operating efficiencies and economies of scale. A
portion of AGI's and Klearfold's printing capacity is interchangeable,
allowing work to be processed wherever capacity is available during times of
peak demand. The Tinsley Acquisition gives the Company access to international
manufacturing operations which allows the Company to produce packaging in
close proximity to
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its customers' global distribution channels. The Company intends to utilize
the most efficient practices currently used in each of its facilities to
enhance manufacturing capabilities and improve cost structures.
Pursue Strategic Acquisitions. The Company may pursue other strategic
acquisitions within the specialty printing and packaging industry. The Company
believes that significant opportunities exist to acquire distinctive
businesses that would enable the Company to further broaden its product
offerings as well as to expand its operations both domestically and
internationally. For example, in January 2000, the Company acquired Atlantic,
a Norwich, Connecticut based manufacturer of high-end decorative corrugated
packaging, thereby adding an additional product offering to IMPAC's already
wide array of specialty packaging solutions.
Sales And Marketing
Customer relationships in the specialty packaging industry are generally
developed and maintained over extended periods. These relationships develop
because of the high degree of coordination necessary between packaging
suppliers and their customers to ensure that packaging conforms precisely to
the needs of the customer. The integration of product design and manufacturing
along with inventory management and distribution systems provide the Company
with a competitive advantage in maintaining and expanding business with
established customers. This integrated marketing, design and manufacturing
operation also represents an important source of new business opportunities
through the modification of existing packaging and the development of new
applications.
The Company has approximately 73 sales professionals together offering the
combined product lines of IMPAC. Products are sold through the sales
professionals directly to customers in a variety of industries. The sales
professionals focus on individual customer accounts and are able to offer the
Company's wide array of packaging solutions.
Industry And Customer Concentrations
Industry Concentrations
Although the Company markets its packaging to various consumer products
industries, a substantial portion of its products are sold to the
entertainment industry and the cosmetics industry. In 1999, approximately 59%
and 16% of the Company's total sales represented sales to the entertainment
industry and the cosmetics industry, respectively.
Customer Concentration
The Company has been successful in establishing strong relationships with
its key customers. Universal Music Group and EMI combined to account for
approximately 22% and 25% of the Company's net sales in 1998 and 1999,
respectively.
Distribution
A significant amount of the Company's products are shipped directly from its
manufacturing facilities to its customers' facilities. Because of this, the
proximity of the manufacturing facility to the customer's plant can
significantly affect the price of products. The Company believes that its
manufacturing facilities are well-positioned to serve U.S. and European
markets. In an effort to enhance its service and turnaround time, the Company
has positioned several of its facilities in close proximity to one or several
major music or multimedia customers.
The Company has established its strategically located facilities by
constructing new facilities, leasing existing facilities and acquiring
existing businesses. Examples of each of these initiatives include the
construction
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of the Grover, North Carolina facility in 1998, the lease of the Swindon, U.K.
facility in 1995 and the acquisition of Music Print in Weesp, Holland in 1998.
In part because of the foregoing factors, the Company does not have
significant warehouse facilities.
Competition
The Company's business is highly competitive. Major competitive factors
include product quality, service and price. In addition, as more of the
Company's customers adopt "just-in-time" inventory systems, delivery lead time
has increased in importance. The Company believes that its manufacturing
facilities are well-positioned to serve U.S. and European markets.
The Company believes that some of its primary competitors are Ivy Hill
Corporation, Shorewood Packaging Corporation and International Paper Company
in the United States and Gerhard Kaiser GMBH, St. Ives plc and CMCS Group plc
in the U.K. and Europe, some of which are larger than the Company and may have
substantially greater financial resources.
Government Regulation
The past and present operations of the Company and the past and present
ownership and use of real property by the Company are subject to extensive and
changing federal, state and local environmental laws and regulations
pertaining to the discharge of materials into the environment, the handling
and disposition of wastes, the recycling, composition and recycled content of
packaging, or otherwise relating to the protection of the environment. These
laws include, but are not limited to, the Comprehensive Environmental Response
Compensation and Liability Act, the Water Pollution Control Act, the Clean Air
Act and the Resource Conservation and Recovery Act, as those laws have been
amended and supplemented, the regulations promulgated thereunder, and any
applicable state analogs. The Company's operations are also governed by laws
and regulations relating to employee health and safety. Governmental
authorities have the power to enforce compliance with their regulations and
violations may result in the payment of fines or the entry of injunctions or
both. The Company believes that it is in material compliance with such
applicable laws and regulations and that its current environmental controls
are adequate to address existing regulatory requirements.
As is the case with other companies engaged in similar businesses, the
Company could incur costs relating to environmental compliance, including
remediation costs related to historical hazardous materials handling and
disposal practices at certain facilities. In the past the Company has
undertaken remedial activities to address on-site soil contamination caused by
historic operations. None of these cleanups has resulted in any material
liability. It is possible that future developments (e.g., new regulations or
stricter regulatory requirements) could result in the Company incurring
material costs to comply with applicable environmental laws and regulations.
In addition, the Company has not undertaken an independent investigation of
all of its facilities; accordingly, there can be no assurance that in the
future conditions requiring remediation will not be identified.
Technology, Product Development and Patents
The Company produces high-quality, value-added, specialized packaging
products through the development of creative designs and innovative
manufacturing techniques. The Company's technical and product development
centers that support the Company's marketing efforts are staffed with 32 full-
time personnel as of December 31, 1999 and feature extensive in-house design,
engineering, tooling, prototype production, graphics and processing
capabilities. The Company's in-house design and production engineers work
closely with existing and potential customers throughout the various stages of
product design and development, in many instances producing real-time
prototypes. The Company believes that its in-house design, engineering and
graphics capabilities, which utilize CAD/CAM technology, are among the more
extensive and sophisticated in the industry and enhance the Company's ability
to better integrate its creative design capabilities with its customers'
conceptual design processes.
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The Company has patented some of its various technology and processes. The
Company currently owns approximately 42 patents and patent applications, with
its patents expiring on various dates between 2000 and 2017. However, the
Company believes that the design, innovation and quality of its products and
its relationships with its customers are substantially more important to the
maintenance and growth of its business than its patents. Accordingly, the
Company does not believe that its business is dependent to any material extent
upon any single patent. Certain of the Company's patents are expiring in the
next few years.
The Company currently owns trademarks for the following marks referenced in
this Report: DIGIPAK(R), Digilite(TM), DVDigipak(TM), DIGI-BOKS(R),
Digilok(TM), Klearfold(R), KlearPOP(TM), KlearForm(TM), Hologravure(TM) and
Duofold(R). All other marks referenced in this Report are owned by various
third parties.
Manufacturing And Supplies
The Company operates in an industry that requires continued investment in
equipment to support growth, quality and efficient operations. The Company
intends to continue this level of commitment by investing in equipment. The
Company utilizes its modern machinery to lower turnaround time while reducing
staffing requirements and maintaining "just-in-time" manufacturing.
The Company, like its competitors, is subject to rigorous quality control
standards imposed by its customers. The Company has implemented a
comprehensive quality assurance program, which includes computer-aided testing
of parts for size, color and strength. Using advanced measurement technology,
the Company is able to satisfy and exceed the most demanding customer
requirements. Statistical quality control methods are also used to promote
total customer satisfaction.
The Company believes that it is generally able to pass raw material price
increases on to its customers, given the customized and high-end nature of its
packaging and the relatively low proportion of packaging cost in relation to
the cost of the end-product. In addition, the Company's customer contracts for
longer production runs generally include provisions for raw material cost
escalation.
Employees
As of December 31, 1999, the Company had 1,961 employees, of which 1,527
were engaged in production or product support, 32 in product development,
design and engineering, 124 in marketing and sales and 278 in corporate
management and administration. The 239 member hourly workforce at the
Company's Warrington, Pennsylvania facility is represented by the United
Paperworkers International Union under a collective bargaining agreement which
expires on November 30, 2002. Most of the Company's European facilities have
separate house union agreements or series of agreements specific to the
workforce at such facility. Approximately 425 of the Company's European
workforce are members of these house unions. The Company believes that its
relations with employees are good, and it has not experienced any strikes or
work stoppages.
Financial Information About Foreign and Domestic Operations
Sales and manufacturing operations outside the United States are conducted
through subsidiaries located in the U.K., Ireland, Austria and The
Netherlands. The Company has 19 manufacturing facilities: seven in the United
States and twelve outside of the United States. During fiscal 1999, 56.9% of
the Company's net sales were attributable to domestic operations and 43.1% of
the Company's net sales were attributable to foreign operations. (For more
information about domestic and foreign segments and sales, see Note 13 to the
Company's Consolidated Financial Statements).
8
<PAGE>
ITEM 2. PROPERTIES
The Company's operations are conducted through 28 facilities located in the
United States, U.K., Ireland, The Netherlands and Austria. The Company's
principal executive offices are located in Melrose Park, Illinois. The leases
for the Franklin Park, Illinois, Louisa, Virginia, Melrose Park, Illinois, New
York, New York, Warrington, Pennsylvania, and Uden, Holland facilities provide
the Company with options to renew for additional five year periods and the
lease for the Salzburg, Austria facility provides the Company with an option
to renew for an additional two year period. The Company's facilities are
designed to provide for efficient manufacturing, material handling and storage
of its products and no facility is materially underutilized. The Company
believes that substantially all of its property and equipment is in good
condition and that it has sufficient capacity to meet its current
manufacturing and distribution requirements.
The following table provides certain information regarding the Company's
operating facilities as of December 31, 1999:
<TABLE>
<CAPTION>
Building
sq. feet
Facility Ownership (approx.) Function Lease expiration
- -------- --------- --------- -------- ----------------
<S> <C> <C> <C> <C>
U.S. Facilities
Dublin, OH.............. Leased 500 Sales April 1, 2002
Fulfillment
Franklin Park, IL....... Leased 41,000 Center/Office September 30, 2000
Grover, NC.............. Owned 51,000 Manufacturing N/A
Indianapolis, IN........ Leased 1,000 Sales September 1, 2002
Jacksonville, IL........ Owned 77,000 Manufacturing/Office N/A
Los Angeles, CA......... Leased 3,000 Sales August 31, 2002
Louisa, VA.............. Leased 78,000 Manufacturing December 31, 2005
Melrose Park, IL........ Leased 257,000 Manufacturing/Office September 30, 2002
Melrose Park, IL........ Leased 41,000 Warehouse March 31, 2002
New York, NY............ Leased 21,000 Sales August 31, 2003
Oakland, CA............. Leased 2,000 Sales July 31, 2001
Warrington, PA.......... Leased 100,000 Manufacturing December 31, 2005
Warrington, PA.......... Leased 84,000 Warehouse/Manufacturing December 31, 2004
U.K. and European Facilities
Chichester, UK.......... Leased 6,000 Office June, 2000
London, UK.............. Owned 2,000 Sales/Office N/A
London, UK.............. Leased 6,000 Manufacturing March 25, 2005
London, UK.............. Leased 5,000 Manufacturing April 27, 2003
Slough, UK.............. Owned 13,000 Manufacturing N/A
Birmingham, UK.......... Owned 74,000 Manufacturing N/A
Swindon, UK............. Leased 25,000 Manufacturing May 1, 2010
Swindon, UK............. Leased 21,000 Manufacturing Unit 11-March 24, 2004
Unit 26A-December 31, 2002
Littlehampton, UK....... Leased 29,000 Manufacturing September 30, 2008
Southhampton, UK........ Leased 25,000 Sublet Unit 7-December 25, 2009
Unit 8-December 1, 2008
Dublin, Ireland......... Leased 24,000 Manufacturing January 7, 2016
Uden, Holland........... Leased 31,000 Manufacturing May 31, 2003
Enschede, Holland....... Owned 96,000 Manufacturing N/A
Salzburg, Austria....... Leased 24,000 Manufacturing August 31, 2006
Weesp, Holland.......... Owned 24,000 Manufacturing N/A
</TABLE>
9
<PAGE>
ITEM 3. LEGAL PROCEEDINGS
The Company is a party to various legal actions arising in the ordinary
course of its business. The Company believes that the resolution of these
legal actions will not have a material adverse effect on the Company's
financial position or results of operation.
Pursuant to a complaint dated January 6, 2000, Zvi Guttman, the Chapter 7
Trustee for PTP Industries, Inc., a Maryland corporation ("PTP"), has filed
suit against Klearfold, Inc., and KF-Delaware, Inc., (together, the
"Subsidiary Companies" and each a direct or indirect subsidiary of IMPAC),
among others, in the U.S. Bankruptcy Court for the District of Maryland,
seeking to set aside the allegedly fraudulent conveyance of $1,585,000 from
PTP to KF-Delaware, Inc., in payment for the sale of certain shares of PTP
held by KF- Delaware, Inc., and to recover that amount for the bankruptcy
estate of PTP, together with interest and costs. The Subsidiary Companies
delivered a notice, dated as of February 15, 2000, pursuant to Section 8.3 of
the Investment Agreement dated as of February 19, 1998 (the "Investment
Agreement"), among IMPAC, Heritage Fund I Investment Corporation and the other
parties thereto, asserting a claim for indemnification against certain other
parties to such Investment Agreement, including Heritage Fund I, L.P., H.
Scott Herrin, Arthur S. Keyser and Matthew H. Kamens as Trustees under an
Irrevocable Deed of Trust dated August 12, 1992 f/b/o H. Scott Herrin, Arthur
S. Keyser and Matthew H. Kamens as Trustees under an Indenture of Trust of
Melvin B. Herrin dated June 4, 1996, Melvin B. Herrin and H. Scott Herrin,
each a director or a major stockholder of the Company. The Company believes
that the resolution of this legal matter will not have a material adverse
effect on the Company's financial position or results of operation.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITYHOLDERS
On January 8, 1999, IMPAC's stockholders consented, in lieu of a meeting, to
an additional restatement of IMPAC's Amended and Restated Certificate of
Incorporation. Such stockholder action was consented to by the affirmative
vote of the holders of approximately 119,586 shares of IMPAC's Common Stock.
On March 26, 1999, IMPAC's stockholders consented, in lieu of a meeting, to
the election of M. Shaun Lawson and Lee Newbon to IMPAC's Board of Directors
with each of Richard H. Block, Zenas Block, David H. Horowitz, Melvin B.
Herrin, H. Scott Herrin, Michael F. Gilligan and Michel Reichert continuing as
directors of IMPAC. Such stockholder action was consented to by the
affirmative vote of the holders of approximately 132,735 shares of IMPAC's
Common Stock.
On April 7, 1999, IMPAC's stockholders consented, in lieu of a meeting, to
the sale of certain shares of IMPAC's Series A Common Stock by each of James
H. Oppenheimer and Dean J. Henkel to Heritage Fund II Investment Corporation.
Such stockholder action was consented to by the affirmative vote of the
holders of approximately 125,914 shares of the Company's Series A Common Stock
with respect to the sale by Mr. Oppenheimer and approximately 135,911 shares
of IMPAC's Series A Common Stock with respect to the sale by Mr. Henkel.
On May 28, 1999, IMPAC's stockholders consented, in lieu of a meeting, to
IMPAC's issuance and sale of certain shares of its Series A Common Stock to
certain of its employees and directors. Such stockholder action was consented
to by the affirmative votes of the holders of approximately 161,585 shares of
IMPAC's Series A Common Stock, 4,500 shares of IMPAC's Series B Common Stock
and 20,000 shares of IMPAC's Series A Redeemable Preferred Stock.
On October 29, 1999, IMPAC's stockholders consented, in lieu of a meeting,
to an amendment of IMPAC's Fourth Amended and Restated Certificate of
Incorporation. Such stockholder action was consented to by the affirmative
vote of the holders of approximately 121,560 shares of Series A Common Stock,
4,500 shares of IMPAC's Series B Common Stock and 20,000 shares of IMPAC's
Series A Redeemable Preferred Stock.
On January 10, 2000, IMPAC's stockholders consented, in lieu of a meeting,
to an amendment of IMPAC's Fourth Amended and Restated Certificate of
Incorporation. Such stockholder action was consented to by the affirmative
vote of the holders of approximately 110,450 shares of Series A Common Stock,
4,500 shares of IMPAC"s Series B Common Stock and 20,000 shares of IMPAC"s
Series A Redeemable Preferred Stock.
10
<PAGE>
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Market Information
IMPAC's Common Stock is not publicly traded.
Holders
As of March 15, 2000, IMPAC had 168,335 shares of Series A Common Stock
outstanding held by approximately 48 stockholders of record and 4,500 shares
of Series B Common Stock outstanding held by one stockholder of record.
Dividends
IMPAC has never paid dividends on its Common Stock nor does it expect to pay
dividends on its Common Stock in the foreseeable future. IMPAC's ability to
pay future dividends on its Common Stock is limited by the Indenture, as
defined below, IMPAC's Fourth Amended and Restated Certificate of
Incorporation, as amended, and the Company's Amended and Restated
Multicurrency Credit Facility, dated as of July 7, 1998, among the Company and
Bank of America, National Trust and Savings Association, as agent, and certain
other financial instititutions parties thereto (the "Facility").
Recent Sales of Unregistered Securities
On January 12, 1999, IMPAC issued to BT Capital Investors, L.P. and Phoenix
Home Life Mutual Insurance Company, for an aggregate consideration of
$20,000,000, (i) an aggregate of 20,000 shares of Series A Mandatorily
Redeemable Preferred Stock, $0.001 par value per share (the "Preferred Stock")
and (ii) detachable, ten-year warrants (the "Warrants") to purchase an
aggregate of 6,913 shares of IMPAC's Series A Common Stock at an exercise
price of $0.01 per share. The Company used the net proceeds from the sale of
Preferred Stock to acquire 30,088 shares of outstanding Series A Common Stock.
The Warrants are exercisable at any time during the ten-year period subsequent
to their issuance. The issuances of such Preferred Stock and Warrants (the
"Preferred Stock Issuance") were made by IMPAC in reliance on the exemption
from registration provided under Regulation D under the Securities Act of
1933, as amended. See Note 10 to the Company's Consolidated Financial
Statements.
On July 30, 1999, IMPAC issued to certain of its employees and directors,
for an aggregate consideration of approximately $956,000, an aggregate of
approximately 1,887 shares of Series A Common Stock. IMPAC used the net
proceeds from the sale of Series A Common Stock to acquire approximately 1,552
shares of outstanding Series A Common Stock. The issuances of such Series A
Common Stock were made by IMPAC in reliance on the exemption from registration
provided under Section 4(2) and Regulation S (with respect to the non-U.S.
employees) and Rule 505 under Regulation D (with respect to the U.S.
employees) under the Securities Act of 1933, as amended. See Note 10 to the
Company's Consolidated Financial Statements.
On November 2, 1999, in connection with IMPAC's purchase of all of the
issued share capital of Thamesdown Colour Limited, a limited company organized
under the laws of England and Wales ("Thamesdown"), IMPAC issued an aggregate
of approximately 3,897 shares of Series A Common Stock to seven (7) holders of
issued share capital of Thamesdown, representing partial consideration of
approximately $2,371,875 payable by IMPAC pursuant to that certain Purchase
Agreement, dated as of November 2, 1999, by an among IMPAC and such holders.
The issuances of such Series A Common Stock were made by IMPAC in reliance on
the exemption from registration provided under Section 4(2) and Regulation S
under the Securities Act of 1933, as amended. See Note 3 and Note 10 to the
Company's Consolidated Financial Statements.
11
<PAGE>
On December 29, 1999, IMPAC issued to certain of its employees, for an
aggregate consideration of approximately $533,000, an aggregate of
approximately 875 shares of Series A Common Stock. The issuances of such
Series A Common Stock were made by IMPAC in reliance on exemptions from
registration provided under Section 4(2) and Regulation S under the Securities
Act of 1933, as amended. See Note 10 to the Company's Consolidated Financial
Statements.
On January 10, 2000, in connection with IMPAC's purchase of all of the
outstanding common stock of Atlantic Packaging Corporation ("Atlantic"), IMPAC
issued an aggregate of approximately 1,643 shares of Series A Common Stock to
two (2) holders of outstanding common stock of Atlantic, representing partial
consideration of approximately $1,000,000 payable by IMPAC pursuant to that
certain Stock Purchase Agreement and Stock Exchange Agreement dated as of
January 10, 2000, by and among IMPAC and such holders. The issuances of such
Series A Common Stock were made by IMPAC in reliance on the exemption from
registration provided under Section 4(2) under the Securities Act of 1933, as
amended. See Note 15 to the Company's Consolidated Financial Statements.
12
<PAGE>
ITEM 6. SELECTED PRO FORMA AND HISTORICAL FINANCIAL DATA
Selected Pro Forma and Historical Financial Data
The selected historical consolidated financial data set forth below for the
year ended December 31, 1999 has been derived from the Company's consolidated
financial statements audited by PricewaterhouseCoopers LLP, independent public
accountants, and includes the operating results of AGI and Tinsley for the
entire period. The selected unaudited pro forma combined financial data set
forth below for the years ended December 31, 1996, 1997 and 1998 are based on
the historical consolidated financial statements of the Company included
elsewhere in this Report, adjusted to give effect to the Combination, the
Tinsley Acquisition and the additional borrowings incurred to fund those
transactions as if they had occurred as of January 1, 1996. As a result of
these transactions, the Company's historical consolidated financial statements
for the years ended December 31, 1996, 1997, 1998 and 1999 are not comparable
due to the inclusion in the consolidated financial statements of AGI's and
Tinsley's assets, liabilities and operating results from the dates of
acquisitions. Management believes the following unaudited pro forma combined
financial data for the years ended December 31, 1996, 1997 and 1998 and the
historical consolidated financial data for the year ended December 31, 1999
presents a more meaningful comparison of the Company's operating results from
year to year. However, the unaudited combined pro forma financial data do not
purport to represent what the Company's financial position or results of
operations would actually have been had the Combination, the Tinsley
Acquisition and the incurrence of the related indebtedness occurred on the
assumed date or to project the Company's financial position or results of
operations for any future date or period. The information contained in the
following table should be read in conjunction with "Management's Discussion
and Analysis of Financial Condition and Results of Operations" and the
consolidated financial statements and the related notes thereto included
elsewhere in this Report.
<TABLE>
<CAPTION>
Year Ended December 31,
----------------------------------------
Pro Forma Historical
---------------------------- ----------
1996(1) 1997 1998(2) 1999
-------- -------- -------- ----------
(dollars in thousands)
<S> <C> <C> <C> <C>
Income Statement Data
Net sales............................ $247,604 $281,170 $271,049 $307,754
Cost of goods sold................... 178,287 198,797 197,021 216,527
-------- -------- -------- --------
Gross profit......................... 69,317 82,373 74,028 91,227
Selling, general and administrative
expenses............................ 45,826 55,171 53,245 60,674
-------- -------- -------- --------
Operating income..................... 23,490 27,202 20,783 30,553
Interest expense, net................ 21,259 21,352 21,537 22,913
Other expense (income), net.......... 181 (139) 456 (41)
-------- -------- -------- --------
Income (loss) before income taxes and
extraordinary item.................. 2,050 5,990 (1,210) 7,681
Income taxes......................... 2,342 3,987 994 3,384
-------- -------- -------- --------
Income (loss) before extraordinary
item(3)............................. $ (292) $ 2,003 $ (2,204) $ 4,297
======== ======== ======== ========
Other Data
EBITDA (as defined)(4)............... $ 40,654 $ 45,730 $ 39,927 $ 51,589
Depreciation and amortization........ 17,895 18,561 19,144 21,026
Capital expenditures................. 29,267 19,497 25,428 27,002
</TABLE>
- -------
(1) The unaudited pro forma combined financial data for the year ended
December 31, 1996 includes the results of operations for Tinsley for the
year ended March 31, 1997.
(2) The unaudited pro forma combined financial data for the year ended
December 31, 1998 has been retroactively restated to reflect the Company's
change in method of pricing the paper component of inventory for AGI from
LIFO to FIFO. This change decreased previously reported net income by
$224. See Note 4 of the Company's Consolidated Financial Statements.
(3) The results of operations for the year ended December 31, 1998 include an
extraordinary loss of $751, net of tax, due to the write-off of deferred
financing costs.
(4) EBITDA is defined as income from continuing operations before deducting
interest expense, income taxes, depreciation and amortization and
excludes, to the extent applicable for the relevant period, (i) other
(income) expense, (ii) stock-based compensation expense of $171, $2,326
and $1,171 for the years ended December 31, 1996, 1997 and 1998,
respectively, and (iii) PTP Industries, Inc. ("PTP") royalty and
commission income of $731 and $33 for the years ended December 31, 1996
and 1997, respectively. EBITDA is not a substitute for operating income,
net earnings and cash flow from operating activities as determined in
accordance with generally accepted accounting principles as a measure of
profitability or liquidity. EBITDA is presented as additional information
because management believes it to be a useful indicator of the Company's
ability to service and/or incur indebtedness.
13
<PAGE>
Selected Historical Financial Data
The selected historical consolidated financial data set forth below as of
and for each of the three years ended December 31, 1997 have been derived from
the Company's financial statements audited by KPMG LLP, independent public
accountants. The selected historical consolidated financial data set forth
below as of and for each of the two years ended December 31, 1999 have been
derived from the Company's financial statements audited by
PricewaterhouseCoopers LLP, independent public accountants. The audited
consolidated financial statements of the Company as of December 31, 1998 and
1999 and for each of the three years ended December 31, 1999 are included
elsewhere in this report. The selected historical consolidated financial data
of the Company include AGI from March 13, 1998, Tinsley from September 12,
1998 and Klearfold for all periods presented. The information contained in the
following table should be read in conjunction with "Management's Discussion
and Analysis of Financial Condition and Results of Operations" and the
consolidated financial statements and the related notes thereto included
elsewhere in this Report.
<TABLE>
<CAPTION>
Year Ended December 31,
----------------------------------------------
1995 1996 1997 1998(1) 1999
------- -------- -------- -------- --------
(dollars in thousands)
<S> <C> <C> <C> <C> <C>
Income Statement Data
Net sales..................... $51,214 $ 54,218 $ 52,493 $184,298 $307,754
Cost of goods sold............ 36,757 40,094 39,322 135,022 216,527
------- -------- -------- -------- --------
Gross profit.................. 14,457 14,124 13,171 49,276 91,227
Selling, general and
administrative expenses...... 7,942 7,594 7,589 31,762 60,674
PTP royalty and commission
(income)(2).................. (377) (731) (33) -- --
------- -------- -------- -------- --------
Operating income.............. 6,892 7,261 5,615 17,514 30,553
Interest expense, net......... 1,197 2,324 3,469 13,514 22,913
Other expense (income), net... -- -- -- 457 (41)
------- -------- -------- -------- --------
Income from continuing
operations before income
taxes........................ 5,695 4,937 2,146 3,543 7,681
Income taxes.................. 2,417 2,003 754 1,724 3,384
------- -------- -------- -------- --------
Income from continuing
operations(3)................ $ 3,278 $ 2,934 $ 1,392 $ 1,819 $ 4,297
======= ======== ======== ======== ========
Balance Sheet Data(4) (at
period end)
Total assets.................. $38,025 $ 27,275 $ 28,293 $366,111 $394,062
Long-term debt, including
current portion.............. 6,623 30,950 33,850 240,559 255,959
Stockholders' equity
(deficit).................... 11,511 (15,279) (13,887) 65,359 46,571
</TABLE>
- --------
(1) The results of operations for the year ended December 31, 1998 have been
retroactively restated to reflect the Company's change in method of
pricing the paper component of inventory for AGI from LIFO to FIFO. This
change decreased previously reported net income by $224. See Note 4 of the
Company's Consolidated Financial Statements.
(2) Klearfold received commissions and royalties on certain sales made by PTP.
Klearfold owned 51% of PTP prior to the sale of this subsidiary on April
19, 1996. PTP ceased operations in 1997.
(3) The results of operations for the year ended December 31, 1998 include an
extraordinary loss of $552, net of tax, due to the write-off of deferred
financing costs.
(4) Balance sheet data includes amounts related to PTP at December 31, 1995
prior to the sale of PTP on April 19, 1996.
14
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
General
On March 12, 1998, KFI, the parent company of Klearfold, completed both its
acquisition of AGI and also the issuance of the Company's Senior Subordinated
Notes. Upon consummation of these transactions, KFI changed its corporate name
to IMPAC Group, Inc. On September 11, 1998, IMPAC acquired the outstanding
capital stock of Tinsley. IMPAC funded the Tinsley Acquisition through
borrowings under the Facility, proceeds from the sale of common stock to
IMPAC's existing stockholders and their affiliates and the issuance of five
year promissory notes ("Loan Notes") to former Tinsley plc shareholders.
References below to the "Company" mean IMPAC Group, Inc. and its consolidated
subsidiaries.
As a result of these transactions, the Company's historical consolidated
financial statements for the years ended December 31, 1997, 1998 and 1999 are
not comparable due to the inclusion in the consolidated financial statements
of AGI's and Tinsley's assets, liabilities and operating results from the
dates of acquisition. Management believes that the pro forma results of
operations for the years ended December 31, 1997 and 1998 included in the
Selected Pro Forma and Historical Financial Data table in Item 6, which assume
that the acquisitions of AGI and Tinsley and the borrowings incurred to fund
those acquisitions occurred as of January 1, 1996, present a more meaningful
basis from which to compare the Company's historical operating results for the
year ended December 31, 1999. As such, the discussion and analysis of the
historical results of operations and financial position for the years ended
December 31, 1997, 1998 and 1999 are supplemented with the discussion and
analysis of the pro forma results of operations and financial position for the
pro forma years ended December 31, 1997 and 1998 and the historical year ended
December 31, 1999.
IMPAC is a holding company with no material assets or operations other than
its investments in its direct and indirect wholly-owned subsidiaries. All of
the Company's domestic subsidiaries and certain foreign subsidiaries of the
Company have guaranteed the Senior Subordinated Notes on a full,
unconditional, joint and several basis, subject to the subordination
provisions in the related Indenture. Separate financial statements and other
disclosures of the Subsidiary Guarantors have not been presented in this
Report because the Company believes that such financial statements and other
information would not provide additional information that is material to
investors. However, the condensed consolidating financial information of
IMPAC, the Subsidiary Guarantors and the subsidiaries of IMPAC that have not
provided guarantees on the Senior Subordinated Notes have been presented in
Note 14 of the Company's Consolidated Financial Statements for purposes of
complying with the reporting requirements.
Overview
IMPAC is a international designer, manufacturer and marketer of high-end,
value-added specialty printing and packaging for various consumer products
markets including entertainment, cosmetics and personal care. Through its
creative design work, specialized manufacturing techniques, and diverse
printing capabilities, the Company offers innovative specialty packaging
solutions for customers that seek to differentiate their products in the
retail marketplace. In addition, the Company offers its products using a
unique blend of materials including paper, paperboard and transparent rigid
plastic materials.
Unaudited Pro Forma Results of Operations
Historical Year Ended December 31, 1999 Compared to Unaudited Pro Forma Year
Ended December 31, 1998
The following table sets forth certain unaudited income statement data
(expressed as a percentage of net sales) for the pro forma year ended December
31, 1998 (the "1998 period") and certain audited income statement data for the
historical year ended December 31, 1999 (the "1999 period"). The unaudited
income statement data for the 1998 period are presented on a pro forma basis
as if the acquisitions of AGI and Tinsley and the borrowings incurred to fund
those acquisitions occurred as of January 1, 1998.
15
<PAGE>
<TABLE>
<CAPTION>
1998 1999
------ ------
<S> <C> <C>
Income Statement Data:
Net sales.................................................... 100.0% 100.0%
Cost of goods sold........................................... 72.7% 70.4%
------ ------
Gross profit................................................. 27.3% 29.6%
Selling, general and administrative expenses................. 19.6% 19.7%
------ ------
Operating income............................................. 7.7% 9.9%
Interest expense, net........................................ 7.9% 7.4%
Other expense, net........................................... 0.2% 0.0%
------ ------
Income (loss) before income taxes and extraordinary item..... (0.4%) 2.5%
Income taxes................................................. 0.4% 1.1%
------ ------
Income (loss) before extraordinary item...................... (0.8%) 1.4%
====== ======
</TABLE>
Net Sales for the 1999 period were $307.8 million compared to $271.0 million
for the 1998 period, an increase of 13.5%. This increase was due to a $25.1
million increase in entertainment packaging, a $10.3 million increase in
cosmetics packaging and a $1.4 million increase in other consumer products
packaging. The entertainment packaging increase was due primarily to an
increase in music packaging sales resulting from improved market penetration
relating to the start-up of the Company's Grover, North Carolina facility in
April 1998 and the acquisition of Music Print in November 1998, as well as
strong growth in the sales of multimedia and video games packaging to the
Company's U.K. and European customers. The increase in cosmetics packaging
relates primarily to increased volume to the Company's existing customers
resulting from improved sales and marketing efforts.
Gross Profit for the 1999 period was $91.2 million compared to $74.0 million
for the 1998 period, an increase of 23.2%. The increase in gross profit was
due to the sales increase noted above and an increase in gross margin. The
increase in gross margin from 27.3% to 29.6% results from improved capacity
utilization, particularly at the Company's Grover, North Carolina facility
which was in a start-up phase in 1998 and at its Salzburg, Austrian operation,
and process improvements at the Company's U.S. plastic packaging operations
and its Birmingham, U.K. facility.
Selling, General and Administrative Expenses for the 1999 period were $60.7
million compared to $53.2 million for the 1998 period, an increase of 14.0%.
The increase in SG&A was due primarily to increases in selling and
administrative personnel to promote and support the Company's growth,
increases in payouts under various compensation programs tied to sales and
profitability, and increased costs associated with the Company's integration
to a new enterprise resource planning ("ERP") system. The Company has been
operating on the ERP system in the first quarter of 2000 and expects the
integration to be completed at AGI during the second quarter of 2000. SG&A as
a percentage of sales was 19.6% and 19.7% in 1998 and 1999, respectively.
Operating Income for the 1999 period was $30.6 million compared to $20.8
million for the 1998 period, an increase of 47.0% due to the factors discussed
above.
Net Interest Expense for the 1999 period was $22.9 million compared to $21.5
million for the 1998 period, an increase of 6.4%. The increase was due
primarily to an increase in revolver borrowings under the Facility to fund
working capital requirements and capital expenditures.
Income Taxes for the 1999 period were $3.4 million compared to $1.0 million
for the 1998 period. The Company's effective tax rates for the periods
exceeded the U.S. federal statutory rate primarily due to the effect of non-
deductible goodwill amortization of approximately $4.1 million in the 1999
period and $4.0 million in the 1998 period.
Net Income for the 1999 period was $4.3 million compared to a net loss of
$2.2 million for the 1998 period due to the factors discussed above. The pro
forma net loss for the 1998 period does not include an extraordinary
16
<PAGE>
charge of $0.8 million, net of tax, related to the early extinguishment of
debt arising from the Combination and the Tinsley Acquisition.
Unaudited Pro Forma Year Ended December 31, 1998 Compared to Unaudited Pro
Forma Year Ended December 31, 1997
The following table sets forth certain unaudited income statement data
(expressed as a percentage of net sales) for the years ended December 31, 1997
(the "1997 period") and 1998 (the "1998 period") on a pro forma basis as if
the acquisitions of AGI and Tinsley and the borrowings incurred to fund those
acquisitions occurred as of January 1, 1997.
<TABLE>
<CAPTION>
1997 1998
------ ------
<S> <C> <C>
Income Statement Data:
Net sales.................................................... 100.0% 100.0%
Cost of goods sold........................................... 70.7% 72.7%
------ ------
Gross profit................................................. 29.3% 27.3%
Selling, general and administrative expenses................. 19.6% 19.6%
------ ------
Operating income............................................. 9.7% 7.7%
Interest expense, net........................................ 7.6% 7.9%
Other expense, net........................................... 0.0% 0.2%
------ ------
Income (loss) before income taxes and extraordinary item..... 2.1% (0.4%)
Income taxes................................................. 1.4% 0.4%
------ ------
Income (loss) before extraordinary item...................... 0.7% (0.8%)
====== ======
</TABLE>
Net Sales for the 1998 period were $271.0 million compared to $281.2 million
for the 1997 period, a decrease of 3.6%. This decrease was due to a $7.1
million decrease in entertainment packaging, a $1.5 million decrease in
cosmetics packaging and a $1.6 million decrease in other consumer products
packaging. The entertainment packaging reduction was due to a decline in sales
of special video packaging compared to strong 1997 sales related to the
successful releases of several popular titles by the Company's existing
customers. The decrease in cosmetics sales relates primarily to a decision by
one of the Company's significant cosmetics packaging customers to begin to
manufacture certain of its packaging internally and to lower than expected
retail sales of one product line of another significant cosmetics customer.
The decrease in other consumer products packaging resulted primarily from a
decrease in sales of labels to the Company's U.K. customers.
Gross Profit for the 1998 period was $74.0 million compared to $82.4 million
for the 1997 period, a decrease of 10.1%. The resulting decline in gross
margin from 29.3% to 27.3% was primarily due to the decrease in sales of
higher value-added packaging products to the entertainment industry, as
discussed above. Gross margin was also negatively impacted by the less
favorable absorption of fixed costs due to the lower overall sales volume, the
start-up of the Company's Grover, North Carolina facility and developmental
costs associated with new packaging for two significant customers.
Additionally, the 1997 period benefited from a supply contract termination
settlement of $0.8 million and a favorable insurance adjustment of $0.4
million.
Selling, General and Administrative Expenses for the 1998 period were $53.2
million compared to $55.2 million for the 1997 period, a decrease of 3.5%. The
decrease is due primarily to reductions in anticipated payouts under various
compensation programs tied to sales and profitability offset by start-up costs
associated with the Company's Grover, North Carolina facility and by expenses
associated with the relocation and consolidation of certain of the Company's
foreign operations. SG&A as a percentage of sales did not change.
Operating Income for the 1998 period was $20.8 million compared to $27.2
million for the 1997 period, a decrease of 23.6% due to the factors discussed
above.
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Net Interest Expense for the 1998 period was $21.5 million compared to $21.4
million for the 1997 period. The increase was due to the issuance of $4.0
million of industrial revenue bonds in August, 1997.
Income Taxes for the 1998 period were $1.0 million compared to $4.0 million
for the 1997 period. The Company's effective tax rates for the periods
exceeded the U.S. federal statutory rate primarily due to the effect of non-
deductible goodwill amortization of approximately $4.0 million in each period.
Net Loss for the 1998 period was $2.2 million compared to net income of $2.0
million for the 1997 period due to the factors discussed above. The pro forma
loss for the 1998 period does not include an extraordinary charge of $0.8
million, net of tax, related to the early extinguishment of debt arising from
the Combination and the Tinsley Acquisition.
Historical Results of Operations
Historical Year ended December 31, 1999 Compared to Historical Year Ended
December 31, 1998
The results of operations for the year ended December 31, 1998 (the "1998
period") include the results of AGI and Tinsley from the dates of
acquisitions. The Company's growth in net sales, gross profit and operating
income during the year ended December 31, 1999 (the "1999 period") as compared
to the 1998 period relates primarily to the effect of these acquisitions. Net
interest expense increased from $13.5 million in the 1998 period to $22.9
million in the 1999 period due to the additional borrowings incurred to fund
the acquisitions of AGI and Tinsley. Income taxes for the 1999 period were
$3.4 million compared to $1.7 million for the 1998 period. The Company's
effective tax rates for the periods exceeded the U.S. federal statutory rate
primarily due to the effect of non-deductible goodwill amortization of
approximately $4.1 million and $1.7 million in 1999 and 1998, respectively.
Net income for the 1999 period was $4.3 million compared to $1.3 million
during the 1998 period due to the factors discussed above. Net income for the
1998 period includes an extraordinary charge of $0.6 million, net of tax,
related to the early extinguishment of debt.
Historical Year ended December 31, 1998 Compared to Historical Year Ended
December 31, 1997
The results of operations for the year ended December 31, 1998 (the "1998
period") include the results of AGI and Tinsley from the dates of
acquisitions. The Company's growth in net sales, gross profit and operating
income during the 1998 period as compared to the year ended December 31, 1997
(the "1997 period") relates primarily to the effect of these acquisitions. Net
interest expense increased from $3.5 million in the 1997 period to $13.5
million in the 1998 period due to the additional borrowings incurred to fund
the acquisitions of AGI and Tinsley. Income taxes for the 1998 period were
$1.7 million compared to $0.8 million for the 1997 period. The Company's
effective tax rates increased from 35.1% in the 1997 period to 48.7% in the
1998 period primarily due to the effect of non-deductible goodwill
amortization of approximately $1.7 million during the 1998 period. Net income
for the 1998 period was $1.3 million compared to $1.4 million during the 1997
period due to the factors discussed above. Net income for the 1998 period
includes an extraordinary charge of $0.6 million, net of tax, related to the
early extinguishment of debt.
Liquidity and Capital Resources
On March 12, 1998, KFI acquired all of the common stock of AGI for $69.0
million including $54.6 million of cash and $14.4 million of newly issued
common stock, plus acquisition costs. Concurrently, the Company funded the
retirement of $8.3 million of indebtedness outstanding under AGI's credit
facility immediately prior to the transaction. The acquisition was funded with
proceeds from the issuance of $100.0 million of Senior Subordinated Notes (net
of $4.1 million in debt issuance costs) and $4.6 million of new common stock.
The balance of the proceeds of the Senior Subordinated Notes were used to
retire all outstanding indebtedness of $29.9 million under KFI's prior bank
credit agreement. At the same time, KFI entered into a new five year credit
agreement which provided for a $40.0 million revolving credit facility and a
$13.0 million letter of credit facility (the "Original Credit Facility").
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<PAGE>
On July 7, 1998, the Company entered into the Facility, which became
effective on the initial funding date of the Tinsley Acquisition and replaced
the Original Credit Facility. The Facility provides for up to $53.0 million of
revolving credit borrowings (the "Revolver") with a $20.0 million letter of
credit subfacility under the Revolver (the "L/C Facility"). The Facility also
provides for $37.0 million of Term Loan A borrowings and $64.0 million of Term
Loan B borrowings. The Facility also provides a guarantee to the holders of
the Loan Notes. Under the provisions of the Facility, the aggregate amount of
outstanding Term Loan A borrowings is limited by the amount outstanding under
the Loan Note guarantee. Up to $8.5 million of drawings under this guarantee
to redeem the Loan Notes will be converted to additional borrowings under Term
Loan A and any drawings which, as a consequence of currency fluctuations,
exceed $8.5 million will be converted to additional borrowings under the
Revolver. The Revolver has a five and one-half year maturity, Term Loan A has
a five and one-half year maturity and Term Loan B has a six and one-half year
maturity. As of December 31, 1999, $28.9 million in Term Loan A borrowings
were outstanding, $63.2 million in Term Loan B borrowings were outstanding,
$25.5 million in Revolver borrowings were outstanding and $14.4 million in
additional Revolver borrowings were available.
On September 11, 1998, the Company acquired the common stock of Tinsley for
$137.7 million plus acquisition costs. Concurrently, the Company funded the
retirement of $18.5 million of indebtedness outstanding under Tinsley's credit
agreements immediately prior to the transaction. The acquisition was funded
through additional borrowings of $93.7 million under the Facility, $58.6
million in proceeds from the sale of common stock to the Company's existing
stockholders and their affiliates and the issuance, in the aggregate, of $8.5
million of five year promissory Loan Notes to former Tinsley shareholders.
On November 24, 1998, the Company purchased the outstanding capital stock of
Music Print for approximately $5.3 million plus acquisition costs.
Concurrently, the Company retired approximately $0.2 million of historical
indebtedness of Music Print and purchased the facility in which Music Print
operates for $1.3 million. The acquisition was funded through additional
Revolver borrowings under the Facility.
On January 12, 1999, IMPAC issued 20,000 shares of Preferred Stock with a
face value of $20.0 million together with detachable, ten-year Warrants to
purchase 6,913 shares of Series A Common Stock at an exercise price of $0.01
per share for net proceeds of $18.8 million. IMPAC used the net proceeds from
the sale of Preferred Stock to acquire 30,088 shares of outstanding Series A
Common Stock. The Preferred Stock accrues dividends on a cumulative basis at
14% per annum for years 1-5, 15% per annum for year 6, and either 14% or 15%
per annum for years 7-10 depending on whether the dividends are paid in cash
or with additional Preferred Stock, respectively. During the first six years
after issuance, dividends on the Preferred Stock are payable solely by issuing
additional shares of Preferred Stock. The Preferred Stock accrues dividends at
24% per annum if certain events occur, including an event of non-compliance as
defined and certain significant changes in the ownership of IMPAC. IMPAC is
required to redeem all outstanding shares of Preferred Stock on December 31,
2008 at face value plus all accrued and unpaid dividends. IMPAC may redeem
some or all outstanding shares of Preferred Stock at an earlier date,
provided, however, that a premium of up to 10% be paid. The Preferred Stock is
not redeemable at the option of the holders of Preferred Stock except upon a
change of control, as defined. The Preferred Stock contains covenants, among
others, limiting additional indebtedness, restricted payments, guaranties,
advances to affiliates, mergers, asset sales and dispositions. The Preferred
Stock ranks senior to all classes of Common Stock with respect to dividend
distributions and distributions upon the liquidation or dissolution of IMPAC.
On November 2, 1999, the Company acquired all of the common stock of
Thamesdown, for approximately $10.8 million plus acquisition costs. The
acquisition was funded through $4.9 million of subordinated indebtedness with
a related party, $3.7 million of additional Revolver borrowings under the
Facility and the issuance of $2.4 million of Series A Common Stock to the
former Thamesdown shareholders. The Company also assumed approximately $3.0
million of capital leases.
19
<PAGE>
On January 10, 2000, the Company acquired all of the common stock of
Atlantic for approximately $7.5 million plus acquisition costs. The
acquisition was funded through $3.3 million of additional subordinated
indebtedness with a related party, $3.2 million of additional Revolver
borrowings under the Facility and the issuance of $1.0 million of Series A
Common Stock to the former Atlantic shareholders.
On March 10, 2000, the Company entered into a definitive purchase agreement
to acquire certain assets and liabilities of Commercial Lithographing Company
("Commercial Litho") for $10.5 million plus acquisition costs. The Company
expects to complete this acquisition during the second quarter of 2000.
Commercial Litho, based in Louisville, Kentucky, provides high-end commercial
printing services to various companies in the entertainment and other consumer
products markets.
The Company's primary cash requirements historically have related to capital
expenditures, working capital and debt service. The Company has historically
funded these requirements through internally generated cash flow, borrowings
under bank credit arrangements and the issuance of industrial revenue bonds.
Net cash provided by operating activities for the year ended December 31,
1999 (the "1999 period") was $23.0 million compared to $13.2 million for the
year ended December 31, 1998 (the "1998 period"). Income from operations
before non-cash charges increased to $24.7 million from $14.8 million
primarily due to the acquisitions of AGI and Tinsley. In the 1999 period,
income from operations before non-cash charges of $24.7 million, proceeds of
$18.8 million from the issuance of Preferred Stock and Warrants, the issuance
of $1.5 million of Series A Common Stock, the issuance of $4.9 million of
subordinated debt and $14.5 million of revolver borrowings were used to fund
the repurchase of Series A Common Stock, the acquisition of Thamesdown, $27.0
million of capital expenditures, a $1.7 million increase in working capital
requirements, a $5.1 million decrease in capital leases, the repayment of $1.0
million of bank borrowings and $1.2 million of debt issuance costs. In the
1998 period, income from operations before non-cash changes of $14.8 million,
the issuance of the Senior Subordinated Notes, a $0.9 million increase in
capital leases, the issuance of Common Stock and the issuance of $112.4
million of borrowings under the Facility, Loan Notes and industrial revenue
bonds were used to fund the acquisitions of AGI, Tinsley and Music Print, the
repayment of $30.1 million of bank borrowings, $10.9 million of debt issuance
costs, $16.0 million of capital expenditures and a $1.6 million increase in
working capital requirements. The Company currently expects to spend $24.0
million on capital expenditures in 2000. The Company expects to fund its
capital expenditures and other working capital requirements in 2000 through
internally generated cash flow and borrowings under the Facility.
Net cash provided by operating activities for the 1998 period was $13.2
million compared to $6.2 million for the 1997 period. Income from operations
before non-cash charges increased to $14.8 million from $2.6 million due to
the acquisition of AGI and Tinsley. In the 1998 period, income from operations
before non-cash charges of $14.8 million, the issuance of the Senior
Subordinated Notes, a $0.9 million increase in capital leases, the issuance of
Common Stock and the issuance of $112.4 million of borrowings under the
Facility, Loan Notes and industrial revenue bonds were used to fund the
acquisitions of AGI, Tinsley, and Music Print, the repayment of $30.1 million
of bank borrowings, $10.9 million of debt issuance costs, $16.0 million of
capital expenditures and a $1.6 million increase in working capital
requirements. In the 1997 period, income from operations before non-cash
charges of $2.6 million, $3.2 million of net proceeds from an industrial
revenue bond issuance and a $3.6 million decrease in working capital
requirements were used to fund a net decrease of $5.1 million in outstanding
borrowings under KFI's prior credit agreement and $4.1 million of capital
expenditures.
IMPAC is a holding company with no operations of its own. The Company's
ability to make required interest payments on the Senior Subordinated Notes
depends upon its ability to receive funds from its domestic and foreign
subsidiaries. The Company, at its discretion, controls the receipt of
dividends and other payments from its domestic and foreign subsidiaries,
subject in the case of certain foreign subsidiaries to limitations that
20
<PAGE>
may be imposed under the laws of the applicable jurisdictions of organization.
These limitations are not considered to be material to the Company as a whole.
There are no contractual restrictions, under the Facility or otherwise, upon
the ability of the Subsidiary Guarantors to make distributions or pay
dividends, directly or indirectly, to IMPAC.
The Company is exposed to currency exchange rate risk with respect to its
net assets, transactions and the related net income denominated in U.K. Pounds
Sterling, Dutch Guilders, Irish Punts, Austrian Shillings and the Euro.
Business activities in various currencies expose the Company to the risk that
the eventual net dollar cash inflows resulting from transactions with foreign
customers and suppliers denominated in foreign currencies may be adversely
affected by changes in currency exchange rates.
Adoption of New Accounting Standard
In June, 1998, the FASB issued Statement No. 133, "Accounting for Derivative
Instruments and Hedging Activities". This statement requires that an entity
recognize all derivatives as either assets or liabilities in the statement of
financial position and measure those instruments at fair value. This statement
is effective for fiscal years beginning after June 15, 2000. Due to the recent
release and complexity of this new standard, an assessment of the impact it
will have on the financial position or results of operations has not been
completed.
Year 2000 Issues
During 1999 the Company completed the process of preparing for the Year 2000
date change. This process involved identifying and remediating date
recognition issues in the Company's computer systems, working with third
parties to address their Year 2000 issues, and developing contingency plans to
address potential risks in the event of Year 2000 failures. To date, the
Company has successfully managed the transition, experiencing no significant
disruptions as a result of the Year 2000 date change.
Although considered unlikely, unanticipated issues in the Company's computer
systems, including problems associated with its major suppliers and customers
and disruptions in the economy in general, could still occur despite efforts
to date to achieve Year 2000 readiness. The Company will continue to monitor
its computer systems, including interaction with major suppliers and
customers, throughout 2000 to address Year 2000 issues.
The total costs incurred to address Year 2000 related issues were not
material to the financial position of the Company. The Company has made
significant investments in new manufacturing and financial hardware and
software in connection with its implementation of an ORACLE ERP system
("ORACLE"). These investments were made to support the growth of the Company
and to eventually harmonize the Company's computer systems. The total costs
incurred to implement ORACLE through December 31, 1999 were $9.6 million.
Cautionary Note
This Report may contain "forward-looking statements" within the meaning of
Section 27A of the Securities Act and Section 21E of the Securities Exchange
Act of 1934, as amended, including, but not limited to statements regarding:
the Company's growth strategy to leverage its reputation for product
innovation, high quality and customer service; the Company's ability to create
significant additional revenue opportunities with existing customers by
marketing its expanded array of high-end marketing solutions; the Company's
ability to integrate with its global customers due to the Tinsley Acquisition;
the opportunity to leverage the Klearfold product line as the result of the
Tinsley Acquisition; the benefit to IMPAC Europe and AGI of each other's
position in the entertainment market; the Company's ability to increase
revenues by expanding into related product lines that serve new markets; the
Company's ability to capture additional customers through its innovative
product line; the Company's ability to utilize the most efficient practices
currently used in each of its facilities to enhance manufacturing capabilities
and improve cost structures; the Company's ability to pursue new business
opportunities through modification of existing packaging and the development
of new applications; opportunities for significant cross-selling to existing
customers; the ability to serve U.S. and European markets; investment in
21
<PAGE>
equipment; the Company's pursuit of other strategic acquisitions within the
specialty packaging industry; the ability to pass raw material price increases
on to its customers; the potential future costs incurred related to
environmental compliance; the expectation of the Company not to pay dividends
on Common Stock; the redemption by the Company of the Preferred Stock; the
effect on the Company of the limitations and covenants imposed by the terms of
the Preferred Stock; the delay in repurchase of employee stock under the terms
of certain employment agreements; the payments from the Company to certain
employees upon termination in accordance with employment agreements; the
financing of employee stock repurchases; the impact of the new FASB statement;
funding of and projected amount of capital expenditures in 2000; expectations
regarding the Company's Year 2000 compliance; the Company's ability to incur
substantial additional indebtedness; the effects of an increase in interest
rates; and, certain other statements identified or qualified by words such as
"likely", "will", "suggests", "may", "would", "could", "should", "expects",
"anticipates", "estimates", "plans", "projects", "believes", or similar
expressions (and variants of such words or expressions). Investors are
cautioned that forward-looking statements are inherently uncertain. Actual
performance and results of operations may differ materially from those
projected or suggested in the forward-looking statements due to certain risks
and uncertainties, including, without limitation, those described below:
Leverage
Significant Leverage as a Result of Transactions
In connection with the acquisitions of AGI and Tinsley, the Company incurred
a significant amount of indebtedness and, as a result, the Company is highly
leveraged. At December 31, 1999, approximately $255.6 million in total debt
was outstanding, including $150.7 million of senior debt of which
approximately $11.6 million is secured by letters of credit outstanding under
the Facility, and the Company had stockholders' equity of approximately $46.6
million. Subject to certain covenants, the Company is permitted to incur
substantial additional indebtedness in the future.
Liquidity and Capital Resources
The Company's ability to make scheduled payments of principal of, or to pay
the interest or liquidated damages, if any, on, or to refinance, its
indebtedness (including the Senior Subordinated Notes), or to fund planned
capital expenditures and any acquisitions will depend on its future
performance, which, to a certain extent, is subject to general economic,
financial, competitive, legislative, regulatory and other factors that are
beyond its control. In addition, the Company may need to refinance all or a
portion of the principal of the Senior Subordinated Notes on or prior to
maturity. There can be no assurance that the Company's business will generate
sufficient cash flow from operations, that anticipated revenue growth and
operating improvements will be realized or that future borrowings will be
available under the Facility in an amount sufficient to enable the Company to
service its indebtedness, including the Senior Subordinated Notes, or to fund
its other liquidity needs. In addition, there can be no assurance that the
Company will be able to effect any such refinancing on commercially reasonable
terms or at all. The Company's ability to raise additional capital may also be
limited by the terms of the Preferred Stock.
Effects of Leverage
The degree to which the Company is leveraged could have important
consequences to holders of the Senior Subordinated Notes, including, but not
limited to: (i) making it more difficult for the Company to satisfy its
obligations with respect to the Senior Subordinated Notes, (ii) increasing the
Company's vulnerability to general adverse economic and industry conditions,
(iii) limiting the Company's ability to obtain additional financing to fund
future working capital, capital expenditures, acquisitions and other general
corporate requirements, (iv) requiring the dedication of a substantial portion
of the Company's cash flow from operations to the payment of principal of, and
interest on, its indebtedness, thereby reducing the availability of such cash
flow to fund working capital, capital expenditures, product development or
other general corporate purposes, (v) limiting the Company's flexibility in
planning for, or reacting to, changes in its business and the specialty
packaging industry, and (vi) placing the Company at a competitive disadvantage
with respect to less leveraged competitors.
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<PAGE>
Ranking
The Senior Subordinated Notes and the related subsidiary guarantees (the
"Subsidiary Guarantees") are subordinated in right of payment to all current
and future senior debt of IMPAC and the Subsidiary Guarantors. However, the
Senior Subordinated Notes indenture (the "Indenture") provides that IMPAC will
not, and will not permit Subsidiary Guarantors to, incur or otherwise become
liable for any indebtedness that is subordinate or junior in right of payment
to any senior debt and senior in any respect in right of payment to the Senior
Subordinated Notes or any of the Subsidiary Guarantees. Upon any distribution
to creditors of IMPAC or a Subsidiary Guarantor in a liquidation or
dissolution of IMPAC or a Subsidiary Guarantor or in a bankruptcy,
reorganization, insolvency, receivership or similar proceeding relating to
IMPAC or a Subsidiary Guarantor or its property, the holders of senior debt
will be entitled to be paid in full before any payment may be made with
respect to the Senior Subordinated Notes. In addition, the subordination
provisions of the Indenture provide that payments with respect to the Senior
Subordinated Notes will be blocked in the event of a payment default on senior
debt and may be blocked for up to 179 days each year in the event of certain
non-payment defaults on senior debt. In the event of a bankruptcy, liquidation
or reorganization of IMPAC or a Subsidiary Guarantor, holders of the Senior
Subordinated Notes will participate ratably with all holders of subordinated
indebtedness of IMPAC or such Subsidiary Guarantor that is deemed to be of the
same class as the Senior Subordinated Notes, and potentially with all other
general creditors of IMPAC, based upon the respective amounts owed to each
holder or creditor, in the remaining assets of IMPAC. In any of the foregoing
events, there can be no assurance that there would be sufficient assets to pay
amounts due on the Senior Subordinated Notes. As a result, holders of Senior
Subordinated Notes may receive less, ratably, than the holders of senior debt.
The Indenture permits the incurrence of substantial additional indebtedness,
including senior debt, by IMPAC and its subsidiaries in the future. There is
currently no indebtedness outstanding that is subordinated to the Senior
Subordinated Notes.
Ability of Company to Obtain Funds from Subsidiaries
IMPAC has no operations of its own and derives substantially all of its
revenue from its subsidiaries. Holders of indebtedness and trade creditors of
subsidiaries of IMPAC would generally be entitled to payment of their claims
from the assets of the affected subsidiaries before such assets were made
available for distribution to IMPAC. The Indenture permits the incurrence of
substantial additional indebtedness by IMPAC and its subsidiaries and permits
significant investments by IMPAC in its subsidiaries. In the event of a
bankruptcy, liquidation or reorganization of a subsidiary, holders of any of
such subsidiary's indebtedness will have a claim to the assets of such
subsidiary that is prior to IMPAC's interest in those assets.
Guarantees By Foreign Subsidiaries
Several of IMPAC's foreign subsidiaries are not required to deliver a
guarantee with respect to the Senior Subordinated Notes. Additionally, IMPAC
is allowed under the Indenture to acquire or create additional foreign
subsidiaries that may not be required to deliver a guarantee with respect to
the Senior Subordinated Notes. In the event of a bankruptcy, liquidation or
reorganization of such a subsidiary, holders of any of such subsidiary's
indebtedness will have a claim to the assets of such subsidiary that is prior
to IMPAC's interest in those assets.
Effect of Fraudulent Transfer Statutes on Validity of Notes and Guarantees
Under applicable provisions of federal bankruptcy law or comparable
provisions of state fraudulent transfer law, the Senior Subordinated Notes or
the Subsidiary Guarantees, could be voided, or claims in respect of the Senior
Subordinated Notes or the Subsidiary Guarantees could be subordinated to all
other debts of IMPAC or any Subsidiary Guarantor. In addition, the payment of
interest and principal by IMPAC or any Subsidiary Guarantor pursuant to the
Senior Subordinated Notes could be voided and required to be returned to the
person making such payment, or to a fund for the benefit of the creditors of
IMPAC or any Subsidiary Guarantor.
Possible Inability to Fund a Change of Control Offer
Upon a change of control, as defined in the Indenture, the Company will be
required to offer to repurchase all outstanding Senior Subordinated Notes at
101% of the principal amount thereof plus accrued and unpaid
23
<PAGE>
interest and liquidated damages, if any, to the date of repurchase. However,
there can be no assurance that sufficient funds will be available at the time
of any change of control to make any required repurchases of Senior
Subordinated Notes tendered or that restrictions in the Facility will allow
the Company to make such required repurchases. Furthermore, upon certain
ownership changes, the dividend rate on the Preferred Stock will increase to
24%.
Failure to Integrate Businesses
Prior to March 1998, the Company had no prior history as a combined entity
and its operations had not previously been managed on a combined basis. Prior
to the combination of AGI and Klearfold in March, 1998 and the Tinsley
Acquisition in September, 1998, AGI, Klearfold and IMPAC Europe were operated
as separate entities. The Company's future operations and earnings are largely
dependent upon management's ability to successfully execute the Company's
strategy of offering the combined product line of AGI, Klearfold and IMPAC
Europe to the Company's customers. This requires substantial attention from
the Company's management team which, prior to the dates of acquisitions, had
not operated on a combined basis. In addition, management is required to apply
its business strategy to an entity that is significantly larger than the
entity it previously managed. Additionally, the need to focus management's
attention on integration of the businesses and implementation of the Company's
post-combination strategy may limit the Company's ability to successfully
pursue other opportunities related to its business for the foreseeable future.
The historical financial statements and unaudited pro forma financial
information presented in this Report may not necessarily be indicative of the
results that would have been attained had the Company operated on a combined
basis.
Foreign Operations
A substantial portion of the Company's business is conducted in
international markets. Risks inherent in foreign operations, such as
fluctuations in foreign currency exchange rates and changes in social,
political and economic conditions, could materially adversely affect the
Company's business.
Effects of Technology Changes and Industry Shifts
The Company's packaging products are almost entirely targeted to consumer
products companies. Sales of consumer products are subject to changing tastes
and technologies that cannot be predicted. The adoption by various consumer
products industries of new forms of packaging may in the future have a
material adverse effect on the Company. For example, the Company experienced
significant, although temporary, declines in revenues as the CD displaced the
LP and as the CD industry abandoned the "long-box" packaging for CDs.
In addition to technological and new product changes that could affect
demand for the Company's products in traditional distribution channels, demand
for the Company's products could also be materially affected by change in
retail distribution channels. Almost all of the Company's products are sold to
consumer products manufacturers that seek to differentiate their products in
the retail marketplace. The anticipated growth in electronic commerce
distribution channels (often referred to as "e-commerce"), in which products
are sold directly to customers over the Internet, could have a material
adverse effect on the demand for the Company's products. For example, new
technology such as MP3 and new internet initiatives such as the Liquid Music
Network permit consumers to download music releases directly from the
Internet, eliminating the need for the Company's packaging products.
Additionally, BMG, EMI, Sony, Time Warner Inc. and Universal Music Group have
all begun various initiatives focused on developing technology and
infrastructure to distribute music across the internet, the result of which
could have a material adverse effect on the demand for the Company's products.
The Company's success will depend, in part, upon its continued ability to
manufacture products that meet changing customer needs and industry-wide
shifts, successfully anticipate or respond to technological changes in
manufacturing processes on a cost-effective and timely basis and enhance and
expand its existing product offerings. Current competitors or new market
entrants may develop new products with features that could
24
<PAGE>
adversely affect the competitive position of the Company's products. The
Company has invested and continues to invest resources in the development of
new products and improved manufacturing processes; however, there can be no
assurance that the Company's new product or process development efforts will
be successful or that the emergence of new technologies, industry standards or
customer requirements will not render the Company's technology, equipment or
processes obsolete or uncompetitive. Any failure or delay in accomplishing
these goals could have a material adverse effect on the Company's business,
results of operations and financial condition. In addition, to the extent that
the Company determines that new manufacturing equipment or processes are
required to remain competitive, the acquisition and implementation of these
technologies, equipment and processes are likely to require significant
capital investment by the Company.
Variability of Quarterly Results
A significant portion of the Company's business is attributable to special
projects relating to particular hit movie or music releases. The existence and
timing of such major releases may cause the Company's quarterly and annual
revenues to vary significantly. These swings in quarterly results could have a
material adverse effect on the Company's ability to comply with the financial
covenants in its financing agreements and could have a material adverse effect
on the market prices for the Senior Subordinated Notes.
Potential Future Acquisitions Could Increase Debt or Disrupt Operations
The Company acquired Music Print in November 1998, Thamesdown in November
1999, and Atlantic in January 2000, and it may continue to pursue selective
acquisitions within the specialty packaging and printing industry. Future
acquisitions by the Company could result in the incurrence of debt and
contingent liabilities and an increase in amortization expenses related to
goodwill and other intangible assets, which could have a material adverse
effect upon the Company's business, financial condition and results of
operations. In addition, acquisitions involve numerous risks, including
difficulties in the assimilation of the operation, technologies, services and
products of the acquired companies and the diversion of management's attention
from other business concerns. In the event that such acquisitions have
occurred or were to occur, there can be no assurance that the Company's
business, financial condition and results of operations would not be
materially adversely affected.
Competition
Many of the Company's products are sold in highly competitive markets in the
United States, the U.K. and Europe. The Company competes with a significant
number of companies of varying sizes on the basis of quality, service and
price and the ability to supply products to customers in a timely manner. The
Company believes that its primary competitors are Ivy Hill Corporation,
Shorewood Packaging Corporation and International Paper Company in the United
States and Gerhard Kaiser GMBH, St. Ives plc and CMCS Group plc in the U.K.
and Europe, some of which are larger than the Company and may have
substantially greater financial resources. Competitive pressures or other
factors could cause the Company to lose existing business or opportunities to
generate new business or could result in significant price erosion, all of
which would have a material adverse effect on the Company's business,
financial condition and results of operations.
Failure to Comply with Environmental Matters and Governmental Regulations
The past and present operations of the Company and the past and present
ownership and operations of real property by the Company are subject to
extensive and changing federal, state and local environmental laws and
regulations pertaining to the discharge of materials into the environment, the
handling and disposition of wastes, the recycling, composition and recycled
content of packaging, or otherwise relating to the protection of the
environment. The Company's operations are also governed by laws and
regulations relating to employee health and safety. Governmental authorities
have the power to enforce compliance with their regulations, and violations
may result in the payment of fines or the entry of injunctions or both.
25
<PAGE>
As is the case with other companies engaged in similar businesses, the
Company could incur costs relating to environmental compliance, including
remediation costs related to historical hazardous materials handling and
disposal practices at certain facilities. It is possible that future
developments (for example, new regulations or stricter regulatory
requirements) could result in the Company incurring material costs to comply
with applicable environmental laws and regulations.
Effect of Environmental Concerns on Market
In addition to the effects of regulation, the Company's business may also be
affected by environmental concerns of consumers with respect to packaging. For
example, in the early 1990's the music industry voluntarily stopped using
"long-box" packaging for CDs in response to these concerns. Future
environmental concerns could have a material effect on the demand for the
Company's packaging.
Controlling Stockholders
The Company's majority stockholder or its affiliates and certain members of
senior management own substantially all of the outstanding voting stock of
IMPAC, which is the sole stockholder of AGI, Klearfold and IMPAC Europe and,
by virtue of such ownership, have the power to control all matters submitted
to stockholders of IMPAC and to elect all directors of IMPAC and its
subsidiaries, including AGI, Klearfold and IMPAC Europe.
26
<PAGE>
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company has foreign subsidiaries that manufacture and sell products in
the U.K. and Europe. Additionally, the Company incurred a significant amount
of indebtedness in connection with the acquisitions of AGI and Tinsley and
accordingly is highly leveraged. As a result, its cash flows and earnings are
exposed to fluctuations in foreign currency exchange rates and interest rates.
The Company's debt obligations are primarily U.S. dollar denominated. The
Company's market risk therefore is the potential loss arising from adverse
changes in interest rates. The debt can be categorized as follows:
<TABLE>
<CAPTION>
December 31, 1999
-----------------
(in thousands)
<S> <C>
Fixed interest rates:
Senior Subordinated Debt................................. $100,000
Industrial revenue bonds................................. 4,000
Covered by interest rate swaps:
Portion of bank borrowings............................... 63,200
Subject to interest rate fluctuations:
Portion of bank borrowings............................... 54,412
Subordinated note with related party..................... 4,900
Industrial revenue bonds................................. 7,640
Capital leases........................................... 14,502
Loan notes............................................... 7,305
--------
Total indebtedness....................................... $255,959
========
</TABLE>
Market risk is estimated as the potential decrease in pretax earnings
resulting from a hypothetical 82 basis-point increase in interest rates
(representing a 10% increase) on floating-rate debt instruments. If interest
rates increased by such 10%, the Company would incur approximately $0.7
million per annum in additional interest expense based on the long-term debt
outstanding at December 31, 1999.
The Company uses interest rate swaps to manage its variable interest rate
risk on long-term debt. In November, 1998, the Company entered into two
interest rate swap agreements effectively fixing its LIBOR variable interest
rates at 5.42%. In July, 1999, one of the swap agreements was amended to
provide for a fixed interest rate of 4.75%, which is further adjusted to
market during any period in which three-month LIBOR is in the range of 6.75%-
7.00% and further adjusted to a fixed rate of 7.00% during any period in which
three-month LIBOR exceeds 7.00%. Apart from the interest rate swaps discussed
above, the Company does not hold any other derivatives for managing risks. The
Company does not use financial instruments or derivatives for trading
purposes.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
IMPAC's Consolidated Financial Statements, together with the auditors'
reports thereon, appear at pages F-2 through F-28 of this Report and are
summarized by the Index to Consolidated Financial Statements at page F-1.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Certain changes with respect to the Company's independent public accountants
have previously been reported in the Registrant's Registration Statement No.
333-48821, on Form S-4, filed by the Registrant with respect to the Senior
Subordinated Notes.
27
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The executive officers and directors of IMPAC are as follows:
<TABLE>
<CAPTION>
Name Age Position(s)
---- --- -----------
<S> <C> <C>
Melvin B. Herrin...... 65 Director and Chairman
Richard H. Block...... 59 Director, President and Chief Executive Officer
M. Shaun Lawson....... 54 Director and Vice Chairman
H. Scott Herrin....... 43 Director
Michel Reichert....... 49 Director
Michael F. Gilligan... 44 Director
David C. Underwood.... 40 Treasurer, Secretary and Chief Financial Officer
Lee Newbon............ 56 Director and Chief Operating Officer--IMPAC Group, Inc.
James H. Oppenheimer.. 57 Senior Vice President of Global Marketing
Richard L.
Oppenheimer.......... 51 Chief Operating Officer--U.S. Operations
Dean J. Henkel........ 47 Executive Vice President--U.S. Operations
Zenas Block........... 83 Director
David H. Horowitz..... 71 Director
</TABLE>
Mr. Melvin B. Herrin founded Klearfold and has been Chairman of Klearfold
since its incorporation in 1977 and a Director and Chairman of IMPAC since
1996. Mr. Herrin graduated from Temple University. Mr. Herrin is the father of
H. Scott Herrin.
Mr. Richard H. Block has served as the President and Chief Executive Officer
of AGI since October 1987 and the Chief Executive Officer of IMPAC since
March, 1998. He began his career at AGI in 1970 as a salesman; he was
subsequently promoted to Sales Manager and Executive Vice President. Prior to
1970, he served as a Sales Manager for Westvaco Corporation in New York and
Chicago. Mr. Block graduated from Alfred University. Mr. Block is the son of
Zenas Block.
Mr. M. Shaun Lawson has been a director of IMPAC since March, 1999. Prior to
joining IMPAC, Mr. Lawson spent eight years as a non-executive director of
Tinsley Robor plc, three years of which were served as the Chairman. Mr.
Lawson is also a Managing Director of Priory Investments Limited Group.
Mr. H. Scott Herrin has been a Director of Klearfold since 1981, President
of Klearfold from 1996 to 1998 and a Director of IMPAC since 1996. From March,
1998, until December, 1998, Mr. Herrin was an Executive Vice President of
IMPAC. Mr. Herrin graduated from Amherst College and has a law degree from
Harvard Law School. Mr. Herrin is the son of Melvin Herrin.
Mr. Michel Reichert has been a Director of IMPAC since 1996. Since 1994, Mr.
Reichert has been a Managing General Partner of Heritage Partners, Inc. a
Boston-based private investment company ("Heritage"). Prior to 1994, Mr.
Reichert was a Managing Director of BancBoston Capital Inc., a private equity
investment firm. Mr. Reichert graduated from the University of Bourges,
France.
Mr. Michael F. Gilligan has been a Director of IMPAC since 1996. Since 1994,
Mr. Gilligan has been a General Partner of Heritage. Prior to 1994, Mr.
Gilligan was a Director of BancBoston Capital Inc., a private equity
investment firm. Mr. Gilligan graduated from Boston College.
Mr. David C. Underwood has been with AGI since 1990 and IMPAC since March,
1998 and is responsible for IMPAC's global finance function. Prior to joining
AGI, Mr. Underwood was a manager in the audit and financial consulting
division of Arthur Andersen & Company's Chicago office. Mr. Underwood
graduated from the University of Wisconsin and is a Certified Public
Accountant.
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<PAGE>
Mr. Lee Newbon was appointed Chief Operating Officer of IMPAC and Chief
Executive Officer of IMPAC Group Europe in November, 1998 and has been a
director of IMPAC since March, 1999. Prior to joining IMPAC, Mr. Newbon spent
over twenty years with Tinsley Robor plc, the last four of which he served as
Chief Executive Officer. Mr. Newbon has worked in the printing or music
industries since 1959.
Mr. James H. Oppenheimer is responsible for marketing IMPAC's packaging
business globally. Mr. Oppenheimer joined AGI in 1983 as the East Coast Sales
Manager, and subsequently served as Vice President of East Coast Sales,
Executive Vice President--Packaging and Multimedia Sales and Executive Vice
President--U.S. Sales. Prior to joining AGI, he served as Executive Vice
President of Sales for the Walter Frank Organization, a packaging company
specializing in cosmetics. He joined IMPAC in March 1998. Mr. Oppenheimer
graduated from the University of Illinois, Champaign-Urbana. Mr. Oppenheimer
is the brother of Richard Oppenheimer.
Mr. Richard L. Oppenheimer is responsible for managing the operations of the
U.S. businesses. Mr. Oppenheimer joined AGI in 1977 as Chicago Sales
Representative, and subsequently served in positions including California
Sales Representatives for Music, Sales Manager for Packaging, Vice President
of West Coast Sales and Executive Vice President of Sales for the music and
video markets. Prior to joining AGI, he spent six years selling custom
injection molding designs, specializing in the cosmetics industry. Mr.
Oppenheimer graduated from Southern Illinois University. He joined IMPAC in
March, 1998. Mr. Oppenheimer is the brother of James Oppenheimer.
Mr. Dean J. Henkel is responsible for the manufacturing operations at the
Company's U.S. plants. Mr. Henkel has worked at AGI since 1975 in a number of
positions, including as a machine operator, finishing superintendent, plant
superintendent and plant manager in AGI's Melrose Park facility and most
recently as Executive Vice President--U.S. Operations. He joined IMPAC in
March, 1998. Mr. Henkel graduated from Illinois Benedictine College.
Mr. Zenas Block has been a director of AGI since 1988 and a director of
IMPAC since March, 1998. Since 1991, Mr. Block has been an adjunct professor
at the New York University Stern School of Business and was a founder of its
Center for Entrepreneurial Studies. Mr. Block graduated from the City College
of New York. Mr. Block is the father of Richard Block.
Mr. David H. Horowitz has been a director of AGI since 1988 and a director
of IMPAC since March, 1998. Mr. Horowitz is a consultant and investor in the
media and communications industry and is a director of theglobe.com., inc. Mr.
Horowitz graduated from Columbia College and has a law degree from Columbia
Law School.
Stockholder Agreement
In January 1999, IMPAC and its stockholders entered into the Second Amended
and Restated Stockholder Agreement, dated as of January 11, 1999 (the
"Stockholder Agreement"). The Stockholder Agreement provides that IMPAC's
board of directors (the "Board") will in most circumstances consist of eleven
members to be elected as follows: (i) four individuals designated by the
holders of a majority of the shares of the Common Stock purchased by
affiliates of Heritage (the "Heritage Holders"); (ii) two individuals
designated by the holders of a majority of the shares of Common Stock
purchased by or on behalf of Melvin Herrin and Scott Herrin (the "Klearfold
Holders"); (iii) two individuals designated by the holders of a majority of
shares of Common Stock to be purchased by Messrs. Lawson and Newbon and other
prior employees and stockholders of Tinsley Robor plc (the "Tinsley Holders");
and (iv) three individuals designated as follows: (A) if Richard Block is both
chief executive officer of IMPAC and continues to hold at least 75% of his
shares of Common Stock, Richard Block and two individuals designated by
Richard Block; (B) if Richard Block is both chief executive officer of IMPAC
and continues to hold at least 50% but less than 75% of his shares of Common
Stock, Richard Block, one individual designated by Richard Block, and one
individual designated by the holders of a majority of the shares of the Common
Stock held by the holders of the Common Stock then employed by IMPAC and who
had been
29
<PAGE>
employed by AGI prior to the Combination (the "AGI Holders"); (C) if Richard
Block is both chief executive officer of IMPAC and continues to hold less than
50% of his shares of Common Stock held by him after the closing of the
Combination, Richard Block and two individuals designated by the AGI Holders;
(D) if Richard Block is not chief executive officer of IMPAC and continues to
hold more than 50% of his shares of Common Stock, one individual designated by
Richard Block and two individuals designated by the AGI Holders; and (E) if
Richard Block is not chief executive officer of IMPAC and continues to hold
less than 50% of his shares of Common Stock, three individuals designated by
the AGI Holders.
At any time the Heritage Holders may provide a written notice to IMPAC, upon
which the Board will then consist of: (A) eight individuals designated by the
Heritage Holders; (B) three individuals designated by the AGI Holders; (C) two
individuals designated by the Klearfold Holders; and (D) two individuals
designated by the Tinsley Holders.
Board vacancies will be filled by a designee of the individual or group who
originally designated the vacating director. Each individual or group entitled
to designate a director will also be entitled to direct the removal of such
director and designate a replacement director.
The Stockholder Agreement also contains each of (i) registration rights
provisions, which will provide certain demand registration rights, to become
effective upon the earlier to occur of June 7, 2002 and six months following
the consummation of an initial public offering of IMPAC's Common Stock, and
certain piggyback registration rights, (ii) transfer restrictions, (iii)
piggy-back and co-sale rights, (iv) rights of first refusal with respect to
certain transfers of Common Stock, (v) rights of first refusal with respect to
certain proposed sales of the Company and (vi) certain pre-emptive rights with
respect to certain equity issuances.
Section 16(a) Beneficial Ownership Reporting Compliance.
Not applicable.
30
<PAGE>
ITEM 11. EXECUTIVE COMPENSATION
Summary Compensation Table
The following table sets forth the annual and long-term compensation for
services rendered to the Company for the years ended December 31, 1998 and
1999, paid by the Company to those persons who were, at December 31, 1999, (i)
the Chief Executive Officer of the Company, and (ii) the four most highly-
compensated executive officers of the Company other than the Chief Executive
Officer (collectively, the "Named Executives").
<TABLE>
<CAPTION>
Annual Compensation Long-Term Compensation
--------------------------- --------------------------
Awards Payouts
------------------ -------
Other All
Annual Restricted Other
Compen- Stock Stock LTIP Compen-
Bonus sation Awards Options Payouts sation
Name and Principal Position Year Salary ($) ($)(4) ($)(5) ($) (#) ($) ($)(6)
- --------------------------- ---- ---------- -------- ------- ---------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Richard H. Block(1)..... 1999 $387,500 $296,238 $ -- $-- -- $-- $8,753
President and 1998 288,230 -- -- -- -- -- 8,668
Chief Executive Officer
Lee Newbon(2)........... 1999 374,705 344,789 -- -- 2,427 -- 86,185
Chief Operating 1998 83,795 23,305 -- -- -- -- 7,615
Officer--IMPAC Group,
Inc.
Richard L. 1999 357,083 254,816 74,196 -- 1,095 -- 8,753
Oppenheimer(1)(3)...... 1998 265,558 -- -- -- -- -- 8,047
Chief Operating
Officer--
U.S. Operations
James H. 1999 325,000 233,831 -- -- 1,095 -- 6,353
Oppenheimer(1)......... 1998 265,653 -- -- -- -- -- 6,392
Senior Vice President
of Global Marketing
David C. Underwood(1)... 1999 225,000 213,642 -- -- 1,095 -- 8,753
Treasurer, Secretary 1998 184,743 -- -- -- -- -- 7,547
and Chief Financial
Officer
</TABLE>
- --------
(1) Commenced employment with IMPAC in March 1998.
(2) Commenced employment with IMPAC in September 1998.
(3) The amount shown for other annual compensation reflects a one-time
relocation expense reimbursement.
(4) Reflects both discretionary bonuses earned and paid in 1999, as well as
bonuses earned in 1999 and paid in 2000 pursuant to the Company's 1999
cash bonus plan.
(5) Except with respect to Richard Oppenheimer for 1999, the value of
perquisites and other personal benefits are not shown because the
aggregate amount of such compensation did not exceed $50,000 or 10% of
each Named Executive's total annual salary and bonus for that year.
(6) Reflects company contributions to the Company's 401(k) retirement savings
and pension plans on behalf of the Named Executive.
31
<PAGE>
Option Grants in Fiscal 1999
The following table sets forth information with respect to grants of stock
options to purchase Series A and Series B Common Stock during 1999 to the
Named Executives. The Company has no provision for stock appreciation rights.
<TABLE>
<CAPTION>
Percent of Total
Options Granted
Options to Employees in Exercise Expiration Grant Date
Name Granted(#) Fiscal Year(%) Price($/Sh) Date Present Value($)(1)
- ---- ---------- ---------------- ----------- ---------- -------------------
<S> <C> <C> <C> <C> <C>
Richard H. Block........ -- -- -- -- --
Lee Newbon(2)........... 767 3.7% $301.09 7/03/05- $307,966
7/13/07
(3)..................... 1,660 8.0 512.50 3/31/09 269,833
Richard L.
Oppenheimer(3)......... 1,095 5.3 512.50 4/29/09 173,941
James H.
Oppenheimer(3)......... 1,095 5.3 512.50 4/29/09 173,941
David C. Underwood(3)... 1,095 5.3 512.50 4/29/09 173,941
</TABLE>
- --------
(1) The hypothetical grant date present values for options granted during 1999
are presented pursuant to the rules of the SEC and are calculated under
the Black-Scholes Model for pricing options, a mathematical formula used
to value options. This formula considers a number of factors in
forecasting an option's present value. Factors used to value the options
shown on the table include the fair market value of the Common Stock
underlying the options on the date of grant ($512.50-608.60), the risk
free rate of return (5.30%-5.45%), the projected dividend yield (none) and
the expected time the options will be outstanding (7 years). The actual
before-tax amount, if any, realized upon the exercise of stock options
will depend upon the excess, if any, of the market price of the Common
Stock over the option exercise price per share at the time the option is
exercised. There is no assurance that the hypothetical grant date present
values of the options reflected on the table will be realized. The Common
Stock was not publicly traded during fiscal year 1999.
(2) Options granted to purchase shares of Series B Common Stock under the 1988
Tinsley Robor plc Executive Share Option Scheme and the 1994 Tinsley Robor
plc Senior Executive Incentive Scheme.
(3) Options granted to purchase shares of Series A Common Stock under the
Second 1998 Stock Option Plan.
Fiscal Year End Option Values
The following table sets forth information with respect to all unexercised
options to purchase Series A and Series B Common Stock held by the Named
Executives at December 31, 1999. No options were exercised by the Named
Executives during 1999.
<TABLE>
<CAPTION>
Number of Securities
Underlying Unexercised Value of Unexercised
Options at in-the-Money Options
Fiscal Year End(#) at Fiscal Year End ($)
Name Exercisable/Unexercisable Exercisable/Unexercisable(1)
- ---- ------------------------- ----------------------------
<S> <C> <C>
Richard H. Block........ --/-- $--/$--
Lee Newbon.............. 0/2,427 0/395,386
Richard L. Oppenheimer.. 0/1,095 0/105,230
James H. Oppenheimer.... 0/1,095 0/105,230
David C. Underwood...... 0/1,095 0/105,230
</TABLE>
- --------
(1) The value of unexercised in-the-money options is calculated by determining
the difference between the fair market value of the Common Stock
underlying the options at the end of fiscal 1999 as estimated by
management and the option exercise price. The Common Stock was not
publicly traded at the end of fiscal 1999.
Compensation of Directors
Other than Melvin B. Herrin, H. Scott Herrin and M. Shaun Lawson, directors
of IMPAC do not receive compensation from IMPAC for their service in such
capacities. In fiscal 1998 and fiscal 1999, Melvin B. Herrin
32
<PAGE>
received $323,028 and $325,000, respectively, pursuant to an Employment, Non-
Competition and Stock Repurchase Agreement for services provided by him to
IMPAC as Chairman of IMPAC's Board of Directors. See "Employment, Non-
Competition and Stock Repurchase Agreements" below. In fiscal 1998 and 1999,
H. Scott Herrin received $329,028 and $331,000, respectively, pursuant to an
Employment, Non-Competition and Stock Repurchase Agreement for services
provided by him to IMPAC as a director and, for part of 1998, as an officer of
IMPAC. In fiscal 1999, M. Shaun Lawson received $148,627 for services provided
by him as Vice Chairman of IMPAC's Board of Directors. In addition, M. Shaun
Lawson was granted options to purchase 973 shares of Series A Common Stock at
$513 per share. M. Shaun Lawson became a director of IMPAC in March 1999.
Melvin B. Herrin's and M. Shaun Lawson's compensation package also includes a
cash bonus under the Company's cash bonus plan, which is paid after the end of
the year and is based on the profitability of the Company and individual
performance. Melvin B. Herrin's and M. Shaun Lawson's cash bonus for 1999 was
$101,295 and $95,561, respectively.
Employment, Non-Competition and Stock Repurchase Agreements
At the closing of the Combination, IMPAC entered into Employment, Non-
Competition and Stock Repurchase Agreements with each of Richard H. Block,
Melvin B. Herrin, H. Scott Herrin, Richard L. Oppenheimer, James H.
Oppenheimer, Dean J. Henkel and David C. Underwood, as well as with certain
other employees who are officers of one or more of IMPAC's subsidiaries, but
are not officers of IMPAC.
Each employment agreement with one of the employees named above provides a
term of employment through June 2001, specifies a base salary and a package of
benefits and provides for participation in IMPAC's cash bonus plan. Each such
employment agreement (except as noted below for Melvin B. Herrin and H. Scott
Herrin) gives such individual (or his estate) the right to offer his or her
shares back to IMPAC in the event of death, disability, retirement, upon his
termination of his employment for good reason, or upon termination of his
employment by IMPAC without cause, and, except in the instance of retirement
or, if insurance proceeds are not available to complete the repurchase, death
or disability, IMPAC shall be required to complete such repurchase, in each
case at fair market value calculated in accordance with such employment
agreements. Each of Melvin B. Herrin's and H. Scott Herrin's employment
agreement give such individual's estate the right, following the death of both
Melvin Herrin and Scott Herrin, to offer such estate's shares of Common Stock
back to IMPAC. In the event that a repurchase offer following an employee's
death, disability or retirement is rejected by IMPAC, and the offered shares
are not repurchased by those of the employee's fellow managers who may also
have rights to repurchase the employee's shares, then such shares will become
freely transferable. Any repurchase is subject to compliance with the terms of
the Facility, the Indenture and the terms of IMPAC's Charter, and if IMPAC is
unable to complete a purchase in compliance with such terms, the purchase may
be delayed until compliance is possible.
Each of the employment agreements also provides for severance pay upon
termination by IMPAC without cause or by the employee for good reason. IMPAC
must pay the employee his base salary as in effect prior to any such
termination, together with benefits and a variable compensation element
calculated with reference to IMPAC's payments under IMPAC's cash bonus plan,
until the later of (i) the end of the term of the employment contract, or (ii)
if so elected by IMPAC, the first anniversary of termination or, under certain
circumstances and with respect to certain employees, eighteen months after
termination, provided that the period during which severance pay is payable
may be extended for up to one additional year by notice to the employee from
IMPAC. If the employee is terminated by IMPAC without cause, or the employee
terminates his employment for good reason, at any time after the end of the
term of the employment agreement, IMPAC may by written notice to the employee
elect to pay the employee his base salary as in effect prior to any such
termination, together with benefits and a variable compensation element
calculated with reference to IMPAC's payments under the cash bonus plan, for a
period of one year from the date of termination or, under certain
circumstances and with respect to certain employees, eighteen months after
termination, provided that such period may be extended for up to one
additional year by notice to the employee from IMPAC. No severance is payable
in the event of a termination of employment as a result of death, disability
or retirement, or a termination by the employee without good reason or by
IMPAC with cause.
33
<PAGE>
Each of the employment agreements with the employees named above also
contains non-competition covenants pursuant to which the employee is
prohibited, during the term of his employment and for a "Restricted Period"
thereafter, from competing with the Company in any place where the Company now
or during the employee's employment does business, and, subject to certain
exceptions, from soliciting or encouraging any employee, contractor, customer,
vendor or supplier of the Company to terminate or materially reduce its
relationship with the Company. The applicable "Restricted Period" will, with
certain exceptions, be that period following the employee's termination during
which severance pay is being paid to the employee, and if no severance pay is
payable, the "Restricted Period" shall be the longer of (i) one year from the
date of termination, and (ii) two years from March 12, 1998. In addition, the
"Restricted Period" shall be extended by any period in which the employee is
in breach of his non-competition and non-solicitation obligations.
Each of the employment agreements also provides that IMPAC and certain "co-
managers", taken together (in the case of Richard H. Block, James H.
Oppenheimer, Richard L. Oppenheimer, James H. Oppenheimer, Dean J. Henkel and
David C. Underwood, the "co-managers" include each such person (other than
himself), as well as Dennis L. McGuin, Mary Frances Griffin and Jacqueline M.
Barry) have the right to repurchase the employee's shares of IMPAC's Common
Stock following termination of the employee's employment, as well as providing
the rights described above for the employee to require the repurchase of his
stock. The Company has obtained insurance policies on the life of each of
Richard H. Block, David C. Underwood, James H. Oppenheimer, Richard L.
Oppenheimer and Dean J. Henkel in order to assist in the financing of its
obligations to repurchase their stock. IMPAC will finance any stock
repurchase, first, out of cash if and to the extent available under the terms
of the Facility, the Indenture and the Charter and if IMPAC is unable to
complete a purchase at any time because no cash is then available under such
terms, the purchase may be delayed until cash becomes available to permit
IMPAC to complete the purchase in compliance with such terms.
In addition to the employment agreements discussed above, certain
international subsidiaries of IMPAC have entered into employment agreements
with Lee Newbon and certain other employees who are officers of one or more of
the Company's international subsidiaries, but are not officers of IMPAC. The
employment agreement for Lee Newbon provides a base salary as of December 31,
1999 of $375,000. Each of the employment agreements contains customary
provisions regarding renumeration, retirement, perquisities and other personal
benefits. Each of the employment agreements also contains customary severance
provisions that require, upon termination by the Company without cause,
payments of severance for a period of up to two years, depending upon the
individual. Each of the employment agreements also contains customary non-
competition covenants pursuant to which the employee is prohibited, during the
term of his employment and for a period thereafter (typically six to twelve
months), from competing with the Company and from soliciting or encouraging
any employee or customer to terminate or materially reduce its relationship
with the Company.
Executives and other employees are also entitled to participate in the
Company's various 401(k) retirement savings and pension plans, which provide
retirement benefits to employees and include both employer and employee
contributions.
Bonus Plan
Annual incentive compensation in the form of cash bonuses under the
Company's cash bonus plan are awarded to certain key employees (including the
six current executive officers) based on EBITDA targets. In addition,
discretionary cash bonuses outside the parameters of the cash bonus plan have
been awarded in the case of individual performance.
Compensation Committee Interlocks and Insider Participation
All executive compensation decisions relating to fiscal year 1998 and 1999,
including decisions relating to the compensation of persons named on the
Summary Compensation Table, were decided by the Board of Directors of IMPAC.
During fiscal year 1998 and 1999, no officers or employees of IMPAC other than
Richard H. Block, David C. Underwood and H. Scott Herrin participated in any
discussions with the Board of Directors of IMPAC regarding executive
compensation.
34
<PAGE>
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
BENEFICIAL OWNERSHIP
The following table sets forth certain information regarding ownership of
the outstanding Common Stock of IMPAC as of March 15, 2000 by (i) each
director of IMPAC, (ii) each of the executive officers of IMPAC named in the
"Summary Compensation Table", (iii) each of the directors and executive
officers of IMPAC as a group and (iv) each person who beneficially owns more
than 5% of the outstanding shares of IMPAC's Common Stock(1).
<TABLE>
<CAPTION>
Amount and Nature
of Beneficial
Name and Address Ownership(2) Percent of Class
- ---------------- ----------------- ----------------
<S> <C> <C>
Heritage Fund I, L.P.(3)................... 56,431 32.65%
c/o Heritage Partners, Inc.
30 Rowes Wharf, Boston, MA 02110
Heritage Fund II, L.P.(4).................. 47,305 27.37%
c/o Heritage Partners, Inc.
30 Rowes Wharf, Boston, MA 02110
Michel Reichert(5)......................... 103,737 60.02%
c/o Heritage Partners, Inc.
30 Rowes Wharf, Boston, MA 02110
Michael Gilligan(6)........................ 103,737 60.02%
c/o Heritage Partners, Inc.
30 Rowes Wharf, Boston, MA 02110
Richard H. Block(7)........................ 23,029 13.32%
c/o IMPAC Group, Inc.
1950 North Ruby St., Melrose Park, IL
60160
H. Scott Herrin, Arthur S. Keyser and Mat- 9,780 5.66%
thew H. Kamens(8).........................
as Trustees under an Irrevocable Deed of
Trust
dated August 12, 1992 f/b/o H. Scott
Herrin
c/o Klearfold, Inc.
364 Valley Road, Warrington, PA 18976
H. Scott Herrin(8)......................... 9,780 5.66%
Melvin B. Herrin........................... 4,964 2.87%
Richard L. Oppenheimer(9).................. 4,714 2.72%
Arthur S. Keyser and Matthew H. Kamens..... 3,916 2.27%
as Trustees under an Indenture of
Trust of Melvin B. Herrin dated June 4,
1996
c/o Klearfold, Inc.
364 Valley Road, Warrington, PA 18976
David C. Underwood(10)..................... 3,639 2.10%
James H. Oppenheimer(11)................... 3,388 1.96%
Dean J. Henkel(12)......................... 1,891 1.09%
Lee Newbon(13)............................. 1,182 (*)
M. Shaun Lawson(14)........................ 888 (*)
David H. Horowitz.......................... 588 (*)
Zenas Block................................ 293 (*)
All Directors and executive officers as a 162,009 93.73%
group (13 persons)........................
</TABLE>
35
<PAGE>
- --------
(1) Holders of Series A Common Stock and Series B Common Stock vote together
as a single class. See "Item 13. Certain Relationships and Related
Transactions--Amendments to Charter."
(2) As used in this table, beneficial ownership means the sole or shared
power to vote, or to direct the voting of a security, or the sole or
shared power to dispose, or direct the disposition of, a security.
(3) HF Partners I, L.P. is the General Partner of Heritage Fund I, L.P.
("Fund I") and shares voting and investment control over the shares held
by Fund I.
(4) Includes 6,227 shares of Series A Common Stock owned of record by
Heritage Fund II Investment Corporation ("Fund II Investment
Corporation"), and 4,500 shares of Series B Common Stock and 36,578
shares of Series A Common Stock owned of record by Heritage Fund II, L.P.
("Fund II" and, together with Fund I and Fund II Investment Corporation,
the "Heritage Funds"). Fund II Investment Corporation is a wholly-owned
subsidiary of Fund II and Fund II shares voting and investment control
over the shares held by Fund II Investment Corporation. HF Partners II,
L.L.C. is the General Partner of Fund II and shares voting and investment
control over the shares held by Fund II.
(5) The shares shown as beneficially owned by Mr. Reichert represent 103,737
shares owned of record by the Heritage Funds. Mr. Reichert through one or
more intermediaries may be deemed to control the voting and disposition
of the securities owned by the Heritage Funds, and accordingly may be
deemed to have shared voting and investment power with respect to all
shares held by the Heritage Funds. However, Mr. Reichert disclaims
beneficial ownership of the securities held by the Heritage Funds.
(6) The shares shown as beneficially owned by Mr. Gilligan represent 103,737
shares owned of record by the Heritage Funds. Mr. Gilligan through one or
more intermediaries may be deemed to control the voting and disposition
of the securities owned by the Heritage Funds, and accordingly may be
deemed to have shared voting and investment power with respect to all
shares held by the Heritage Funds. However, Mr. Gilligan disclaims
beneficial ownership of the securities held by the Heritage Funds.
(7) Includes 6,005 shares held by Mr. Block and 17,024 shares held by the
Richard H. Block Family Trust u/t/a 4/1/94 (the "Block Family Trust") of
which Mr. Block's wife is the trustee. However, Mr. Block disclaims
beneficial ownership of the securities held by the Block Family Trust.
(8) Includes 7,959 shares that are held by H. Scott Herrin, Arthur S. Keyser
and Matthew H. Kamens, as Trustees under an Irrevocable Deed of Trust
dated August 12, 1992 f/b/o H. Scott Herrin (the "1992 Trust"), and over
which H. Scott Herrin directs investment and voting control and an option
the 1992 Trust has to purchase 803 shares of Series A Common Stock held
of record by Arthur S. Keyser and Matthew H. Kamens as Trustees under an
Indenture of Trust of Melvin B. Herrin dated June 4, 1996 and an option
the 1992 Trust has to purchase 1,018 shares of Series A Common Stock held
of record by Melvin B. Herrin.
(9) Includes 4,440 shares held by Mr. Richard Oppenheimer and 274 shares
issuable upon exercise of options.
(10) Includes 3,365 shares held by Mr. Underwood and 274 shares issuable upon
exercise of options.
(11) Includes 3,114 shares held by Mr. James Oppenheimer and 274 shares
issuable upon exercise of options.
(12) Includes 1,617 shares held by Mr. Henkel and 274 shares issuable upon
exercise of options.
(13) Represents shares issuable upon exercise of options.
(14) Includes 645 shares held by Mr. Lawson and 243 shares issuable upon
exercise of options.
(*)Represents less than one percent (1%).
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
Investment Agreement and Related Transactions
Investment Agreement
In February 1998, KFI, each of Heritage Fund I Investment Corporation (an
affiliate of Heritage, "Fund I Investment Corporation"), Matthew H. Kamens, as
Trustee under Indenture of Trust dated 06/04/96 of Melvin B. Herrin ("Kamens")
and Arthur S. Keyser, as Trustee under an Irrevocable Deed of Trust dated
08/12/92 f/b/o H. Scott Herrin ("Keyser", and, together with Fund I Investment
Corporation and Kamens, each a security holder who owned more than 5% of the
outstanding shares of IMPAC's Common Stock, the "Major Stockholders"), each of
Zenas Block and David Horowitz (each a director of IMPAC and, collectively,
the
36
<PAGE>
"Outside Directors"), each of Melvin B. Herrin, H. Scott Herrin, Richard
Block, James Oppenheimer, Richard Oppenheimer, David Underwood and Dean Henkel
(each an executive officer of IMPAC and, collectively, the "Executive
Officers") and other IMPAC shareholders entered into an Investment Agreement
(the "Investment Agreement"), pursuant to which (i) the existing stockholders
of KFI (the "Klearfold Contributing Parties") agreed to contribute to KFI the
entire outstanding capital stock of KFI and a warrant to purchase KFI capital
stock and to invest approximately $4.6 million in cash, and (ii) certain
stockholders and holders of stock appreciation rights of AGI (the "AGI
Contributing Parties") agreed to contribute to KFI shares of common stock and
to invest the proceeds of their stock appreciation rights, totaling an
aggregate of $14.4 million. In exchange for these contributions and cash
investments, KFI issued to each contributing or investing party shares of
KFI's common stock.
In addition, immediately prior to completion of the Combination, Melvin B.
Herrin and H. Scott Herrin, and other shareholders of KFI surrendered to KFI
shares of its outstanding capital stock in exchange for the cancellation of
certain promissory notes representing approximately $35,000 in unpaid purchase
price for such shares. Such employees and certain other employees of KFI
received options to purchase shares of IMPAC's Common Stock.
Pursuant to the Investment Agreement, each of the Executive Officers and
other managers of IMPAC entered into Employment, Non-Competition and Stock
Repurchase Agreements and each recipient of stock options as described above
entered into an Agreement relating to Employment and Stock Ownership. See
"Item 11. Executive Compensation--Employment, Non-Competition and Stock
Repurchase Agreements".
Pursuant to the Investment Agreement, each of the contributing or investing
parties made representations and warranties to KFI as to their title to the
shares being contributed and as to their authority to enter into the
Investment Agreement and the related transactions, and KFI made customary
representations and warranties to the contributing or investing parties. From
and after the closing of the Combination, Heritage and Messrs. Herrin and
their affiliates (the "KFI Indemnitors") have indemnified the AGI Contributing
Parties for any breach by the Company of its representations, warranties and
covenants in the Investment Agreement ("Holding Indemnified Claims").
The aggregate amount payable by the KFI Indemnitors with respect to all
claims for indemnification after the closing of the Combination will not
exceed approximately $2.3 million, except with respect to claims arising from
breaches of representations as to KFI's equity capitalization, authority to
consummate the Combination, taxes and brokers, as to which indemnification is
limited to the value to the KFI Indemnitors of their investment in KFI
pursuant to the Investment Agreement, immediately after the Combination (the
"Share Value").
Each of the contributing or investing parties have indemnified KFI for
breach of such party's representations and warranties in the Investment
Agreement, up to such party's Share Value.
Pursuant to the Investment Agreement KFI agreed to comply with a number of
operating covenants that survived the completion of the Combination, including
the maintenance of corporate existence and insurance, compliance with
applicable laws and contracts and the provision of financial information and
similar matters.
Agreement and Plan of Merger
In February 1998, KFI, its wholly-owned subsidiary AGI Acquisition Corp.,
AGI and Klearfold, and Richard Block, James Oppenheimer, Richard Oppenheimer,
Donald W. Kosterka, James A. Ladwig, Dean Henkel, Gary Mankoff and David
Underwood (the "Principal AGI Stockholders") and Melvin B. Herrin, H. Scott
Herrin and the Major Stockholders entered into an Agreement and Plan of Merger
under which AGI Acquisition Corp. agreed to merge with and into AGI, with AGI
as the surviving corporation. In this merger, the shares of AGI not
contributed to KFI under the Investment Agreement, together with certain
outstanding stock appreciation rights of AGI and an outstanding option for the
purchase of AGI's common stock, were converted
37
<PAGE>
into a right to receive cash in the aggregate amount of $30.5 million, net of
fees. Of this amount, approximately $813,000 was placed in escrow to secure
certain indemnification obligations described below.
The payment of the foregoing cash consideration was funded from the proceeds
of the Offering and the cash investments made pursuant to the Investment
Agreement.
In the Agreement and Plan of Merger, AGI and the Principal AGI Stockholders
made customary representations and warranties to KFI, the existing
stockholders of KFI, and AGI Acquisition Corp., and KFI, Klearfold and AGI
Acquisition Corp. made customary representations and warranties to AGI. From
and after the closing of the Combination, all of the existing stockholders of
AGI (the "AGI Indemnitors") have indemnified the Company for any breach of
certain representations, warranties and covenants in the Agreement and Plan of
Merger. From and after the closing of the Combination, the KFI Indemnitors
have indemnified the former AGI investors for any breaches of certain
representations, warranties and covenants in the Agreement and Plan of Merger.
The aggregate amount payable by the AGI Indemnitors with respect to all
claims for indemnification after the closing of the Combination will not
exceed $3.5 million, except with respect to claims arising from breaches of
representations as to equity capitalization, authority to consummate the
Combination, taxes and brokers, as to which indemnification will be limited to
the combined after-tax value to the indemnifying party of its proceeds from
the merger and related transactions. The aggregate amount payable by the KFI
Indemnitors with respect to all claims for indemnification after the closing
of the Combination will not exceed approximately $2.3 million, except with
respect to claims arising from breaches of representations as to equity
capitalization, authority to consummate the Combination, taxes and brokers,
and certain other specified claims, as to which indemnification will be
limited to the KFI Indemnitors' share value.
Indebtedness of Management
In connection with the Combination, IMPAC made advances to each of Messrs.
Underwood and Henkel, and James Oppenheimer and Richard Oppenheimer (each an
executive officer of IMPAC and collectively referred to as the "Indebted
Officers") with respect to the tax effect incurred by each Indebted Officer in
connection with receiving the proceeds of their stock appreciation rights and
rolling such proceeds into shares of IMPAC capital stock. The principal amount
of these advances during fiscal 1998 and fiscal 1999 and as of March 15, 2000
for each of the Indebted Officers was:
<TABLE>
<S> <C>
Dave Underwood................................................... $460,081
Richard Oppenheimer.............................................. 359,888
James Oppenheimer................................................ 336,941
Dean Henkel...................................................... 336,941
</TABLE>
In connection with such advances each Indebted Officer is required to pay
cash interest at a fixed rate of 5.85% per annum.
Other Transactions
The Company's manufacturing facility in Warrington, Pennsylvania is leased
directly from Melvin B. Herrin for an annual rent of approximately $336,000,
and the Louisa, Virginia facility is also leased directly from Mr. Herrin
through an entity controlled by Mr. Herrin for an annual rent of approximately
$273,000. The leases contain escalation clauses based on the producer price
index increase and expire on December 31, 2005 with an option to renew for a
five-year period. The Company believes the terms of these leases to be at fair
market value.
The Company's Melrose Park, Illinois facility is leased to the Company by a
partnership that includes the founder of AGI and Richard Block for an annual
rent of approximately $475,000. The term of the lease expires
38
<PAGE>
on September 30, 2002. AGI has options to extend the lease for several
additional five-year terms. The Company believes that the terms of this lease
were at fair market value at the time entered into by the Company.
For fiscal 1998 and 1999, the Company paid approximately $110,377 and
$35,891, respectively, to Freya Block Design, Inc. for consulting services.
Freya Block Design, Inc. is a corporation wholly-owned by Freya Block, the
wife of Richard Block.
In July 1999, IMPAC, M. Shaun Lawson, Zenas Block and certain employees of
the Company entered into a Stock Purchase Agreement, pursuant to which M.
Shaun Lawson, Zenas Block and such certain employees party thereto agreed to
invest in IMPAC an aggregate amount of approximately $967,122 in cash for the
purchase of approximately 1,887 shares of Series A Common Stock. The net
proceeds from these investments were used to repurchase approximately 1,552
shares of Series A Common Stock from Fund II Investment Corporation.
In November of 1999, the Company issued a $4.9 million subordinated note to
Fund II Investment Corporation ("Subordinated Note"). The proceeds from the
Subordinated Note were used for working capital and general corporate
purposes. The Subordinated Note ranks pari passu to the Senior Subordinated
Notes and matures March 31, 2006. The Subordinated Note accrues interest at
the rate of interest payable by Fund II Investment Corporation on its line of
credit with BankBoston N.A. (8.5% as of December 31, 1999), and is payable
semi-annually. Subject to compliance with the Credit Agreement, the Company is
permitted to prepay all or any portion of the Subordinated Note.
Tinsley Acquisition and Related Transactions
Tinsley Equity Funding
In September 1998 and in connection with the Tinsley Acquisition, IMPAC,
Fund I, Fund II, Richard Block, David Underwood, and certain other persons
entered into a Stock Purchase Agreement, pursuant to which Fund I, Fund II,
Richard Block and David Underwood and such other certain persons party thereto
agreed to invest in IMPAC an aggregate amount of approximately $58,575,000 in
cash for the purchase of approximately 96,246 shares of Series A Common Stock.
Heritage Holders Repurchase
In January 1999, in connection with the Preferred Issuance and with part of
the proceeds therefrom, IMPAC repurchased approximately 30,088 shares of
Series A Common Stock held by the Heritage Holders for an aggregate purchase
price of $18,806,000.
Amendments to Charter
In January 1999, IMPAC amended and restated its Certificate of Incorporation
to provide for two classes of common stock, the Series A Common Stock and the
Series B Common Stock, and one class of preferred stock, the Preferred Stock.
The holders of each share of Series A Common Stock and Series B Common Stock
have one vote per share and the holders of the Series A Common Stock and the
Series B Common Stock vote together as the holders of a single class. At the
option of IMPAC, upon the closing of an underwritten public offering pursuant
to an effective registration statement under the Securities Act (covering the
offer and sale of shares of any series of Common Stock), all shares of Series
B Common Stock then issued and outstanding will be converted into shares of
Series A Common Stock. Except with respect to certain votes affecting their
rights as holders of Preferred Stock, the holders of Preferred Stock have no
voting rights. The Preferred Stock accrues dividends on a cumulative basis at
14% per annum for years 1-5, 15% per annum for year 6, and either 14% or 15%
per annum for years 7-10 depending on whether the dividends are paid in cash
or with additional Preferred Stock, respectively. During the first six years
after issuance, dividends on the Preferred Stock are payable solely by issuing
additional shares of Preferred Stock. The Preferred Stock accrues dividends at
24% per annum if certain events occur, including an event of non-compliance as
defined and certain signficant changes in the
39
<PAGE>
ownership of IMPAC. On or after January 12, 2002, IMPAC, at its option, may
redeem in whole or in part, all of the outstanding shares of Preferred Stock,
provided, however, that a premium of up to 4% be paid. On or after the
consummation of a public offering or the sale of the Company, as defined,
IMPAC, at its option, may redeem in whole or, in the case of a public
offering, in part, all of the outstanding shares of Preferred Stock, provided,
however, that a premium of up to 10% be paid. The holders of the Preferred
Stock have the right to redeem all, but not less than all, of the outstanding
shares of Preferred Stock at a premium of 1% upon a change of control, as
defined. IMPAC is required to redeem all outstanding shares of Preferred Stock
on December 31, 2008 at face value plus all accrued and unpaid dividends. The
Preferred Stock contains covenants, among others, limiting additional
indebtedness, restricted payments, guaranties, advances to affiliates,
mergers, asset sales and dispositions. The Preferred Stock ranks senior to all
classes of Common Stock with respect to dividend distributions and
distributions upon the liquidation or dissolution of IMPAC.
40
<PAGE>
PART IV.
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a)(1) Financial Statements. See "Index to Consolidated Financial
Statements".
(a)(2) All schedules other than Schedule 27.1, the Financial Data Schedule,
have been omitted because either they are not required, they are not applicable
or they have been included in the Consolidated Financial Statements.
(a)(3) Exhibits
<TABLE>
<CAPTION>
Exhibit
Number Description
------- -----------
<C> <S>
2.1 Agreement and Plan of Merger, dated February 19, 1998, between KFI
Holding Corporation (which subsequently changed its name to "IMPAC
Group, Inc." and is sometimes referred to below as "Holding" or the
"Company"), AGI Acquisition Corporation, Heritage, Klearfold, AGI,
certain stockholders of AGI, and certain stockholders of Holding.*
2.2 Investment Agreement, dated February 19, 1998, between Holding,
Heritage Fund I Investment Corporation ("Heritage"), certain
stockholders of Holding, certain stockholders of AGI and certain other
persons.*
2.3 Stock Purchase Agreement, dated as of September 10, 1998, by and among
the Company, Heritage Fund I, L.P., Heritage Fund II, L.P., Richard
Block and certain other persons./\
2.4 Share Sale and Purchase Agreement, dated as of November 20, 1998,
between J.L.B. Holding B.V. and James Upton Holding B.V. and Music
Print B.V. and J.D.H. Lamme.+
2.5 Agreement dated November 2, 1999 between C.J. Watson Esq. and Others
and the Company for the Sale and Purchase of the Entire Issued Share
Capital of Thamesdown Colour Limited.@
3.3 Second Amended and Restated By-laws of the Company.+
3.5 Fourth Amended and Restated Certificate of Incorporation of the
Company.+
3.6 Certificate of Amendment to Fourth Amended and Restated Certificate of
Incorporation of the Company, dated November 2, 1999.
3.7 Certificate of Amendment to Fourth Amended and Restated Certificate of
Incorporation of the Company, dated January 10, 2000.
4.1 Indenture, dated as of March 12, 1998, by and among the Company, AGI
Incorporated ("AGI"), Klearfold, Inc. ("Klearfold"), KF--Delaware,
Inc. ("KFD"), KF--International, Inc. ("International" and,
collectively, with AGI, Klearfold, KFD and International, the
"Guarantors") and State Street Bank and Trust Company, as Trustee.*
4.2 Form of the Company's 10 1/8% Senior Notes due 2008.*
4.3 Registration Rights Agreement, dated as of March 12, 1998, by and
among the Company, the Guarantors, Goldman, Sachs & Co. ("Goldman")
and Donaldson, Lufkin, and Jenrette Securities Corporation ("DLJ").*
4.4 First Supplemental Indenture, dated as of July 21, 1998, between the
Company and the Trustee.*
4.5 Second Supplemental Indenture, dated as of January 31, 1999, among the
Company, State Street Bank and Trust Company, as Trustee, and the
Company's subsidiaries party thereto.++
10.1 Purchase Agreement, dated as of March 5, 1998, by and among the
Company, Goldman and DLJ.*
10.2 Escrow Agreement, dated March 12, 1998, between AGI, the Company, the
Escrow Agent and the Escrowed Stockholder Representative.*
</TABLE>
41
<PAGE>
<TABLE>
<CAPTION>
Exhibit
Number Description
------- -----------
<C> <S>
10.4 Labor Agreement between Klearfold and United Paperworker's
International Union Local 286, effective December 1, 1994, as extended
by amendment through November 30, 2002.*
10.5 Second Amendment to Lease dated September 30, 1994 between Norman
Levin and Evelyn F. Levin and Klearfold (Warrington, Pennsylvania).*
10.6 Amended and Restated Lease, dated as of June 7, 1996, between Dena
Corp. and Klearfold (Louisa, Virginia).*
10.7 Amended and Restated Lease, dated as of June 7, 1996, between Melvin
B. Herrin and Klearfold (Warrington, Pennsylvania).*
10.8 Lease dated May 29, 1985 by and between Chicago Title and Trust
Company as Trustee under Trust Agreement dated February 1, 1977, and
known as Trust No. 1069185 and AGI re 256,629 sq. ft. at 1950 N. Ruby
Street.*
10.9 Amendment to Lease dated as of October 1, 1987 by and between Chicago
Title and Trust Company, as Trustee under a Trust Agreement dated
February 1, 1977, and known as Trust No. 1069185 and AGI re 256,629
sq. ft. at 1950 Ruby Street.*
10.10 Second Amendment to Lease dated as of April 30, 1992, by and between
Chicago Title and Trust Company as Trustee under a Trust Agreement
dated February 1, 1977 and known as Trust No. 1069185 and AGI re
256,629 sq. ft. at 1950 Ruby Street.*
10.11 Third Amendment to Lease dated July 2, 1997 by and between Chicago
Title and Trust Company as Trustee under Trust Agreement dated
February 1, 1997 and known as Trust No. 1069185 and AGI re 256,629 sq.
ft. at 1950 N. Ruby Street.*
10.12 Employment, Non-Competition and Stock Repurchase Agreement, dated as
of March 12, 1998, by and between the Company and David Underwood.*/**
10.13 Employment, Non-Competition and Stock Repurchase Agreement, dated as
of March 12, 1998, by and between the Company and James
Oppenheimer.*/**
10.14 Employment, Non-Competition and Stock Repurchase Agreement, dated as
of March 12, 1998, by and between the Company and Richard
Oppenheimer.*/**
10.15 Employment, Non-Competition and Stock Repurchase Agreement, dated as
of March 12, 1998, by and between the Company and Dean Henkel.*/**
10.16 Employment, Non-Competition and Stock Repurchase Agreement, dated as
of March 12, 1998, by and between the Company and H. Scott Herrin.*/**
10.17 Employment, Non-Competition and Stock Repurchase Agreement, dated as
of March 12, 1998, by and between the Company and Melvin Herrin.*/**
10.18 Employment, Non-Competition and Stock Repurchase Agreement, dated as
of March 12, 1998, by and between the Company and Richard Block.*/**
10.21 Company Security Agreement, dated as of March 12, 1998 between the
Company and Bank of America NT & SA ("BofA").*
10.22 Borrowers Security Agreement, dated as of March 12, 1998 between AGI,
Klearfold and BofA.*
10.23 Klearfold Subsidiaries Security Agreement, dated as of March 12, 1998
between KFD and International (the "Klearfold Subsidiaries") and
BofA.*
10.24 Company Pledge Agreement, dated as of March 12, 1998 between the
Company and BofA.*
10.25 Borrowers Pledge Agreement, dated as of March 12, 1998 between AGI,
Klearfold and BofA.*
</TABLE>
42
<PAGE>
<TABLE>
<CAPTION>
Exhibit
Number Description
------- -----------
<C> <S>
10.26 Klearfold Subsidiaries Pledge Agreement, dated as of March 12, 1998
between the Klearfold Subsidiaries and BofA.*
10.27 Company Guaranty, dated as of March 12, 1998, between the Company and
BofA.*
10.28 Borrowers Guaranty, dated as of March 12, 1998 between AGI, Klearfold
and BofA.*
10.29 Klearfold Subsidiaries Guaranty, dated as of March 12, 1998 between
the Klearfold Subsidiaries and BofA.*
10.30 Company Patent Assignment dated as of March 12, 1998 between the
Company and BofA.*
10.31 AGI Patent Assignment, dated as of March 12, 1998 between AGI and
BofA.*
10.32 Klearfold Patent Assignment, dated as of March 12, 1998 between
Klearfold and BofA.*
10.33 International Patent Assignment, dated March 12, 1998, between
International and BofA.*
10.34 KFD Patent Assignment, dated March 12, 1998, between KFD and BofA.*
10.35 Company Trademark Assignment, dated as of March 12, 1998 between the
Company and BofA.*
10.36 AGI Trademark Assignment, dated as of March 12, 1998 between AGI and
BofA.*
10.37 Klearfold Trademark Assignment, dated as of March 12, 1998 between
Klearfold and BofA.*
10.38 International Trademark Assignment, dated March 12, 1998, between
International and BofA.*
10.39 KFD Trademark Assignment, dated March 12, 1998, between KFD and BofA.*
10.40 Company Copyright Assignment, dated as of March 12, 1998 between the
Company and BofA.*
10.41 AGI Copyright Assignment, dated as of March 12, 1998 between AGI and
BofA.*
10.42 Klearfold Copyright Assignment, dated as of March 12, 1998 between
Klearfold and BofA.*
10.43 International Copyright Assignment, dated March 12,, 1998, between
International and BofA.*
10.44 KFD Copyright Assignment, dated March 12, 1998, between KFD and BofA.*
10.45 Promissory Note--L/C Loan Note, dated March 12, 1998, from Klearfold
to BofA.*
10.46 Promissory Note--L/C Loan Note, dated March 12, 1998, from AGI to
BofA.*
10.47 AGI Pledge and Security Agreement, dated March 12, 1998, between AGI,
BofA, Bank One, Illinois, NA and William Blair & Co.*
10.48 Subrogation Agreement, dated March 11, 1998, between Mellon Bank, N.A.
("Mellon"), BofA, the Company and Klearfold.*
10.49 Letter of Credit and Reimbursement Agreement, dated August 1, 1997,
between Klearfold and Mellon.*
10.50 First Amendment to Reimbursement Agreement, dated March 11, 1998,
between Mellon, and Klearfold.*
10.51 AGI Letter of Credit, dated December 15, 1997.*
10.52 Mellon Bank, N.A. Letter of Credit, dated as of August 21, 1997.*
10.53 Back-Up Klearfold Letter of Credit, dated March 11, 1998.*
10.54 Loan Agreement, dated January 1, 1995, between AGI and City of
Jacksonville, Illinois.*
10.55 Loan Agreement, dated August 1, 1997, between Bucks County and
Klearfold.*
</TABLE>
43
<PAGE>
<TABLE>
<CAPTION>
Exhibit
Number Description
------- -----------
<C> <S>
10.56 Klearfold Profit Sharing/401(K) Plan.*/**
10.57 Klearfold Flexible Benefits Plan for Salaried Employees.*/**
10.58 Amended and Restated Multicurrency Credit Facility, dated March 12,
1998 and as amended and restated July 7, 1998 (the "Credit Facility"),
among BofA, the Company, AGI and Klearfold.*
10.59 Commitment Letter, dated July 7, 1998, from Heritage Fund I, L.P. and
Heritage Fund II, L.P.*
10.61 Second Amended and Restated Stockholder Agreement, dated as of January
11, 1998, between the Company, its stockholders.+
10.62 Securities Purchase Agreement, dated January 11, 1999, between the
Company, BT Capital Investors, L.P. ("BT") and Phoenix Home Life
Mutual Insurance Company ("Phoenix").+
10.63 Warrant, dated January 11, 1999, issued to BT for the purchase of the
Company's common stock.+
10.64 Warrant, dated January 11, 1999, issued to Phoenix for the purchase of
the Company's common stock.+
10.65 First Amendment to the Credit Facility, dated as of September 11,
1998, among BofA, the Company, AGI and Klearfold.+
10.66 Second Amendment to the Credit Facility, dated as of November 13,
1998, among BofA, the Company, AGI and Klearfold.+
10.67 Third Amendment to the Credit Facility, dated as of November 16, 1998,
among BofA, the Company, AGI and Klearfold.+
10.68 Fourth Amendment to the Credit Facility, dated as of December 10,
1998, among BofA, the Company, AGI and Klearfold.+
10.69 Fifth Amendment to the Credit Facility, dated as of January 11, 1999,
among BofA, the Company, AGI and Klearfold.+
10.70 Lease dated March 11, 1996 between Friends Provident Life Assurance
Limited and Printing Resource Limited and Tinsley Robor plc.
("Tinsley")(Dublin, Ireland).+
10.71 Supplement to Lease Agreement dated as of August 14, 1996, among
Walter Reischl, W.R. Druck Medien Ges.m.b.H & Co. KG, Reischl-Druck
Ges.m.b.H. (formerly James Upton GmbH), and Tinsley (Salzburg,
Austria).+
10.72 Lease dated January 1, 1996 between Stichting Adminstratiekantoor
Kinderen van den Nieuwenhuizen en Daandels and Tinsley (Uden, The
Netherlands).+
10.73 Lease dated January 31, 1985, among Pension Funds Securities Limited
and Minipack Systems Limited and Tinsley (Southhampton, England).+
10.74 Lease dated March 19, 1984 among Pension Funds Securities Limited and
Minipack Systems Limited and Tinsley (Southhampton, England).+
10.75 Lease dated June 16, 1993 among Orlinworth Plc, Messrs. T Walker-
Arnott & I Rackley, Conduit Communications Limited, and Verulam
Investments Limited (London, England).+
10.76 Lease dated June 16, 1995 between M. Webber and R.M. Harris and
Tinsley (London, England).+
10.77 Lease dated June 16, 1995, between M. Webber and R.M. Harris and
Tinsley (London, England).+
10.78 Lease dated August 13, 1998 between Courtaulds CIF Nominees Limited
and Tinsley (Littlehampton, England).+
</TABLE>
44
<PAGE>
<TABLE>
<CAPTION>
Exhibit
Number Description
------- -----------
<C> <S>
10.79 Lease dated May 4, 1995 between Sun Alliance and London Assurance
Company Limited and Tinsley (Swindon, England).+
10.80 Lease dated May 4, 1995 between Sun Alliance and London Assurance
Company Limited and Tinsley (Swindon, England).+
10.81 Lease dated June 12, 1996 between Sun Alliance and London Assurance
Company Limited and Tinsley (Swindon, England).+
10.82 Supplemental Lease and License for Alterations dated June 12, 1995
between Sun Alliance and London Assurance Company Limited and Tinsley
(Swindon, England).+
10.83 First Amendment to Employment, Non-Competition and Stock Repurchase
Agreement, dated as of January 8, 1999, by and between the Company and
David C. Underwood.**/+
10.84 First Amendment to Employment, Non-Competition and Stock Repurchase
Agreement, dated as of January 8, 1999, by and between the Company and
Dean Henkel.**/+
10.85 Letter Agreement, dated as of January 7, 1999, between the Company and
certain employees.**/+
10.86 First Amendment to Employment, Non-Competition and Stock Repurchase
Agreement, dated as of January 8, 1999, by and between the Company and
Richard Oppenheimer.**/+
10.87 Service Agreement, dated as of June 20, 1996, between Tinsley and Lee
Newbon with Individual Pension Arrangement dated June 29, 1998.**/+
10.89 Support Agreement, dated as of December 15, 1998, between the Company,
AGI, Klearfold, IMPAC Europe Limited, Levelprompt Limited and the
companies party thereto.+
10.90 Amended and Restated Revolving Loan, dated as of July 7, 1998, between
the Company and BofA.+
10.91 Amended and Restated Loan, dated as of July 7, 1998, between AGI and
BofA.+
10.92 Amended and Restated L/C Loan, dated as of July 7, 1998, between
Klearfold BofA.+
10.93 Promissory Note--Term Loan A, dated as of July 7, 1998, between the
Company and BofA.+
10.94 Promissory Note--Term Loan B, dated as of July 7, 1998, between the
Company and BofA.+
10.95 Swing Line Note, dated as of July 7, 1998, between the Company and
BofA.+
10.96 Global Amendment No. 1 to Collateral documents, dated as of July 6,
among the Company, AGI, Klearfold, KFD, International and BofA.+
10.97 Global Amendment No. 1 to Security documents, dated as of September
11, 1998, among the Company, AGI, Klearfold, KFD, International and
BofA.+
10.98 Global Amendment No. 1 to Guaranties, dated as of September 11, 1998,
among the Company, AGI, Klearfold, KFD and BofA.+
10.99 Amendment No. 1 to AGI Pledge and Security Agreement, dated as of
September 11, 1998, among AGI, BofA, Bank One Trust Company NA and
William Blair and Company.+
10.100 Letter Agreement, dated as of January 11, 1999, between Heritage Fund
II Investment Corporation and the Company.+
10.101 Loan Note Instrument dated September 10, 1998 by IMPAC Europe public
limited company and BofA.+
10.102 Subscription Agreement dated July 7, 1998 between IMPAC Europe plc,
the Company, Levelprompt Limited and BT Wolfensohn.+
</TABLE>
45
<PAGE>
<TABLE>
<CAPTION>
Exhibit
Number Description
------- -----------
<C> <S>
10.103 First Amendment to Employment, Non-Competition and Stock Repurchase
Agreement, dated as of January 13, 1999, by and between the Company
and Melvin B. Herrin.++/**
10.104 First Amendment to Employment, Non-Competition and Stock Repurchase
Agreement, dated as of January 13, 1999, by and between the Company
and Richard Block.++/**
10.105 First Amendment to Employment, Non-Competition and Stock Repurchase
Agreement, dated as of January 13, 1999, by and between the Company
and Jacqueline Barry.++/**
10.106 First Amendment to Agreement Relating to Employment and Stock
Ownership, dated as of January 13, 1999, by and between the Company
and Craig Wilson.++/**
10.107 First Amendment to Agreement Relating to Employment and Stock
Ownership, dated as of January 13, 1999, by and between the Company
and Richard Mazurek.++/**
10.108 First Amendment to Agreement Relating to Employment and Stock
Ownership, dated as of January 13, 1999, by and between the Company
and Steve Frazier.++/**
10.109 First Amendment to Agreement Relating to Employment and Stock
Ownership, dated as of January 13, 1999, by and between the Company
and James Oppenheimer.+++/**
10.110 First Amendment to Agreement Relating to Employment and Stock
Ownership, dated as of January 13, 1999, by and between the Company
and Dennis McGuin.+++/**
10.111 First Amendment to Agreement Relating to Employment and Stock
Ownership, dated as of January 13, 1999, by and between the Company
and Robert Eliason.+++/**
10.112 Note Purchase Agreement, dated as of November 17, 1999, by and between
the Company and Heritage Fund II Investment Corporation.
10.113 Note, dated November 17, 1999, in the principal amount of $4,900,000,
issued by the Company to Heritage Fund II Investment Corporation.
10.114 Sixth Amendment to Credit Facility, dated as of November 2, 1999,
among BofA, the Company, AGI, Klearfold and the other parties
thereto.@@
10.115 IMPAC Group, Inc. Second 1998 Stock Option Plan.**
10.116 Tinsley Robor plc Senior Executive Incentive Scheme 1994.**
10.117 Tinsley Robor plc Executive Share Option Scheme 1988.**
10.118 Amendment No. 1 to Warrants for the Purchase of Series A Common Stock,
dated as of October 29, 1999.
10.119 Amendment No. 1 to Securities Purchase Agreement, dated as of October
29, 1999.
16.1 Letter of Arthur Andersen LLP re: Change in Certifying Accountant.*
16.2 Letter of KPMG Peat Marwick LLP re: Change in Certifying Accountant.*
18.1 Preferability Letter of PricewaterhouseCoopers LLP re: Change in
Accounting Principle.
21.1 List of Subsidiaries.
24.1 Power of Attorney (included in signature pages to Form 10-K).
27.1 Financial Data Schedule.
</TABLE>
46
<PAGE>
- --------
* Incorporated by reference to the same numbered exhibit to the Registrant's
Registration Statement No. 333-48821, on Form S-4, filed by the Registrant
with respect to $100,000,000 aggregate principal amount of the Company's 10
1/8% Senior Subordinated Notes due 2008.
, Incorporated by reference to the same numbered exhibit to the Registrant's
Form 10-Q filed by the Registrant for the quarterly period ending September
30, 1998.
+ Incorporated by reference to the same numbered exhibit to the Registrant's
Form 10-K filed by the Registrant for the fiscal year ending December 31,
1999.
++ Incorporated by reference to the same numbered exhibit to the Registrant's
Form 10-Q filed by the Registrant for the quarterly period ending March 31,
1999.
+++ Incorporated by reference to the same numbered exhibit to the Registrant's
Form 10-Q filed by the Registrant for the quarterly period ending June 30,
1999.
@ Incorporated by reference to the same numbered exhibit to the Registrant's
Form 8-K filed by the Registrant on November 2, 1999.
** This item is a management contract or compensatory plan.
@@ Confidential treatment requested.
(b) Reports on Form 8-K.
A report on Form 8-K was filed on November 17, 1999, announcing the
consummation of the Thamesdown Acquisition on November 2, 1999.
A report on Form 8K/A was filed on January 28, 2000, supplementing the Form
8-K filed by the Company on November 17, 1999, solely to add the financial
statements, pro forma financial information and exhibits required by Item 7 of
Form 8-K.
47
<PAGE>
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Report of Independent Accountants........................................ F-2
Independent Auditors' Report............................................. F-3
Consolidated Balance Sheets as of December 31, 1998 and 1999............. F-4
Consolidated Statements of Income for the Years Ended December 31, 1997,
1998 and 1999........................................................... F-5
Consolidated Statements of Shareholders' Equity (Deficit) for the Years
Ended December 31, 1997, 1998 and 1999.................................. F-6
Consolidated Statements of Cash Flows for the Years Ended December 31,
1997, 1998 and 1999..................................................... F-7
Notes to Consolidated Financial Statements............................... F-8
Schedule II. Summary of Valuation and Qualifying Accounts................ F-28
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholders
of IMPAC Group, Inc.:
In our opinion, the consolidated financial statements listed in the
accompanying index present fairly, in all material respects, the financial
position of IMPAC Group, Inc. and its subsidiaries (the "Company") at December
31, 1998 and 1999, and the results of their operations and their cash flows
for the years then ended, in conformity with accounting principles generally
accepted in the United States. These financial statements are the
responsibility of the Company's management; our responsibility is to express
an opinion on these financial statements based on our audits. We have
conducted our audits of these statements in accordance with auditing standards
generally accepted in the United States, which require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on
a test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for the
opinion expressed above. The financial statements of the Company for the
period ended December 31, 1997 were audited by other independent accountants
whose report dated February 6, 1998, expressed an unqualified opinion on those
statements.
As discussed in Note 4 to the consolidated financial statements, the Company
changed its method of valuing certain inventory from the last-in first-out
method to the first-in first-out method.
PricewaterhouseCoopers LLP
Chicago, Illinois
March 24, 2000
F-2
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors
IMPAC Group, Inc.:
We have audited the consolidated statements of income, shareholders' equity
(deficit) and cash flows of IMPAC Group, Inc. and subsidiaries (formerly KFI
Holding Corporation and subsidiaries) for the year ended December 31, 1997. In
connection with our audit of the consolidated financial statements, we also
have audited the related financial statement schedule as listed in the
accompanying index for the year ended December 31, 1997. These consolidated
financial statements and financial statement schedule are the responsibility
of management. Our responsibility is to express an opinion on these
consolidated financial statements and financial statement schedule based on
our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audit provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the results of operations and cash
flows of IMPAC Group, Inc. and subsidiaries (formerly KFI Holding Corporation
and subsidiaries) for the year ended December 31, 1997, in conformity with
generally accepted accounting principles. Also in our opinion, the related
financial statement schedule for the year ended December 31, 1997, when
considered in relation to the basic consolidated financial statements taken as
a whole, presents fairly, in all material respects, the information set forth
therein.
KPMG LLP
Philadelphia, Pennsylvania
February 6, 1998
F-3
<PAGE>
IMPAC GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
December 31, 1998 and 1999
(In thousands, except share data)
<TABLE>
<CAPTION>
1998 1999
-------- --------
<S> <C> <C>
ASSETS
Current assets:
Cash..................................................... $ 4,239 $ 4,535
Trade accounts receivable, net of allowances of $1,517 in
1998 and $2,125 in 1999................................. 44,361 56,929
Other receivables........................................ 4,278 3,675
Inventories.............................................. 23,603 25,614
Deferred income taxes.................................... 3,315 5,243
Prepaids and other current assets........................ 1,650 2,676
-------- --------
Total current assets................................... 81,446 98,672
-------- --------
Long-term assets:
Property, plant and equipment, net....................... 107,669 117,444
Goodwill................................................. 163,623 164,339
Deferred financing costs, net............................ 10,449 10,045
Other assets............................................. 2,924 3,562
-------- --------
Total assets........................................... $366,111 $394,062
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current maturities of long-term debt..................... $ 5,487 $ 10,264
Trade payables........................................... 25,093 28,005
Accrued expenses......................................... 23,800 35,930
-------- --------
Total current liabilities.............................. 54,380 74,199
-------- --------
Long-term debt............................................. 235,072 245,695
Deferred income taxes...................................... 10,477 10,034
Other noncurrent liabilities............................... 823 226
-------- --------
Total liabilities...................................... 300,752 330,154
-------- --------
Mandatorily redeemable preferred stock..................... -- 17,337
-------- --------
Shareholders' equity:
Common stock, series A, $.001 par value; 1,000,000 shares
authorized, 191,746 and 166,692 shares issued and
outstanding at December 31, 1998 and 1999,
respectively............................................ 0 0
Common stock, series B, $.001 par value; 100,000 shares
authorized, 4,500 shares issued and outstanding at
December 31, 1998 and 1999.............................. 0 0
Paid in capital.......................................... 98,625 82,689
Warrants outstanding..................................... 0 4,207
Carryover basis adjustment............................... (37,143) (37,143)
Accumulated other comprehensive income................... (681) (9,334)
Retained earnings........................................ 4,558 6,152
-------- --------
Total shareholders' equity............................. 65,359 46,571
-------- --------
Total liabilities & shareholders' equity............... $366,111 $394,062
======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements
F-4
<PAGE>
IMPAC GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
Years ended December 31, 1997, 1998, 1999
(In thousands)
<TABLE>
<CAPTION>
1997 1998 1999
------- -------- --------
<S> <C> <C> <C>
Net sales........................................ $52,493 $184,298 $307,754
Cost of goods sold............................... 39,322 135,022 216,527
------- -------- --------
Gross profit..................................... 13,171 49,276 91,227
Selling, general and administrative expenses..... 7,589 31,762 60,674
PTP royalty and commission (income).............. (33) -- --
------- -------- --------
Operating income................................. 5,615 17,514 30,553
Other expense (income):
Interest expense, net.......................... 3,469 13,514 22,913
Other expense (income), net.................... -- 457 (41)
------- -------- --------
Income before income taxes and extraordinary
item............................................ 2,146 3,543 7,681
Income taxes..................................... 754 1,724 3,384
------- -------- --------
Income before extraordinary item................. 1,392 1,819 4,297
Extraordinary charge for early retirement of
debt, net of tax benefit of $368................ -- (552) --
------- -------- --------
Net income....................................... $ 1,392 $ 1,267 $ 4,297
======= ======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements
F-5
<PAGE>
IMPAC GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (DEFICIT)
Years ended December 31, 1997, 1998 and 1999
(in thousands, except share data)
<TABLE>
<CAPTION>
Common Stock Preferred Stock Accumulated
---------------- ----------------- Carryover Other
Comprehensive Number of Number of Paid-in Warrants Notes Basis Comprehensive
Income Shares Amount Shares Amount Capital Outstanding Receivables Adjustment Income
------------- --------- ------ --------- ------ ------- ----------- ----------- ---------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at
January 1,
1997........... 100,000 $-- 100,000 $-- $20,000 $ -- $(35) $(37,143) $ --
Net income...... -- -- -- -- -- -- -- -- --
------- ---- -------- ---- ------- ------ ---- -------- -------
Balance at
December 31,
1997........... 100,000 -- 100,000 -- 20,000 -- (35) (37,143) --
Recapitalization
in connection
with the
acquisition of
AGI............ -- -- (100,000) -- 18,965 -- 35 -- --
Sale of common
stock.......... 96,246 -- -- -- 58,575 -- -- -- --
Stock options
granted........ -- -- -- -- 1,085 -- -- -- --
Cumulative
translation
adjustment..... $ (681) -- -- -- -- -- -- -- -- (681)
Net income...... 1,267 -- -- -- -- -- -- -- -- --
-------
Comprehensive
income......... $ 586 -- -- -- -- -- -- -- -- --
======= ------- ---- -------- ---- ------- ------ ---- -------- -------
Balance at
December 31,
1998........... 196,246 -- -- -- 98,625 -- -- (37,143) (681)
Issuance of
stock
warrants....... -- -- -- -- -- 4,207 -- -- --
Repurchase of
common stock... (31,713) -- -- -- (19,796) -- -- -- --
Sale of common
stock.......... 6,659 -- -- -- 3,860 -- -- -- --
Accretion of
mandatorily
redeemable
preferred
stock.......... -- -- -- -- -- -- -- -- --
Cumulative
translation
adjustment..... $(8,653) -- -- -- -- -- -- -- -- (8,653)
Net income...... 4,297 -- -- -- -- -- -- -- -- --
-------
Comprehensive
loss........... $(4,356) -- -- -- -- -- -- -- -- --
======= ------- ---- -------- ---- ------- ------ ---- -------- -------
Balance at
December 31,
1999........... 171,192 $-- -- $-- $82,689 $4,207 $-- $(37,143) $(9,334)
======= ==== ======== ==== ======= ====== ==== ======== =======
<CAPTION>
Retained
Earnings Total
-------- ---------
<S> <C> <C>
Balance at
January 1,
1997........... $1,899 $(15,279)
Net income...... 1,392 1,392
-------- ---------
Balance at
December 31,
1997........... 3,291 (13,887)
Recapitalization
in connection
with the
acquisition of
AGI............ -- 19,000
Sale of common
stock.......... -- 58,575
Stock options
granted........ -- 1,085
Cumulative
translation
adjustment..... -- (681)
Net income...... 1,267 1,267
Comprehensive
income......... -- --
-------- ---------
Balance at
December 31,
1998........... 4,558 65,359
Issuance of
stock
warrants....... -- 4,207
Repurchase of
common stock... -- (19,796)
Sale of common
stock.......... -- 3,860
Accretion of
mandatorily
redeemable
preferred
stock.......... (2,703) (2,703)
Cumulative
translation
adjustment..... -- (8,653)
Net income...... 4,297 4,297
Comprehensive
loss........... -- --
-------- ---------
Balance at
December 31,
1999........... $6,152 $ 46,571
======== =========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-6
<PAGE>
IMPAC GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years ended December 31, 1997, 1998 and 1999
(In thousands)
<TABLE>
<CAPTION>
1997 1998 1999
------- --------- --------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income..................................... $ 1,392 $ 1,267 $ 4,297
Adjustments to reconcile net income to net cash
provided by operating activities--
Extraordinary charge for early retirement of
debt........................................ -- 552 --
Depreciation and amortization................ 1,814 9,772 18,520
Amortization of goodwill..................... 1,692 4,120
Loss on sale of fixed assets................. -- 265 143
Deferred income taxes........................ (595) 837 (2,371)
Changes in assets and liabilities--
Trade accounts receivable, net............. 2,199 (6,930) (10,008)
Inventories................................ 76 (1,564) (1,897)
Trade payables............................. 1,049 6,644 840
Other assets and liabilities............... 278 662 9,379
------- --------- --------
Net cash provided by operating
activities.............................. 6,213 13,197 23,023
------- --------- --------
Cash flows from investing activities:
Capital expenditures........................... (4,144) (16,016) (27,002)
Acquisition of subsidiaries.................... -- (230,950) (6,726)
------- --------- --------
Net cash used for investing activities... (4,144) (246,966) (33,728)
------- --------- --------
Cash flows from financing activities:
Net change in borrowings under revolving credit
line.......................................... (3,996) 11,200 14,538
Repayment of long-term debt.................... (1,100) (30,103) (1,010)
Proceeds from issuance of long-term debt....... 4,000 201,033 4,900
Change in capital leases....................... -- 908 (5,099)
(Increase) decrease in restricted cash......... (625) 199 169
Proceeds from issuance of common stock......... -- 63,175 1,488
Repurchase of common stock..................... -- -- (19,796)
Proceeds from issuance of preferred stock and
stock warrants................................ -- -- 18,841
Change in deferred financing costs............. (160) (10,881) (1,277)
------- --------- --------
Net cash provided by (used for) financing
activities.............................. (1,881) 235,531 12,804
------- --------- --------
Effect of exchange rate differences on cash...... -- 2,283 (1,803)
------- --------- --------
Increase in cash................................. 188 4,045 296
Cash, beginning of period........................ 6 194 4,239
------- --------- --------
Cash, end of period.............................. $ 194 $ 4,239 $ 4,535
======= ========= ========
Supplemental Cash Flow Information:
Interest paid.................................. $ 3,474 $ 9,316 $ 21,385
Income taxes paid.............................. 1,479 2,953 4,875
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements
F-7
<PAGE>
IMPAC GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except share data)
Note 1--Business Description
The Company is an international designer, manufacturer and marketer of high-
end, value-added specialty printing and packaging for various consumer
products markets including entertainment, cosmetics and personal care. Through
its creative design work, specialized manufacturing techniques and diverse
printing capabilities, the Company offers innovative specialty packaging
solutions for customers that seek to differentiate their products in the
retail marketplace. In addition, the Company offers its products using a
unique blend of materials including paper, paperboard and transparent rigid
plastic materials.
In March, 1998, KFI Holding Corporation ("KFI"), the parent company of
Klearfold, Inc. ("Klearfold"), completed both its acquisition of AGI
Incorporated ("AGI") (see Note 3) and the issuance of $100 million of 10 1/8%
Senior Subordinated Notes ("Senior Subordinated Notes") (See Note 9). Upon
consummation of this acquisition, KFI changed its name to "IMPAC Group, Inc."
In September 1998, IMPAC Group, Inc., acquired substantially all of the issued
and outstanding shares of capital stock of Tinsley Robor plc, subsequently
renamed IMPAC Europe Limited (and referred to hereinafter as "Tinsley") (see
Note 3).
The accompanying consolidated financial statements include the financial
statements of IMPAC Group, Inc. ("IMPAC") and all of its domestic and foreign
wholly-owned subsidiaries (together, the "Company"). All intercompany
transactions have been eliminated in consolidation.
Note 2--Significant Accounting Policies
Revenue recognition
Revenues are recognized upon shipment to a customer pursuant to specific
purchase orders and are recorded net of allowances and rebates.
Inventories
Inventories are stated at the lower of cost or market and include the
appropriate elements of material, labor and manufacturing overhead costs. Cost
is determined using the first-in, first-out ("FIFO") method. See Note 4 for
discussion of change in method of pricing the paper component of inventories.
Property, plant and equipment
Property, plant and equipment are stated at cost and depreciated over their
estimated useful lives using the straight-line method. Leasehold improvements
and capital lease assets are amortized over the shorter of the lease term or
estimated useful life of the related asset. When properties are retired or
disposed, the costs and related depreciation reserves are eliminated and the
resulting gain or loss is recognized in income. Equipment under construction
is not depreciated until placed in full-time use. The useful lives of
property, plant and equipment are summarized as follows:
<TABLE>
<S> <C>
Buildings and leasehold improvements............................ 3-30 years
Machinery and equipment......................................... 3-10 years
Furniture and fixtures.......................................... 5-10 years
</TABLE>
The Company capitalized interest expense incurred of $0, $34 and $533 in
1997, 1998 and 1999, respectively, during the installation of certain
equipment and information systems.
Depreciation expense included in the statements of income was $1,614, $8,780
and $16,810 for the years ended December 31, 1997, 1998 and 1999,
respectively.
F-8
<PAGE>
IMPAC GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(In thousands, except share data)
Goodwill
Goodwill consists of the excess of purchase price over the fair market value
of the net assets acquired and is being amortized over 40 years. Amortization
of goodwill during the years ended December 31, 1998 and 1999 was $1,692 and
$4,120, respectively. Accumulated amortization at December 31, 1998 and 1999
was $1,692 and $5,779, respectively. The Company continually evaluates whether
events and circumstances have occurred that indicate the asset may not be
recoverable. When factors indicate that the asset should be evaluated for
possible impairment, the Company uses an estimate of the related undiscounted
future cash flows over the remaining lives of the asset in measuring whether
or not an impairment has occurred.
Deferred financing costs
The Company incurred various financing costs associated with issuances of
long-term debt. These costs are being amortized over the term of the related
debt agreements.
Concentration of credit risk
Sales to two customers accounted for approximately 23% of the Company's net
sales for the year ended December 31, 1997. Sales to two different customers
accounted for approximately 22% and 25% of the Company's net sales for the
years ended December 31, 1998 and 1999, respectively.
Income Taxes
Income taxes are accounted for under the asset and liability method. Under
this method, deferred tax assets and liabilities are recognized for the future
tax consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases. Deferred tax assets and liabilities are measured using enacted tax
rates expected to apply to taxable income in the years in which those
temporary differences are expected to be recovered or settled. The effect on
deferred tax assets and liabilities of a change in tax rates is recognized in
income in the period that includes the enactment date.
Fair value of financial instruments
The fair value of a financial instrument represents the amount at which the
instrument could be exchanged in a current transaction between willing
parties, other than in a forced sale or liquidation. Significant differences
can arise between the fair value and carrying amount of financial instruments
that are recognized at historical cost amounts. The following methods and
assumptions were used by the Company in estimating fair value disclosures for
financial instruments.
Cash and cash equivalents, trade receivables, and account payable--The
amounts reported in the accompanying consolidated balance sheets
approximate fair value because of the short maturity of these instruments.
Long-term debt--The fair value of the Company's Senior Subordinated Notes
are estimated based on quoted market prices. The carrying amounts of the
Company's bank borrowings and other long-term debt approximate fair value
because the interest rates are based on floating rates identified by
reference to market. At December 31, 1999, the carrying amounts and the
fair values of the Company's long-term debt were $256.0 million and $247.0
million, respectively. At December 31, 1998, the carrying amounts of long-
term debt reported in the accompanying consolidated balance sheet
approximated fair value.
F-9
<PAGE>
IMPAC GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(In thousands, except share data)
Interest rate swaps--The fair value of interest rate swaps reflects the
estimated amounts that the Company would receive or pay to terminate the
contracts at the reporting date. Management estimates the fair value of
these interest rate swaps at December 31, 1999 to be a receivable of
approximately $3.2 million. Management estimates the fair value of these
interest rate swaps at December 31, 1998 to approximate their carrying
value.
Use of estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts and related disclosures. Actual
results could differ from these estimates.
Foreign currency transactions
The financial statements of the Company's foreign subsidiaries were prepared
in their respective local currency and translated into U.S. dollars based on
the currency exchange rate at the end of the period for the balance sheet and
a weighted-average rate for the period on the statement of income. Translation
adjustments are reflected as accumulated other comprehensive income in
shareholders' equity (deficit) and accordingly have no effect on net income.
Note 3--Acquisitions
Acquisition of AGI Incorporated--
On March 12, 1998, the Company acquired all of the common stock of AGI for
$69.0 million including $54.6 million of cash and $14.4 million of newly
issued common stock, plus acquisition costs. Concurrently, the Company funded
the retirement of $8.3 million of indebtedness outstanding under AGI's credit
facility immediately prior to the transaction. The acquisition was funded by
the proceeds from the issuance of $100.0 million of Senior Subordinated Notes
and $4.6 million of new common stock. AGI is a supplier of standard and
specialty printed packaging in the United States for the entertainment,
cosmetics and other consumer products industries.
A summary of the Company's purchase price allocation follows:
<TABLE>
<S> <C>
Receivables........................................................ $ 11,555
Inventories........................................................ 6,998
Property, plant and equipment...................................... 40,550
Goodwill........................................................... 40,481
Other assets....................................................... 1,703
Trade payables and accrued expenses................................ (11,800)
Long-term debt..................................................... (7,640)
Deferred income taxes, net......................................... (3,284)
--------
Net assets acquired.............................................. 78,563
Common stock issued.............................................. 14,400
--------
Net cash paid.................................................... $ 64,163
========
</TABLE>
F-10
<PAGE>
IMPAC GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(In thousands, except share data)
Acquisition of Tinsley Robor plc--
On September 11, 1998, the Company acquired the common stock of Tinsley for
$137.7 million plus acquisition costs. Concurrently, the Company funded the
retirement of $18.5 million of indebtedness outstanding under Tinsley's credit
agreements immediately prior to the transaction. The acquisition was funded
through additional borrowings of $93.7 million under the Company's Amended and
Restated Multicurrency Credit Facility described in Note 11 below (the
"Facility"), $58.6 million in proceeds from the sale of common stock to the
Company's existing stockholders or their affiliates and the issuance, in
aggregate, of $8.5 million of five year promissory notes to former Tinsley
shareholders. Tinsley is a supplier of printed packaging for the music and
multimedia market and has an established presence in the U.K. and Europe.
A summary of the Company's purchase price allocation follows:
<TABLE>
<S> <C>
Receivables........................................................ $ 19,646
Inventories........................................................ 7,944
Property, plant and equipment...................................... 46,139
Goodwill........................................................... 122,675
Other assets....................................................... 2,392
Trade payables and accrued expenses................................ (20,267)
Long-term debt..................................................... (15,179)
Deferred income taxes.............................................. (2,395)
--------
Net assets acquired.............................................. 160,955
Stock options granted............................................ 1,085
--------
Net cash paid.................................................... $159,870
========
</TABLE>
Acquisition of Music Print B.V.--
On November 24, 1998, the Company purchased the outstanding capital stock of
Music Print B.V. ("Music Print"), a Netherlands limited liability company, for
approximately $5.3 million plus acquisition costs. Concurrently, the Company
retired approximately $0.2 million of historical indebtedness of Music Print
and purchased the facility in which Music Print operates for $1.3 million. The
acquisition was funded through additional revolver borrowings under the
Facility. Music Print supplies printed packaging in the Netherlands for the
music and multimedia markets.
Acquisition of Thamesdown Colour Limited--
On November 2, 1999, the Company acquired all of the common stock of
Thamesdown Colour Limited ("Thamesdown"), a U.K. based printer, for
approximately $10.8 million plus acquisition costs. The acquisition was funded
through $4.9 million of subordinated indebtedness with a related party, $3.7
million of additional revolver borrowings under the Facility and the issuance
of $2.4 million of Series A Common Stock to the former Thamesdown
shareholders. The Company also assumed approximately $3.0 million of capital
leases. Thamesdown provides high-end commercial printing services specializing
in the production of promotional materials.
Unaudited Pro Forma for Acquisitions--
The acquisitions of AGI, Tinsley, Music Print and Thamesdown have been
accounted for as purchases and, accordingly, their operating results have been
included in the Company's consolidated financial statements from
F-11
<PAGE>
IMPAC GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(In thousands, except share data)
the dates of acquisition. The following unaudited pro forma information for
the year ended December 31, 1998, presents certain operating data calculated
to reflect the acquisitions of AGI and Tinsley and the additional borrowings
incurred to fund those acquisitions as if they occurred as of January 1, 1998.
<TABLE>
<CAPTION>
1998 1999
----------- ------------
(Pro Forma) (Historical)
<S> <C> <C>
Net sales........................................... $271,049 $307,754
Net income (loss)................................... $ (2,955) $ 4,297
</TABLE>
This pro forma data does not purport to represent what actual operating
results would have been had the acquisitions been consummated on the dates
indicated or what such results will be for any future period.
Note 4--Inventories
Inventories consist of the following:
<TABLE>
<CAPTION>
1998 1999
------- -------
<S> <C> <C>
Raw materials............................................... $ 9,218 $ 9,188
Work in process and finished goods.......................... 14,385 16,426
------- -------
$23,603 $25,614
======= =======
</TABLE>
During the fourth quarter of 1999, the Company retroactively changed its
method of pricing the paper component of inventories for AGI from LIFO to
FIFO. The change in method was made (a) to minimize the effect of accounting
estimates used in computing interim financial information, (b) to provide for
a better matching of expenses with revenues, (c) to ensure consistency across
the Company which, apart from the paper component of inventory at AGI, was on
FIFO and (d) to facilitate better comparability to peer companies.
The change increases net income by $224 in 1999. The financial statements
for 1998 have been retroactively restated for this change, which decreased
previously reported net income and retained earnings by $224.
Note 5--Property, Plant and Equipment
Property, plant and equipment, net at December 31, 1998 and 1999, consisted
of the following:
<TABLE>
<CAPTION>
1998 1999
-------- ---------
<S> <C> <C>
Land.................................................... $ 1,801 $ 2,388
Building and leasehold improvements..................... 27,753 29,688
Machinery and equipment................................. 160,360 173,644
Furniture and fixtures.................................. 3,690 4,945
Construction in progress................................ 3,235 10,059
-------- ---------
196,839 220,724
Less--Accumulated depreciation.......................... (89,170) (103,280)
-------- ---------
Net property, plant and equipment....................... $107,669 $ 117,444
======== =========
</TABLE>
Property, plant and equipment at December 31, 1998 and 1999 included capital
leases of $7.5 million and $5.6 million, respectively, net of accumulated
amortization of $2.0 million and $2.4 million, respectively.
F-12
<PAGE>
IMPAC GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(In thousands, except share data)
Note 6--Trade Payables and Accrued Expenses
Trade payables and accrued expenses at December 31, 1998 and 1999, consisted
of the following:
<TABLE>
<CAPTION>
1998 1999
------- -------
<S> <C> <C>
Trade payables............................................... $20,289 $25,114
Bank overdraft............................................... 4,804 2,891
------- -------
Total trade payables....................................... $25,093 $28,005
======= =======
</TABLE>
<TABLE>
<CAPTION>
1998 1999
------- -------
<S> <C> <C>
Employee compensation and withholdings...................... $ 6,381 $11,869
Rebates payable............................................. 5,179 8,514
Accrued interest............................................ 3,478 4,042
Income tax payable.......................................... -- 4,443
Other....................................................... 8,762 7,062
------- -------
Total accrued expenses.................................... $23,800 $35,930
======= =======
</TABLE>
Note 7--Income Taxes
The sources of income before income taxes and extraordinary item for the
years ended December 31, 1997, 1998 and 1999, are as follows:
<TABLE>
<CAPTION>
1997 1998 1999
------ ------ ------
<S> <C> <C> <C>
U.S. operations......................................... $2,146 $ 46 $1,459
Foreign operations...................................... -- 3,497 6,222
------ ------ ------
$2,146 $3,543 $7,681
====== ====== ======
</TABLE>
The components of the provision for income taxes on income before
extraordinary item for the years ended December 31, 1997, 1998, and 1999,
consisted of the following:
<TABLE>
<CAPTION>
1997 1998 1999
------ ------ -------
<S> <C> <C> <C>
Current--
U.S. federal...................................... $1,292 $ 580 $ 3,008
U.S. state and local.............................. 57 373 318
Foreign........................................... -- (66) 2,429
------ ------ -------
1,349 887 5,755
Deferred............................................ (595) 837 (2,371)
------ ------ -------
Provision for income taxes.......................... $ 754 $1,724 $ 3,384
====== ====== =======
</TABLE>
F-13
<PAGE>
IMPAC GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(In thousands, except share data)
The provision for income taxes on income before extraordinary item in each
period differs from that which would be computed by applying the statutory
U.S. federal income tax rate to income before extraordinary item for the years
ended December 31, 1997, 1998 and 1999, as a result of the following:
<TABLE>
<CAPTION>
1997 1998 1999
---- ---- -----
<S> <C> <C> <C>
Tax provision at statutory rate......................... 34.0% 34.0% 34.0%
State income taxes, net of federal benefit.............. -- 0.3% 2.0%
Goodwill................................................ -- 17.4% 17.3%
Tax effect resulting from foreign activities............ -- (5.3%) (10.6%)
Other, net.............................................. 1.1% 2.3% 1.4%
---- ---- -----
Effective tax rate...................................... 35.1% 48.7% 44.1%
==== ==== =====
</TABLE>
The following summarizes the estimated tax effect of significant cumulative
temporary differences that are included in the net deferred tax liability at
December 31, 1998 and 1999:
<TABLE>
<CAPTION>
1998 1999
-------- --------
<S> <C> <C>
Gross deferred tax assets:
Accounts receivable................................... $ 376 $ 465
Inventories........................................... 848 1,217
Accruals not deductible until paid.................... 2,108 3,623
Other................................................. 158 273
-------- --------
Total gross deferred tax assets......................... 3,490 5,578
-------- --------
Gross deferred tax liabilities:
Property, plant and equipment......................... (10,480) (10,257)
Other................................................. (172) (112)
-------- --------
Total gross deferred tax liabilities.................... (10,652) (10,369)
-------- --------
Net deferred tax liability.............................. $ (7,162) $ (4,791)
======== ========
</TABLE>
The Company has not provided a valuation allowance for deferred tax assets
because, although realization is not assured, the Company believes it is more
likely than not that such tax assets will be recognized through reversals of
taxable timing differences and taxable income in future periods.
Note 8--Employee Benefit Plans
Defined Contribution Plans--
Several of the Company's subsidiaries maintain defined contribution plans in
which non-union employees may voluntarily elect to participate. Under certain
plans, the Company matches a portion of the amounts contributed by employees.
Additionally, under certain plans the Company can make additional
discretionary contributions. The cost incurred for these plans was $28, $791
and $1,181 in 1997, 1998 and 1999, respectively.
One of the Company's subsidiaries is required, on behalf of union-registered
employees, to contribute to a union-managed multi-employer pension plan. If
the Company completely or partially withdraws from the pension plan, the
Company may be required to pay its share of the pension plan's unfunded vested
liability. There was no unfunded vested liability at December 31, 1999. The
cost incurred for the union pension plan was, $121, $121 and $124 in 1997,
1998 and 1999, respectively.
F-14
<PAGE>
IMPAC GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(In thousands, except share data)
Defined Benefit Plan--
The Company's U.K. subsidiaries maintain a defined benefit pension plan.
Total costs for the plan for the years ended December 31, 1998 and 1999 were
$86 and $152, respectively. The funded status of the plan at December 31, 1998
and 1999, was as follows:
<TABLE>
<CAPTION>
1998 1999
------- -------
<S> <C> <C>
Plan assets at fair value.................................. $10,621 $12,357
Projected benefit obligation............................... 8,464 9,853
------- -------
Assets over projected benefit obligation................... 2,157 2,504
Unrecognized gain.......................................... (1,279) (1,446)
------- -------
Net pension asset.......................................... $ 878 $ 1,058
======= =======
</TABLE>
The key assumptions used in accounting for the defined benefit plan during
1998 and 1999 include a weighted average discount rate of 5.5% and 6.0%,
respectively, salary increases of 3.0% and 3.25%, respectively, and a long-
term rate of return on plan assets of 8.0% for both years.
Note 9--Long-term Debt
Long-term debt as of December 31, 1998 and 1999, consisted of the following:
<TABLE>
<CAPTION>
1998 1999
-------- --------
<S> <C> <C>
Bank borrowings........................................... $103,410 $117,612
Senior subordinated notes................................. 100,000 100,000
Subordinated note with related party...................... -- 4,900
Industrial revenue bonds.................................. 11,640 11,640
Loan notes................................................ 8,393 7,305
Capital leases............................................ 17,116 14,502
-------- --------
Total debt.............................................. 240,559 255,959
Less-current maturities................................. 5,487 10,264
-------- --------
Total long-term debt.................................... $235,072 $245,695
======== ========
</TABLE>
On March 12, 1998, the Company completed the issuance of $100.0 million in
Senior Subordinated Notes. The Senior Subordinated Notes bear interest at 10
1/8% and mature March 15, 2008. The Indenture governing the Senior
Subordinated Notes contains certain covenants that, among other things, limit
the ability of the Company to incur additional indebtedness, pay dividends,
make investments or restricted payments, enter into certain transactions with
affiliates, dispose of certain assets, incur liens securing subordinated
indebtedness and engage in mergers and consolidations. The Senior Subordinated
Notes are general, unsecured obligations of IMPAC and are fully and
unconditionally guaranteed by all domestic and certain foreign subsidiaries of
the Company (the "Subsidiary Guarantors") on a joint and several basis (see
Note 14). No future subordinated debt of the Company will be senior to the
Senior Subordinated Notes. At December 31, 1998 and 1999, the Company had no
indebtedness outstanding that was subordinated to the Senior Subordinated
Notes. The proceeds of the Senior Subordinated Notes were used to fund the
acquisition of AGI and to retire all outstanding indebtedness under the
Company's prior credit agreement. As a result of the refinancing, the Company
recorded an extraordinary charge of $552 (net of tax), reflecting the write-
off of deferred financing costs.
F-15
<PAGE>
IMPAC GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(In thousands, except share data)
On March 12, 1998, the Company entered into a new five year credit facility
which provided for a $40.0 million revolving credit facility and a $13.0
million letter of credit facility. On July 7, 1998, the Company entered into
an Amended and Restated Multicurrency Credit Facility (the "Facility") which
became effective on the initial funding date of the Tinsley acquisition and
replaced the prior credit agreement. The Facility provides for up to $53.0
million of revolving credit borrowings (the "Revolver") with a $20 million
letter of credit subfacility under the Revolver (the "L/C Facility"). The
Facility also provides for $37.0 million of Term Loan A borrowings and $64.0
million of Term Loan B borrowings. The Facility also provides a guarantee to
the holders of the Loan Notes described below. Under the provisions of the
Facility, the aggregate amount of outstanding Term Loan A borrowings is
limited by the amount outstanding under the Loan Notes guarantee. Up to $8.5
million of drawings under this guarantee to redeem the Loan Notes will be
converted to additional borrowings under Term Loan A and any drawings which,
as a consequence of currency fluctuations, exceed $8.5 million will be
converted to additional borrowings under the Revolver. Borrowings under the
Facility rank senior to the Senior Subordinated Notes and are guaranteed by
the Subsidiary Guarantors on a senior basis and are secured by substantially
all of the assets of IMPAC and the Subsidiary Guarantors. As of December 31,
1999, there were $25.5 million of borrowings outstanding under the Revolver,
$28.9 million of borrowings outstanding under Term Loan A and $63.2 million of
borrowings outstanding under Term Loan B. As of December 31, 1999, the Company
has $13.1 million in letters of credit outstanding under the L/C Facility
primarily securing its industrial revenue bond ("IRB") borrowings. The unused
portion of the Facility at December 31, 1999 was $14.4 million. The interest
rate on the Facility is based on either LIBOR or Base Rate plus the applicable
margin and at December 31, 1999, the weighted average interest rate for the
facility was 9.31%. The interest rate on the L/C Facility is based on the
applicable LIBOR margin which was 2.75% at December 31, 1999. The Company
currently pays a commitment fee of 1/2 of 1% per annum on the unused portion
of the Facility. The Revolver has a five and one-half year maturity. Term Loan
A and Term Loan B provide for quarterly scheduled payments maturing in five
and one-half years and six and one-half years, respectively. The Company is
required to make mandatory prepayments on the term loans beginning in March,
2000 if the Company generates excess cash flow, as defined. No excess cash
flow payments are required during 2000.
The credit agreement governing the Facility (the "Credit Agreement")
includes covenants requiring the Company to maintain (i) maximum leverage
ratios, (ii) maximum senior leverage ratios, (iii) minimum interest coverage
ratios and (iv) minimum fixed charge coverage ratios. The Credit Agreement
also contains covenants, among others, limiting additional indebtedness,
liens, dividends, restricted payments, guaranties, advances to affiliates,
investments, capital expenditures, mergers, creation of subsidiaries, asset
sales and dispositions.
In connection with the Facility, in November 1998, the Company entered into
two interest rate swap agreements effectively fixing its LIBOR interest rate
at 5.42% by exchanging its variable interest rate for a fixed interest rate.
On July 26, 1999, one of the swap agreements was amended to provide for a
fixed interest rate of 4.75%, which is further adjusted to market during any
period in which three-month LIBOR is in the range of 6.75%-7.00% and further
adjusted to a fixed rate of 7.00% during any period in which three-month LIBOR
exceeds 7.00%. The interest rate differential relating to these swaps is
reflected as an adjustment to interest expense over the lives of the swaps.
The aggregate notional amount under these agreements at December 31, 1999 is
$63.2 million.
In November 1999, the Company issued a $4.9 million subordinated note to an
affiliate of the Company's majority stockholder. The subordinated note ranks
pari passu to the Senior Subordinated Notes and matures March 31, 2006.
Interest accrues at 8.50% as of December 31, 1999 and is payable semi-
annually.
In connection with the acquisition of Tinsley, the Company issued $8.5
million of five year promissory notes ("Loan Notes") to former Tinsley
shareholders. The Loan Notes rank senior to the Senior Subordinated Notes
F-16
<PAGE>
IMPAC GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(In thousands, except share data)
and are guaranteed by Bank of America. Drawings under this guarantee will be
converted into borrowings under Term Loan A and the Revolver of the Facility.
In connection with the acquisition of AGI, the Company assumed $7.6 million
of variable rate IRB borrowings which mature on February 1, 2026 and accrue
interest at 5.75% as of December 31, 1999. In connection with the acquisitions
of Tinsley, Music Print and Thamesdown, the Company assumed $19.5 million of
capital leases ($14.5 million at December 31, 1999) which mature in 1-6 years
and accrue interest at a weighted average interest rate of 6.38% as of
December 31, 1999.
On August 1, 1997, the Company issued $4.0 million of IRB borrowings which
mature on August 1, 2007 and accrue interest at 4.35%. The indenture agreement
requires the Company to use the proceeds for the acquisition of an offset
printing press and related equipment. All proceeds not used immediately for
these costs are to be kept in a restricted cash account. The balance of
restricted cash at December 31, 1999 is $257.
The maturities of long-term debt and capital leases at December 31, 1999 are
as follows:
<TABLE>
<S> <C>
2000............................................................ $ 10,264
2001............................................................ 12,510
2002............................................................ 13,023
2003............................................................ 13,907
2004............................................................ 74,426
Thereafter...................................................... 131,829
--------
Total long-term debt, including current maturities............ $255,959
========
</TABLE>
Note 10--Equity
Common Stock Issuances and Repurchases--
In connection with the acquisition of AGI on March 12, 1998, IMPAC (i)
exchanged 44,118 shares of new Series A Common Stock for all previously issued
and outstanding shares of non-voting Common Stock, voting Common Stock and
Preferred Stock of KFI, (ii) issued 13,529 shares of new Series A Common Stock
for $4.6 million, and (iii) issued 42,353 shares of new Series A Common Stock
as partial consideration to former shareholders of AGI. In connection with the
acquisition of Tinsley on September 11, 1998, IMPAC issued 96,246 shares of
new Series A and Series B Common Stock to certain existing stockholders and
their affiliates for $58.6 million.
On January 12, 1999, IMPAC purchased approximately 30,088 shares of
outstanding Series A Common Stock for $18.8 million with the proceeds from the
issuance of 20,000 shares of Series A Mandatorily Redeemable Preferred Stock
(the "Preferred Stock") as discussed below. On June 11, 1999, IMPAC purchased
approximately 73 shares of Series A Common Stock from a former employee for
$37. On July 30, 1999, IMPAC issued approximately 1,887 shares of Series A
Common Stock to certain key employees and directors of the Company for net
proceeds of $956. IMPAC used the net proceeds to acquire approximately 1,552
shares of outstanding Series A Common Stock. In connection with the
acquisition of Thamesdown, on November 2, 1999, IMPAC issued approximately
3,897 shares of Series A Common Stock as partial consideration to former
Thamesdown shareholders. On December 29, 1999, IMPAC issued approximately 875
shares of Series A Common Stock to certain key employees of the Company for
net proceeds of $533.
F-17
<PAGE>
IMPAC GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(In thousands, except share data)
Preferred Stock Issuance--
On January 12, 1999, IMPAC issued 20,000 shares of Preferred Stock with a
face value of $20.0 million together with detachable, ten-year warrants (the
"Warrants") to purchase 6,913 shares of Series A Common Stock at an exercise
price of $0.01 per share, for net proceeds $18.8 million. The Preferred Stock
accrues dividends on a cumulative basis at 14% per annum for years 1-5, 15%
per annum for year 6, and either 14% or 15% per annum for years 7-10 depending
on whether the dividends are paid in cash or with additional Preferred Stock,
respectively. During the first six years after issuance, dividends on the
Preferred Stock are payable solely by issuing additional shares of Preferred
Stock. The Preferred Stock accrues dividends at 24% per annum if certain
events occur, including an event of non-compliance as defined and certain
significant changes in the ownership of IMPAC. IMPAC is required to redeem all
outstanding shares of Preferred Stock on December 31, 2008 at face value plus
all accrued and unpaid dividends. IMPAC may redeem some or all outstanding
shares of Preferred Stock at an earlier date, provided, however, that a
premium of up to 10% be paid. The Preferred Stock is not redeemable at the
option of the holders of Preferred Stock except upon a change of control, as
defined. The Preferred Stock contains covenants, among others, limiting
additional indebtedness, restricted payments, guaranties, advances to
affiliates, mergers, asset sales and dispositions. The Preferred Stock ranks
senior to all classes of common stock with respect to dividend distributions
and distributions upon the liquidation or dissolution of IMPAC.
Upon issuance of the Preferred Stock, the Warrants were valued at $4.2
million and the shares of Preferred Stock were valued at $14.6 million. The
difference between the carrying value and the face value of the Preferred
Stock, along with dividends accrued, is being accreted using the effective
interest rate method over the period the Preferred Stock is outstanding, and
is recorded directly to retained earnings.
Stock Options--
In 1998, the Company established two nonqualified stock option plans for key
employees (the"Stock Option Plans"). The Company accounts for these plans
under APB Opinion No. 25, under which no compensation cost has been
recognized. Had compensation costs for this plan been determined consistent
with FASB Statement No. 123, the Company's net income would have been $1,253
and $3,767 for 1998 and 1999, respectively.
At December 31, 1998 and 1999, the Company is authorized to grant options to
purchase an additional 20,000 and 2,740 shares, respectively, of Series A
Common Stock under its Stock Option Plans. The option price of all grants
under these plans will be equal to the stock's market price on the date of
grant and no options may be exercised after ten years from the date of grant.
The following is a summary of stock option activity for 1998 and 1999:
<TABLE>
<CAPTION>
1998 1999
----------------------- ------------------------
Wtd. Average Wtd. Average
Shares Exercise Price Shares Exercise Price
------- -------------- -------- --------------
<S> <C> <C> <C> <C>
Outstanding at beginning
of year.................. -- $-- 775.2 $340
Granted................... 1,064.0 340 20,716.9 479
Exercised................. -- -- -- --
Forfeited................. (288.8) (340) (15.2) 340
------- --------
Outstanding at end of
year..................... 775.2 340 21,476.9 474
======= ========
Exercisable at end of
year..................... 91.2 340 152.0 340
Weighted average fair
value of options
granted.................. 124 208
</TABLE>
F-18
<PAGE>
IMPAC GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(In thousands, except share data)
During 1998, the Company granted 1,064 options to purchase Series A Common
Stock at an exercise price of $340 per share to certain key employees. In
connection with the acquisition of Tinsley, the Company offered former Tinsley
optionholders the opportunity to either exercise their existing options in
Tinsley for cash or to convert their options into options of the Company.
Pursuant to this agreement, on February 27, 1999, the Company granted options
to purchase 3,457 shares of Series B Common Stock of the Company at a weighted
average exercise price of $303. The difference between the exercise price and
the fair market value of these options was recorded as additional goodwill
with a corresponding increase in additional paid-in capital. On March 31, 1999
and April 29, 1999, the Company granted options to purchase approximately
8,881 and 8,080 shares, respectively, of Series A Common Stock of the Company
at an exercise price of $513, the estimated fair market value at that date, to
certain key employees. On December 7, 1999, the Company granted options to
purchase approximately 300 shares of Series A Common Stock of the Company at
an exercise price of $609, the estimated fair market value at that date.
16,415 of the options to purchase Series A Common Stock vest over a four-year
period, 760 of the options to purchase Series A Common Stock vest over a six-
year period and 845 of the options to purchase Series A Common Stock vested
immediately. All of the options to purchase Series B Common Stock vested
immediately.
Note 11--Commitments and Contingencies
Leases--
The Company has several noncancellable operating leases for buildings and
equipment that expire over the next 1-17 years. Several of these leases are
with related parties as described in Note 12. Minimum future rental
commitments under noncancellable operating leases having initial or remaining
terms in excess of one year as of December 31, 1999, are as follows:
<TABLE>
<S> <C>
2000............................................................ $ 6,865
2001............................................................ 5,164
2002............................................................ 4,304
2003............................................................ 2,631
2004............................................................ 1,959
Thereafter...................................................... 4,589
-------
Total minimum payments........................................ $25,512
=======
</TABLE>
Rental expense was $2,034, $4,863 and $7,229 for 1997, 1998 and 1999,
respectively.
Employment Agreements--
The Company has entered into employment agreements with certain key
employees that provide commitments of future compensation, including
severance, for varying periods, the maximum of which is two years. The
aggregate commitment for future salaries, excluding bonuses, under these
employment agreements at December 31, 1999 is approximately $7.4 million.
Note 12--Related Party Transactions
The Company leases its Melrose Park, Illinois, facility under an operating
lease which expires in September 2002. The Company has the option to renew the
lease for several additional five year terms. The lessor is a partnership that
includes the Chief Executive Officer of the Company. The Company has paid a
deposit to the
F-19
<PAGE>
IMPAC GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(In thousands, except share data)
partnership of approximately $340 which is reflected in the accompanying
balance sheet as part of other assets. Rents under this lease amounted to
approximately $475 and $471 in 1998 and 1999, respectively.
The Company leases manufacturing and warehouse premises in Warrington,
Pennsylvania, from the Chairman of the Board for $336 annually, the amount of
which is adjustable for inflation beginning in 2001. The Company leases
manufacturing and warehouse premises in Louisa, Virginia, from a company
wholly-owned by the same individual for $273 annually, the amount of which is
adjustable for inflation beginning in 2001. Both leases expire in 2005 and may
be extended for an additional five years at the option of the Company.
In connection with the acquisition of AGI, certain members of management
borrowed $1.6 million in promissory notes from the Company. The notes are
payable on demand, accrued interest at 5.85% and are included in the
accompanying balance sheet as part of other receivables.
Note 13--Segment Information
The Company operates in one business segment, providing specialty packaging
for various consumer products markets. During 1998, the Company expanded its
specialty printing and packaging operations geographically to include Europe.
The following table presents sales and other financial information for each
geographic region as of and for the twelve months ended December 31, 1998 and
1999:
<TABLE>
<CAPTION>
1999
------------------------------------------------------------
Operating Identifiable Depreciation & Capital
Sales Income Assets Amortization Expenditures
-------- --------- ------------ -------------- ------------
<S> <C> <C> <C> <C> <C>
Geographic Regions
United States........... $175,037 $18,600 $161,303 $10,556 $16,246
Europe.................. 132,768 14,854 222,528 12,084 10,756
-------- ------- -------- ------- -------
Total geographic
segments............... 307,805 33,454 383,831 22,640 27,002
Elimination of sales.... (51) -- -- -- --
Unallocated corporate
expense................ -- (2,901) -- -- --
Corporate assets........ -- -- 10,231 -- --
-------- ------- -------- ------- -------
Consolidated totals... $307,754 $30,553 $394,062 $22,640 $27,002
======== ======= ======== ======= =======
<CAPTION>
1998
------------------------------------------------------------
Operating Identifiable Depreciation & Capital
Sales Income Assets Amortization Expenditures
-------- --------- ------------ -------------- ------------
<S> <C> <C> <C> <C> <C>
Geographic Regions
United States........... $138,431 $11,284 $138,801 $ 8,064 $10,724
Europe.................. 46,812 6,704 216,782 3,400 5,292
-------- ------- -------- ------- -------
Total geographic
segments............... 185,243 17,988 355,583 11,464 16,016
Elimination of sales.... (945) -- -- -- --
Unallocated corporate
expense................ -- (474) -- -- --
Corporate assets........ -- -- 10,528 -- --
-------- ------- -------- ------- -------
Consolidated totals... $184,298 $17,514 $366,111 $11,464 $16,016
======== ======= ======== ======= =======
</TABLE>
Note 14--Guarantors and Financial Information
The following condensed consolidating financial information is presented for
purposes of complying with the reporting requirements of the Subsidiary
Guarantors. The Subsidiary Guarantors are directly or indirectly
F-20
<PAGE>
IMPAC GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(In thousands, except share data)
wholly-owned subsidiaries of IMPAC and have fully and unconditionally
guaranteed the Senior Subordinated Notes on a joint and several basis. The
Company, at its discretion, controls the receipt of dividends or other
payments from its domestic and foreign subsidiaries subject in the case of
certain foreign subsidiaries to limitations that may be imposed under the laws
of the applicable jurisdictions of organization. These limitations are not
considered to be material to the Company as a whole. Separate financial
statements and other disclosures with respect to the Subsidiary Guarantors are
not presented because the Company believes that such financial statements and
other information would not provide additional information that is material to
investors. The condensed consolidating financial information presents
condensed consolidating financial statements as of and for the years ended
December 31, 1998 and 1999 of:
(a) IMPAC on a parent company only basis ("IMPAC Parent"), carrying its
investments in subsidiaries under the equity method;
(b) the Subsidiary Guarantors, which include IMPAC's domestic subsidiaries AGI
Incorporated, Klearfold, Inc., KF-International, Inc., and KF-Delaware,
Inc. and IMPAC's foreign subsidiaries IMPAC Europe Holdings Limited,
Levelprompt Limited, IMPAC Europe Limited, James Upton Limited, Tinsley
Robor Labels Limited, IMPAC Sales Limited, Sonicon Limited, Tophurst
Properties Limited and Printing Resources Limited, carrying its
investments in subsidiaries under the equity method;
(c) the subsidiaries of IMPAC that have not guaranteed IMPAC's obligation with
respect to the Senior Subordinated Notes, which include IMPAC's foreign
subsidiaries Van de Steeg Packaging B.V., James Upton Holding B.V., James
Upton B.V., James Upton GmbH, Music Print B.V. and Thamesdown Colour
Limited (together, the "Non-guarantor Subsidiaries");
(d) elimination entries necessary to consolidate IMPAC Parent and its
subsidiaries, and
(e) IMPAC on a consolidated basis ("IMPAC Consolidated").
F-21
<PAGE>
IMPAC GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(In thousands, except share data)
CONDENSED CONSOLIDATING BALANCE SHEET
DECEMBER 31, 1999
<TABLE>
<CAPTION>
Non-
IMPAC Subsidiary Guarantor IMPAC
Parent Guarantors Subsidiaries Eliminations Consolidated
-------- ---------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Current assets:
Cash.................. $ 284 $ 1,972 $ 2,279 $ -- $ 4,535
Trade accounts
receivable, net...... -- 47,375 9,554 -- 56,929
Intercompany
receivables.......... 18,062 38,531 6,056 (62,649) --
Inventories........... -- 23,072 2,542 -- 25,614
Other current assets.. 312 9,823 1,459 -- 11,594
-------- -------- ------- --------- --------
Total current
assets............. 18,658 120,773 21,890 (62,649) 98,672
-------- -------- ------- --------- --------
Property, plant and
equipment, net....... -- 89,165 28,279 -- 117,444
Goodwill.............. -- 135,424 28,915 -- 164,339
Intercompany
receivables.......... 167,699 17,022 -- (184,721) --
Investment in
subsidiaries......... 123,343 42,545 -- (165,888) --
Other assets.......... 9,632 3,963 12 -- 13,607
-------- -------- ------- --------- --------
Total assets........ $319,332 $408,892 $79,096 $(413,258) $394,062
======== ======== ======= ========= ========
Current liabilities:
Current maturities of
long-term debt....... $ 5,233 $ 2,991 $ 2,040 $ -- $ 10,264
Trade payables........ -- 22,173 5,832 -- 28,005
Intercompany
payables............. -- 37,717 41,954 (79,671) --
Accrued expenses...... 4,115 25,178 6,637 -- 35,930
-------- -------- ------- --------- --------
Total current
liabilities........ 9,348 88,059 56,463 (79,671) 74,199
-------- -------- ------- --------- --------
Long-term debt.......... 217,280 24,603 3,812 -- 245,695
Other long-term
liabilities............ -- 9,782 478 -- 10,260
Intercompany debt....... -- 167,699 -- (167,699) --
-------- -------- ------- --------- --------
Total liabilities... 226,628 290,143 60,753 (247,370) 330,154
-------- -------- ------- --------- --------
Mandatorily redeemable
preferred stock........ 17,337 -- -- -- 17,337
-------- -------- ------- --------- --------
Total shareholders'
equity................. 75,367 118,749 18,343 (165,888) 46,571
-------- -------- ------- --------- --------
Total liabilities and
shareholders' equity... $319,332 $408,892 $79,096 $(413,258) $394,062
======== ======== ======= ========= ========
</TABLE>
F-22
<PAGE>
IMPAC GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(In thousands, except share data)
CONDENSED CONSOLIDATING STATEMENT OF INCOME
YEAR ENDED DECEMBER 31, 1999
<TABLE>
<CAPTION>
Non-
IMPAC Subsidiary Guarantor IMPAC
Parent Guarantors Subsidiaries Eliminations Consolidated
------- ---------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Net sales............... $ -- $247,453 $61,662 $ (1,361) $307,754
Cost of goods sold...... -- 173,023 44,865 (1,361) 216,527
------- -------- ------- -------- --------
Gross profit............ -- 74,430 16,797 -- 91,227
Selling, general and
administrative
expenses............... 2,901 48,597 9,176 -- 60,674
------- -------- ------- -------- --------
Operating income........ (2,901) 25,833 7,621 -- 30,553
Equity earnings in
subsidiaries........... (7,365) (3,559) -- 10,924 --
Interest expense, net... 2,182 18,330 2,360 -- 22,872
------- -------- ------- -------- --------
Income before income
taxes.................. 2,282 11,062 5,261 (10,924) 7,681
Income taxes (benefit).. (2,015) 3,816 1,583 -- 3,384
------- -------- ------- -------- --------
Net income.............. $ 4,297 $ 7,246 $ 3,678 $(10,924) $ 4,297
======= ======== ======= ======== ========
</TABLE>
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
YEAR ENDED DECEMBER 31, 1999
<TABLE>
<CAPTION>
Non-
IMPAC Subsidiary Guarantor IMPAC
Parent Guarantors Subsidiaries Eliminations Consolidated
-------- ---------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Cash flows from operat-
ing activities:
Net cash provided by
operating activi-
ties................. $ (59) $ 11,733 $11,349 $-- $ 23,023
-------- -------- ------- ---- --------
Cash flows from invest-
ing activities:
Capital expenditures.. -- (17,760) (9,242) (27,002)
Acquisition of subsid-
iaries............... (8,625) -- 1,899 -- (6,726)
-------- -------- ------- ---- --------
Net cash used in invest-
ing activities......... (8,625) (17,760) (7,343) -- (33,728)
-------- -------- ------- ---- --------
Cash flows from financ-
ing activities:
Net change in
borrowings under re-
volving credit line.. 14,538 -- -- -- 14,538
Repurchase of common
stock................ (19,796) -- -- -- (19,796)
Proceeds from issuance
of preferred stock
and stock warrants... 18,841 -- -- -- 18,841
Loans and advances
(to) from related
parties.............. (6,527) (13,065) (6,538) -- --
Other financing activ-
ities................ 5,011 (4,105) (1,685) -- (779)
-------- -------- ------- ---- --------
Net cash provided by fi-
nancing activities..... 12,067 8,960 (8,223) -- 12,804
-------- -------- ------- ---- --------
Effect of exchange
rate differences on
cash................. (3,418) (2,348) 3,963 -- (1,803)
-------- -------- ------- ---- --------
Decrease in cash........ (35) 585 (254) -- 296
Cash, beginning of peri-
od..................... 319 1,387 2,533 -- 4,239
-------- -------- ------- ---- --------
Cash, end of period..... $ 284 $ 1,972 $ 2,279 $-- $ 4,535
======== ======== ======= ==== ========
</TABLE>
F-23
<PAGE>
IMPAC GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(In thousands, except share data)
CONDENSED CONSOLIDATING BALANCE SHEET
DECEMBER 31, 1998
<TABLE>
<CAPTION>
Non-
IMPAC Subsidiary Guarantor IMPAC
Parent Guarantors Subsidiaries Eliminations Consolidated
-------- ---------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Current assets:
Cash.................. $ 319 $ 1,387 $ 2,533 $ -- $ 4,239
Trade accounts
receivable, net...... -- 36,088 8,273 -- 44,361
Intercompany
receivables.......... 11,106 31,283 -- (42,389) --
Inventories........... -- 21,361 2,242 -- 23,603
Other current assets.. 197 8,558 488 -- 9,243
-------- -------- ------- --------- --------
Total current
assets............. 11,622 98,677 13,536 (42,389) 81,466
-------- -------- ------- --------- --------
Property, plant and
equipment, net....... -- 85,533 22,136 -- 107,669
Goodwill.............. -- 142,237 21,386 -- 163,623
Intercompany
receivables.......... 168,128 18,568 -- (186,696) --
Investment in
subsidiaries......... 81,829 55,525 -- (137,354) --
Other assets.......... 10,012 3,361 -- -- 13,373
-------- -------- ------- --------- --------
Total assets........ $271,591 $403,901 $57,058 $(366,439) $366,111
======== ======== ======= ========= ========
Current liabilities:
Current maturities of
long-term debt....... $ 1,010 $ 3,324 $ 1,153 $ -- $ 5,487
Trade payables........ -- 21,974 3,119 -- 25,093
Intercompany
payables............. -- 30,181 30,777 (60,958) --
Accrued expenses...... 2,598 17,767 3,435 -- 23,800
-------- -------- ------- --------- --------
Total current
liabilities........ 3,608 73,246 38,484 (60,958) 54,380
-------- -------- ------- --------- --------
Long-term debt.......... 202,400 29,112 3,560 -- 235,072
Other long-term
liabilities............ -- 11,154 146 -- 11,300
Intercompany debt....... -- 168,128 -- (168,128) --
-------- -------- ------- --------- --------
Total liabilities... 206,008 281,640 42,190 (229,086) 300,752
-------- -------- ------- --------- --------
Total shareholders'
equity................. 65,583 122,261 14,868 (137,353) 65,359
-------- -------- ------- --------- --------
Total liabilities and
shareholders' equity... $271,591 $403,901 $57,058 $(366,439) $366,111
======== ======== ======= ========= ========
</TABLE>
F-24
<PAGE>
IMPAC GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(In thousands, except share data)
CONDENSED CONSOLIDATING STATEMENT OF INCOME
YEAR ENDED DECEMBER 31, 1998
<TABLE>
<CAPTION>
Non-
IMPAC Subsidiary Guarantor IMPAC
Parent Guarantors Subsidiaries Eliminations Consolidated
--------- ---------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Net sales............... $ -- $ 164,864 $ 21,832 $(2,398) $ 184,298
Cost of goods sold...... -- 121,720 15,700 (2,398) 135,022
--------- --------- -------- ------- ---------
Gross profit............ -- 43,144 6,132 -- 49,276
Selling, general and
administrative
expenses............... 473 29,376 1,913 -- 31,762
--------- --------- -------- ------- ---------
Operating income........ (473) 13,768 4,219 -- 17,514
Equity earnings in
subsidiaries........... 2,812 -- -- (2,812) --
Interest expense, net... (1,172) (12,413) (386) -- (13,971)
--------- --------- -------- ------- ---------
Income before income
taxes.................. 1,167 1,355 3,833 (2,812) 3,543
Income (taxes) benefit.. 652 (1,329) (1,047) -- (1,724)
--------- --------- -------- ------- ---------
Income before
extraordinary item..... 1,819 26 2,786 (2,812) 1,819
Extraordinary item...... (552) -- -- -- (552)
--------- --------- -------- ------- ---------
Net income.............. $ 1,267 $ 26 $ 2,786 $(2,812) $ 1,267
========= ========= ======== ======= =========
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
YEAR ENDED DECEMBER 31, 1998
<CAPTION>
Non-
IMPAC Subsidiary Guarantor IMPAC
Parent Guarantors Subsidiaries Eliminations Consolidated
--------- ---------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Cash flows from
operating activities:
Net cash provided by
operating
activities........... $ 2,231 $ 6,685 $ 3,769 $ 512 $ 13,197
--------- --------- -------- ------- ---------
Cash flows from
investing activities:
Capital expenditures.. -- (12,180) (6,412) 2,576 (16,016)
Acquisition of
subsidiaries......... (64,184) (161,047) (8,109) 2,390 (230,950)
--------- --------- -------- ------- ---------
Net cash used in
investing activities... (64,184) (173,227) (14,521) 4,966 (246,966)
--------- --------- -------- ------- ---------
Cash flows from
financing activities:
Proceeds from issuance
of long-term debt.... 203,663 8,570 -- -- 212,233
Repayments of long-
term debt............ (30,103) -- -- -- (30,103)
Proceeds from issuance
of common stock...... 63,175 -- -- -- 63,175
Loans and advances
(to) from related
parties.............. (162,096) 156,738 10,926 (5,568) --
Other financing
activities........... (10,835) (528) 2,529 (940) (9,774)
--------- --------- -------- ------- ---------
Net cash provided by
financing activities... 63,804 164,780 13,455 (6,508) 235,531
--------- --------- -------- ------- ---------
Effect of exchange rate
differences on cash.... (1,532) 2,955 (170) 1,030 2,283
--------- --------- -------- ------- ---------
Decrease in cash........ 319 1,193 2,533 -- 4,045
Cash, beginning of
period................. -- 194 -- -- 194
--------- --------- -------- ------- ---------
Cash, end of period..... $ 319 $ 1,387 $ 2,533 $ -- $ 4,239
========= ========= ======== ======= =========
</TABLE>
F-25
<PAGE>
IMPAC GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(In thousands, except share data)
The following condensed consolidating financial information is that of
Tinsley and its subsidiaries on a stand alone basis for the year ended March
31, 1998 of:
(a) Tinsley Robor Limited on a parent company only basis ("Tinsley
Parent"), carrying its investments in subsidiaries under the equity
method;
(b) the Subsidiary Guarantors of Tinsley Parent, which include James Upton
Limited, Tinsley Robor Labels Limited, Tinsley Robor Sales Limited,
Sonicon Limited, Tophurst Properties Limited and Printing Resources
Limited;
(c) the Non-Guarantor Subsidiaries of Tinsley Parent, which include Van de
Steeg Packaging B.V., James Upton Holding B.V., James Upton B.V. and
James Upton GmbH;
(d) elimination entries necessary to consolidate Tinsley Parent and its
subsidiaries, and
(e) Tinsley Robor Limited on a consolidated basis ("Tinsley
Consolidated").
CONDENSED CONSOLIDATING STATEMENT OF INCOME
YEAR ENDED MARCH 31, 1998
<TABLE>
<CAPTION>
Non-
Tinsley Subsidiary Guarantor Tinsley
Parent Guarantor Subsidiaries Eliminations Consolidated
------- ---------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Net sales............... $ -- $75,842 $34,872 $(3,644) $107,070
Cost of goods sold...... -- 52,679 25,133 (3,644) 74,168
------ ------- ------- ------- --------
Gross profit............ -- 23,163 9,739 -- 32,902
Selling, general and
administrative
expenses............... (715) 15,920 4,957 -- 20,162
------ ------- ------- ------- --------
Operating income........ 715 7,243 4,782 -- 12,740
Interest (expense)
income, net............ 1,073 (1,150) (1,649) -- (1,726)
Equity earnings in
subsidiaries........... 5,897 -- -- (5,897) --
------ ------- ------- ------- --------
Income before income
taxes.................. 7,685 6,093 3,133 (5,897) 11,014
Income taxes............ (385) (1,780) (1,549) -- (3,714)
------ ------- ------- ------- --------
Net income.............. $7,300 $ 4,313 $ 1,584 $(5,897) $ 7,300
====== ======= ======= ======= ========
</TABLE>
F-26
<PAGE>
IMPAC GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(In thousands, except share data)
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
YEAR ENDED MARCH 31, 1998
<TABLE>
<CAPTION>
Non-
Tinsley Subsidiary Guarantor Tinsley
Parent Guarantor Subsidiaries Eliminations Consolidated
-------- ---------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Cash flows from
operating activities:
Net cash provided by
operating activities... $ 1,089 $ 3,717 $ 5,949 $ 1,145 $ 11,900
-------- ------- -------- ------- --------
Cash flows from
investing activities:
Capital expenditures.. (138) (3,885) (5,928) 4,443 (5,508)
Acquisition of
subsidiaries......... (546) -- (21,113) (507) (22,166)
-------- ------- -------- ------- --------
Net cash used in
investing activities... (684) (3,885) (27,041) 3,936 (27,674)
-------- ------- -------- ------- --------
Cash flows from
financing activities:
Net change in long-
term debt............ (79) 992 9,413 (2,542) 7,784
Proceeds from issuance
of common stock...... 170 37 2,072 (2,259) 20
Loans to related
parties.............. (9,886) (746) 10,924 (292) --
Dividends paid........ (1,834) -- -- -- (1,834)
-------- ------- -------- ------- --------
Net cash provided by
financing activities... (11,629) 283 22,409 (5,093) 5,970
-------- ------- -------- ------- --------
Effect of exchange
rate differences on
cash................. 54 11 38 12 115
-------- ------- -------- ------- --------
(Decrease) increase in
cash................... (11,170) 126 1,355 -- (9,689)
Cash, beginning of
period................. 11,199 305 249 -- 11,753
-------- ------- -------- ------- --------
Cash, end of period..... $ 29 $ 431 $ 1,604 $ -- $ 2,064
======== ======= ======== ======= ========
</TABLE>
Note 15--Subsequent Events
On January 10, 2000, the Company acquired all of the common stock of
Atlantic Packaging Corporation ("Atlantic") for approximately $7.5 million
plus acquisition costs. The acquisition was funded through $3.3 million of
additional subordinated indebtedness with a related party, $3.2 million of
additional revolver borrowings under the Facility and the issuance of $1.0
million of Series A Common Stock to the former Atlantic shareholders.
Atlantic, based in Norwich, Connecticut, provides high-end decorative
corrugated packaging for various consumer products.
On March 10, 2000, the Company entered into a definitive purchase agreement
to acquire certain assets and liabilities of Commercial Lithographing Company
("Commercial Litho") for $10.5 million plus acquisition costs. The Company
expects to complete this acquisition in the second quarter of 2000. Commercial
Litho, based in Louisville, Kentucky, provides high-end commercial printing
services to various companies in the entertainment and other consumer products
markets.
F-27
<PAGE>
SCHEDULE II
Valuation and Qualifying Accounts and Reserves for the Years Ended December
31, 1997, 1998 and 1999 (in thousands)
<TABLE>
<CAPTION>
Balances
Balance at Assumed Charged Credit Foreign Balance
Beginning Through to (Write-offs)/ Memos Currency at End
of Year Acquisitions Expense Recoveries Issued Fluctuations of Year
---------- ------------ ------- ------------- ------ ------------ -------
<S> <C> <C> <C> <C> <C> <C> <C>
Allowance for Doubtful
Accounts and Credit
Memos:
1997.................. $ 266 $-- $ 451 $ 43 $(200) $-- $ 560
1998.................. 560 773 999 (171) (634) (10) 1,517
1999.................. 1,517 -- 1,529 (338) (568) (15) 2,125
</TABLE>
F-28
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed
on its behalf by the undersigned thereunto duly authorized as of March 30,
2000.
IMPAC Group, Inc.
/s/ Richard H. Block
By __________________________________
Richard H. Block,
Chief Executive Officer
S-1
<PAGE>
POWER OF ATTORNEY
Each person whose signature appears below hereby appoints Richard Block and
David C. Underwood, and each of them severally, acting alone and without the
other, his true and lawful attorney-in-fact with the authority to execute in
the name of each such person, including exhibits thereto and other documents
therewith, any and all amendments to this Annual Report on Form 10-K necessary
or advisable to enable the Report to comply with the Securities Exchange Act
of 1934, as amended (the "Exchange Act"), and any rules, regulations and
requirements of the Securities and Exchange Commission in respect thereof
which amendments may make such other changes in the Report as the aforesaid
attorney-in-fact executing the same deems appropriate.
Pursuant to the requirements of the Exchange Act, this Report has been
signed below by the following persons on behalf of the Registrant and in the
capacities and on the dates indicated:
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ Richard H. Block Chief Executive Officer March 30, 2000
______________________________________ and Director of IMPAC
Richard H. Block Group, Inc.
/s/ H. Scott Herrin Director of IMPAC Group, March 30, 2000
______________________________________ Inc.
H. Scott Herrin
/s/ David C. Underwood Chief Financial Officer of March 30, 2000
______________________________________ IMPAC Group, Inc.
David C. Underwood (principal financial and
accounting officer)
/s/ Michel Reichert Director of IMPAC Group, March 30, 2000
______________________________________ Inc.
Michel Reichert
/s/ Michael F. Gilligan Director of IMPAC Group, March 30, 2000
______________________________________ Inc.
Michael F. Gilligan
/s/ David H. Horowitz Director of IMPAC Group, March 30, 2000
______________________________________ Inc.
David H. Horowitz
/s/ Zenas Block Director of IMPAC Group, March 30, 2000
______________________________________ Inc.
Zenas Block
/s/ M. Shaun Lawson Director of IMPAC Group, March 30, 2000
______________________________________ Inc.
M. Shaun Lawson
/s/ Lee Newbon Director of IMPAC Group, March 30, 2000
______________________________________ Inc.
Lee Newbon
/s/ Melvin B. Herrin Director of IMPAC Group, March 30, 2000
______________________________________ Inc.
Melvin B. Herrin
</TABLE>
S-2
<PAGE>
EXHIBIT 3.6
IMPAC GROUP, INC.
CERTIFICATE OF AMENDMENT
TO
FOURTH AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
IMPAC GROUP, INC., a corporation organized and existing under the General
Corporation Law of the State of Delaware, as amended (the "Company"), does
-------
hereby certify, pursuant to Section 242 of the General Corporation Law of the
State of Delaware, that:
FIRST: Pursuant to Sections 141(f) and 228 of the General Corporation Law
-----
of the State of Delaware and Sections 3.15 and 2.11 of the Company's By-Laws, by
written consent of the Board of Directors of the Company dated October 29, 1999,
and by written consent of the stockholders of the Company dated October 29,
1999, the Amendment to the Company's Fourth Amended and Restated Certificate of
Incorporation changing each of Section 5.2(f)(D) of Article Five, Section 5.5(b)
of Article Five, Section 5.7(e) of Article Five and Article Ten of the Fourth
Amended and Restated Certificate of Incorporation (the "Certificate of
--------------
Incorporation") and referred to in the following resolutions were duly adopted:
- -------------
RESOLVED: That it is deemed advisable and in the best interest of the Company
to amend Section 5.2(f)(D) of Article Five of its Certificate of
Incorporation by deleting such Section 5.2(f)(D) of Article Five in
its entirety and replacing in its stead the following:
"(D) at the time of such Junior Security Repurchase, the
Consolidated EBITDA of the Company for the four most recent full fiscal
quarters for which internal financial information of the Company is
available, meets or exceeds the levels specified below:
<PAGE>
-2-
Consolidated
Repurchase Period EBITDA
----------------- ------------
Prior to March 31, 2000 $50.0 million
On or after March 31, 2000 $55.0 million
but prior to March 31, 2001
On or after March 31, 2001 $60.0 million"
FURTHER
RESOLVED: That it is deemed advisable and in the best interest of the
- --------
Company to amend Section 5.5(b) of Article Five of its
Certificate of Incorporation by deleting such Section 5.5(b) of
Article Five in its entirety and replacing in its stead the
following:
"(b) Except as stated above under Section 5.1, the Company shall
not, without the affirmative vote or consent of Holders of shares of
Series A Preferred Stock representing 66 2/3% of the aggregate
Liquidation Preference then outstanding, voting or consenting, as the
case may be, as one class:
(i) amend this Fourth Amended and Restated Certificate of
Incorporation so as to adversely affect the specified rights,
preferences, privileges or voting rights of Holders of shares of
the Series A Preferred Stock, or
(ii) increase the number of authorized shares of the
Company designated as Series A Preferred Stock except as may be
required to issue additional Dividend Shares or to satisfy the
Company's obligations to issue additional shares of Series A
Preferred Stock to satisfy its obligations pursuant to Section
7.03(g) of the Securities Purchase Agreement, or
(iii) increase or decrease the par value of the shares of
the Series A Preferred Stock."
RESOLVED: That it is deemed advisable and in the best interest of the
Company to amend Section 5.7(e) of Article Five of its
Certificate of Incorporation by deleting such Section 5.7(e) of
Article Five in its entirety and replacing in its stead the
following:
<PAGE>
-3-
"(e) Line of Business
So long as any Series A Preferred Stock is outstanding, the
Company shall not, and shall not permit any of its Subsidiaries
to, enter a line of business (whether by stock or asset purchase
or otherwise) which is unrelated to the design, manufacturing and
marketing of high-end, value-added specialty packaging and labels
for consumer products and commercial printing services (the
"Current Business"), as determined in good faith by the Company's
----------------
Board of Directors. This paragraph (e) shall not prohibit the
Company or any Subsidiary from acquiring any business that
operates a line of business unrelated to the Current Business if
(A) on the date of such acquisition, the primary business of such
acquired business (i) is related to the Current Business and (ii)
was responsible for more than 50.0% of the gross revenues of such
business for the four most recent full fiscal quarters for which
financial information is available (the "Measuring Period") and
--------- ------
(B) within 180 days of such acquisition, the primary business of
such acquired business is (i) related to the Current Business and
(ii) after giving effect to divestitures during such 180-day
period of business segments not related to the Current Business,
was responsible for no less than 66 2/3% of the gross revenues
generated by the acquired business during the Measuring Period."
RESOLVED: That it is deemed advisable and in the best interest of the
Company to amend Article Ten, Certain Definitions, of its
Certificate of Incorporation by inserting the following
definitions in the appropriate alphabetical location in such
Article Ten:
""Heritage Indebtedness" means (i) all Indebtedness of the
Company Incurred by the Company under any notes issued by the
Company pursuant to a Note Purchase Agreement between the Company
and Heritage Fund II Investment Corporation or its Affiliates;
provided that the aggregate principal amount outstanding of all
such Indebtedness shall not exceed $4,900,000 at any time and the
terms of such Indebtedness must comply with the provisions of
Section 7.20 of the Current Credit Agreement, as amended by the
Sixth Amendment thereto dated as of
<PAGE>
-4-
November 2, 1999, and (ii) any Permitted Refinancing Indebtedness
Incurred by the Company, the net proceeds of which are used to
refund, refinance or replace any Indebtedness Incurred by the
Company pursuant to clause (i) of this definition."
""U.K. Acquisition Indebtedness" means (i) all Acquired Debt in
the form of Capital Lease Obligations Incurred by any of the
Company's Subsidiaries in connection with its acquisition of all
of the issued and outstanding share capital of Thamesdown Colour
Limited pursuant to the Sale and Purchase Agreement, dated as of
November 2, 1999, by and among the Company and the other parties
thereto or in connection with its acquisition of all of the
issued and outstanding share capital of the Leicester Fancy Box
Company Limited; provided that the aggregate principal amount
--------
outstanding of all such Acquired Debt shall not exceed $4,600,000
at any time, and (ii) any Permitted Refinancing Indebtedness
Incurred by the Company, the net proceeds of which are used to
refund, refinance or replace any Indebtedness Incurred by the
Company pursuant to clause (i) of this definition."
RESOLVED: That it is deemed advisable and in the best interest of the
Company to amend Article Ten, Certain Definitions, of its
Certificate of Incorporation by deleting the definition of
"Permitted Indebtedness" therein in its entirety and replacing in
its stead the following:
""Permitted Indebtedness" means:
(i) the Incurrence by the Company of Indebtedness and
letters of credit (with letters of credit being deemed to have a
principal amount equal to the stated amount thereof) and other
obligations under Credit Facilities in an aggregate principal
amount that does not exceed at any one time $40.0 million less
(1) the aggregate amount of all Net Proceeds of Asset Sales
applied to repay Indebtedness under a Credit Facility pursuant to
Section 4.10 of the Indenture (other than temporary paydowns
pending final application of such Net Proceeds) and (2) any
amount Incurred pursuant to clause (iii) of this definition;
<PAGE>
-5-
(ii) the Existing Indebtedness and letters of credit
(including reimbursement obligations with respect thereto, but
excluding letters of credit for which the reimbursement
obligation would constitute a "Revolving Loan" or "Swing Line
Loan" other than "Specified L/C Loans" not to exceed $13 million
in principal amount at any time outstanding (each as defined
under the Current Credit Agreement, as it may be amended,
supplemented or restated from time to time)) supporting such
Existing Indebtedness whether such letters of credit are Incurred
under the Current Credit Agreement or otherwise;
(iii) the Incurrence by the Company or any of the Guarantors
or Non-Guarantor Foreign Subsidiaries of Indebtedness represented
by mortgage financings, purchase money obligations or Capital
Lease Obligations, Incurred for the purpose of financing all or
any part of the purchase price or cost of construction or
improvement of property, plant or equipment used in the business
of the Company or such Subsidiary, in an aggregate principal
amount, not to exceed $5.0 million at any time outstanding;
(iv) the Incurrence by the Company or any of the Guarantors
of Permitted Refinancing Indebtedness in exchange for, or the net
proceeds of which are used to refund, refinance or replace (A)
any Indebtedness or Disqualified Stock permitted under clauses
(ii) or (ix) of this definition or (B) any Ratio Debt;
(v) the Incurrence by the Company or any of its Restricted
Subsidiaries of intercompany Indebtedness between or among the
Company and any Restricted Subsidiary; provided, however, that
-------- -------
(i) any subsequent issuance or transfer of Equity Interests that
results in any such Indebtedness being held by a Person other
than the Company or a Subsidiary thereof and (ii) any sale or
transfer of any such Indebtedness to a Person that is not either
the Company or a Restricted Subsidiary thereof shall be deemed,
in each case, to constitute an Incurrence of such Indebtedness by
the Company or such Restricted Subsidiary, as the case may be,
that was not permitted by this clause (v);
<PAGE>
-6-
(vi) the Incurrence by the Company or any of the
Guarantors of Hedging Obligations that are Incurred for the
purpose of fixing or hedging interest rate risk with respect to
any floating rate Indebtedness that is permitted by the terms of
Section 5.7(a) hereof to be outstanding;
(vii) the Guarantee by the Company or any of its
Subsidiaries or any of the Guarantors of the Indebtedness of the
Company or another Subsidiary that was permitted to be Incurred
by another provision of this Fourth Amended and Restated
Certificate;
(viii) (A) the Incurrence by the Company's Unrestricted
Subsidiaries of Non-Recourse Debt; provided, however, that if any
-------- -------
such Indebtedness ceases to be Non-Recourse Debt of an
Unrestricted Subsidiary, such event shall be deemed to constitute
an Incurrence of Indebtedness by a Restricted Subsidiary of the
Company that was not permitted by this clause (viii), and (B) the
issuance of Preferred Stock by Unrestricted Subsidiaries; and
(ix) the Incurrence by Bidco of Indebtedness under the
Loan Notes and the Incurrence by the Company of Indebtedness with
respect to its reimbursement obligation to the Issuer of any Loan
Notes Guarantees.
Notwithstanding the foregoing, in the event that the Company or any of
its Subsidiaries Incurs any Ratio Debt (other than Heritage Indebtedness
and U.K. Acquisition Indebtedness):
(A) the Company and its Subsidiaries shall thereafter be
prohibited from Incurring Permitted Indebtedness pursuant to clause
(i) of this definition, and
(B) the Company and its Subsidiaries may thereafter Incur as
"Permitted Indebtedness" (I) up to $15.0 million of Indebtedness and
letters of credit (with letters of credit being deemed to have a
principal amount equal to the stated amount thereof) and other
obligations under one or more credit facilities, provided that (a) the
Board of Directors of the Company affirmatively votes to characterize
such Indebtedness as seasonal working capital and (b) the terms of
such letters of credit and/or credit facilities require that there
<PAGE>
-7-
be no Indebtedness outstanding under such facility for a period of
thirty (30) consecutive days in every twelve (12) month period, and
(II) Indebtedness in an aggregate principal amount (or accreted value,
as applicable) at any time outstanding not to exceed $5.0 million
(provided that no Indebtedness may be Incurred pursuant to this
provision prior to the date which is fifteen (15) Business Days
following the Incurrence by the Company of such Ratio Debt).
For purposes of determining compliance with this definition, in the
event that an item of Indebtedness meets the criteria of more than one of
the categories of Permitted Indebtedness described in clauses (i) through
(ix) above or is entitled to be Incurred pursuant to Section 5.7(a), the
Company shall, in its sole discretion, classify such item of Indebtedness
in any manner that complies with Section 5.7(a)."
RESOLVED: That the Company be and it hereby is authorized and directed to
amend its Certificate of Incorporation as set forth in the
foregoing resolutions, and that the appropriate officers of the
Company be and they hereby are authorized and directed to execute
and deliver any and all documents or certificates deemed
necessary to effectuate the proposed amendment outlined above,
including a Certificate of Amendment to the Certificate of
Incorporation for filing with the Delaware Secretary of State.
SECOND: Accordingly, Section 5.2(f)(D) of Article Five, Section 5.5(b) of
------
Article Five, Section 5.7(e) of Article Five and Article Ten, Certain
Definitions, of the Fourth Amended and Restated Certificate of Incorporation of
the Company are hereby amended to read as set forth herein.
<PAGE>
-8-
IN WITNESS WHEREOF, IMPAC Group, Inc., has caused this Certificate of
Amendment to its Fourth Amended and Restated Certificate of Incorporation to be
executed by David C. Underwood, its Chief Financial Officer, this 2nd day of
November, 1999.
IMPAC GROUP, INC.
By: /s/ David C. Underwood
--------------------------
David C. Underwood
Chief Financial Officer
<PAGE>
EXHIBIT 3.7
IMPAC GROUP, INC.
CERTIFICATE OF AMENDMENT
TO
FOURTH AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
IMPAC GROUP, INC., a corporation organized and existing under the General
Corporation Law of the State of Delaware, as amended (the "Company"), does
-------
hereby certify, pursuant to Section 242 of the General Corporation Law of the
State of Delaware, that:
FIRST: Pursuant to Sections 141(f) and 228 of the General Corporation Law
-----
of the State of Delaware and Sections 3.15 and 2.11 of the Company's By-Laws, by
written consent of the Board of Directors of the Company dated as of January 7,
2000, and by written consent of the stockholders of the Company dated January
10, 2000, the Amendment to the Company's Fourth Amended and Restated Certificate
of Incorporation changing Article Ten of the Fourth Amended and Restated
Certificate of Incorporation (the "Certificate of Incorporation") and referred
----------------------------
to in the following resolutions were duly adopted:
RESOLVED: That it is deemed advisable and in the best interest of the Company
to amend Article Ten, Certain Definitions, of its Certificate of
Incorporation by deleting the definition of "Heritage Indebtedness"
in its entirety and inserting the following definition in the
appropriate alphabetical location in such Article Ten:
""Heritage Indebtedness" means (i) all Indebtedness of the Company
Incurred by the Company under any notes issued by the Company
pursuant to certain Note Purchase Agreements between the Company
and Heritage Fund II Investment Corporation or its Affiliates;
provided that the aggregate principal amount outstanding of all
such Indebtedness shall not exceed $8,150,000 at any time and the
terms of such Indebtedness must comply with the provisions of
either Section 7.20 or Section 8.05(k)(II) of the Current Credit
Agreement, as amended by the Sixth Amendment thereto dated as of
November 2, 1999, and (ii) any Permitted Refinancing Indebtedness
Incurred by the Company, the net proceeds of which are used to
refund,
<PAGE>
-2-
refinance or replace any Indebtedness Incurred by the Company
pursuant to clause (i) of this definition."
RESOLVED: That the Company be and it hereby is authorized and directed to
amend its Certificate of Incorporation as set forth in the
foregoing resolutions, and that the appropriate officers of the
Company be and they hereby are authorized and directed to execute
and deliver any and all documents or certificates deemed
necessary to effectuate the proposed amendment outlined above,
including a Certificate of Amendment to the Certificate of
Incorporation for filing with the Delaware Secretary of State.
SECOND: Accordingly, Article Ten, Certain Definitions, of the Fourth
------
Amended and Restated Certificate of Incorporation of the Company is hereby
amended to read as set forth herein.
<PAGE>
-3-
IN WITNESS WHEREOF, IMPAC Group, Inc., has caused this Certificate of
Amendment to its Fourth Amended and Restated Certificate of Incorporation to be
executed by David C. Underwood, its Chief Financial Officer, this 10th day of
January, 2000.
IMPAC GROUP, INC.
By: /s/ David C. Underwood
------------------------
David C. Underwood
Chief Financial Officer
<PAGE>
EXHIBIT 10.112
NOTE PURCHASE AGREEMENT
-----------------------
This NOTE PURCHASE AGREEMENT (this "Agreement") is dated as of November 17,
---------
1999, by and between (i) IMPAC Group, Inc., a Delaware corporation (the
"Company"), and (ii) Heritage Fund II Investment Corporation, a Delaware
-------
corporation (the "Investor").
--------
WHEREAS, the Company wishes to sell and the Investor wishes to buy certain
securities of the Company on the terms and subject to the restrictions contained
in this Agreement.
NOW, THEREFORE, in consideration of the mutual promises and agreements set
forth herein, the Company and the Investor agree as follows:
1. DEFINITIONS.
-----------
For all purposes of this Agreement, the following terms shall have the
meanings set forth herein or elsewhere in the provisions hereof:
"Affiliate" of any specified Person shall mean any other Person that
---------
directly, or indirectly through one or more intermediaries, controls, or is
controlled by, or is under common control with, the Person specified.
"Agent" shall have the meaning given such term in the Loan Agreement.
-----
"Certificate of Incorporation" shall mean the Company's Fourth Amended and
----------------------------
Restated Certificate of Incorporation.
"Closing" shall have the meaning specified in Section 2.2 hereof.
-------
"Closing Date" shall have the meaning specified in Section 2.2 hereof.
------------
"Commission" shall mean the Securities and Exchange Commission.
----------
"Company" shall have the meaning specified in the introductory paragraph
-------
hereof.
"Default" shall mean an event or condition which with the passage of time
-------
or giving of notice, or both, would become an Event of Default.
"Event of Default" shall have the meaning specified in Section 7.1 hereof.
----------------
"Heritage Rate" shall mean the rate of interest payable from time to time
-------------
by the Investor on its line of credit with BankBoston, N.A. or any successor, or
any other rate of interest agreed to by the Company and the holder of the Note
if the Note is
<PAGE>
-2-
transferred. At the request of the Company the Investor will provide
documentation in reasonable detail evidencing the Heritage Rate.
"Indebtedness" shall have the meaning given such term in the Indenture.
------------
"Indenture" shall mean the Indenture dated as of March 12, 1998 among the
---------
Company, certain of the Company's Subsidiaries and State Street Bank and Trust
Company, as trustee thereunder, as supplemented to by the First Supplemental
Indenture, dated as of July 21, 1998 and as further supplemented by the Second
Supplemental Indenture dated as of January 31, 1999.
"Investor" shall have the meaning specified in the introductory paragraph
--------
hereof.
"Loan Agreement" shall mean the Amended and Restated Multi-currency Credit
--------------
Agreement, dated as of March 12, 1998, and amended and restated as of July 7,
1998, as further amended by that certain First Amendment dated as of September
11, 1998, as further amended by that certain Second Amendment dated as of
November 13, 1998, as further amended by that certain Third Amendment dated as
of November 16, 1998, as further amended by that certain Fourth Amendment dated
as of December 10, 1998, as further amended by that certain Fifth Amendment
dated as of January 11, 1999, and as further amended by that certain Sixth
Amendment dated as of November 2, 1999, among the Company, certain of its
Subsidiaries and Bank of America National Trust and Savings Association and the
other lenders party thereto, as such Loan Agreement may be amended, restated,
modified, supplemented, extended, renewed or refinanced and in effect from time
to time.
"Maximum Rate" shall have the meaning specified in Section 3.4(b).
------------
"Note" shall mean the Note of the Company in the form of Exhibit A hereto
---- ---------
issued to the Investor pursuant to Section 2.1 hereof and any other Notes
transferred to any other holders pursuant to Section 8 hereof.
"Obligations" shall have the meaning given to such term in the Indenture.
-----------
"Person" shall mean an individual, partnership, corporation, limited
------
liability company, association, trust, joint venture, unincorporated
organization, or any government, governmental department or agency or political
subdivision thereof.
"Preferred Stock" shall mean the Company's Series A Redeemable Preferred
---------------
Stock, $0.001 par value per share.
"Purchase Price" shall have the meaning set forth in Section 2.1 hereof.
--------------
"Representative" shall have the meaning given to such term in the
--------------
Indenture.
<PAGE>
-3-
"Securities Act" shall mean the Securities Act of 1933, as amended, or any
--------------
successor federal statute, and the rules and regulations of the Commission
thereunder, all as the same shall be in effect at the time.
"Senior Debt" shall mean any amounts outstanding or that could be drawn by
-----------
the Company from time to time under the Loan Agreement and any other debt that
constitutes Senior Debt under the Indenture.
"Senior Subordinated Notes" shall mean the Company's 10-1/8% Senior
-------------------------
Subordinated Notes due 2008 issued pursuant to the Indenture.
"Subsidiary" shall mean, with respect to the Company, any corporation a
----------
majority (by number of votes) of the outstanding shares of any class or classes
of which shall at the time be owned by the Company or by a Subsidiary of the
Company, if the holders of the shares of such class or classes (a) are
ordinarily, in the absence of contingencies, entitled to vote for the election
of a majority of the directors (or persons performing similar functions) of the
issuer thereof, even though the right so to vote has been suspended by the
happening of such a contingency, or (b) are at the time entitled, as such
holders, to vote for the election of a majority of the directors (or persons
performing similar functions) of the issuer thereof, whether or not the right so
to vote exists by reason of the happening of a contingency.
"Transfer Notice" shall have the meaning specified in Section 8.2 hereof.
---------------
2. SALE AND PURCHASE OF PURCHASED SECURITIES.
-----------------------------------------
2.1. Sale and Purchase of Note. The Company agrees to issue and sell to
-------------------------
the Investor, and, subject to all of the terms and conditions hereof and in
reliance on the representations and warranties set forth or referred to herein,
the Investor agrees to purchase a Note of the Company in the form of Exhibit A
---------
hereto in the principal amount of $4,900,000 (the "Purchase Price").
--------------
2.2. Closing. The closing of the purchase and sale of a Note pursuant to
-------
this Section 2 (the "Closing") will take place at the offices of the Company on
-------
November 17, 1999 or such date as the parties hereto may agree upon (the
"Closing Date"). At the Closing, the Company will deliver to the Investor the
------------
Note against payment by the Investor of the Purchase Price by wire transfer or
by check. The Note purchased by the Investor will be issued to the Investor on
or before the Closing Date and registered in the Investor's name in the
Company's records.
2.3. Use of Proceeds. The Company agrees that it will use the proceeds
---------------
from the sale of the Note hereunder solely for working capital and general
corporate purposes, and in no event for the prepayment of the Senior
Subordinated Notes or to redeem any of the Preferred Stock.
<PAGE>
-4-
3. PRINCIPAL AND INTEREST PAYMENTS ON NOTES.
----------------------------------------
3.1. Mandatory Principal Repayments. The Company agrees to repay the
------------------------------
principal amount of the Note, together with all accrued and unpaid interest
thereon, in one installment on March 31, 2006.
3.2. Prepayments. Subject to compliance with the Loan Agreement, the
-----------
Company shall be permitted to prepay all or any portion of the Note, together
with all accrued and unpaid interest thereon, at any time without premium or
penalty.
3.3. No Reborrowing. No amount repaid pursuant to Section 3.1 may be
--------------
reborrowed under the Notes.
3.4. Interest Payments.
-----------------
(a) The unpaid principal amount of the Note outstanding from time to time
(including during the continuance of a Default or Event of Default of the type
described in Section 7.1(a) or 7.1(b) hereof) shall bear interest at a rate per
annum equal to the Heritage Rate; provided, that in no event shall such interest
-------- ----
rate be greater than 12% per annum (including all capitalized fees and
expenses). Interest on the Note shall be calculated on the basis of the actual
number of days elapsed and a 360 day year, shall accrue and be compounded semi-
annually in arrears on June 30 and December 31, commencing on June 30, 2000,
until paid pursuant to Section 3.1 hereof. All interest will be paid semi-
annually in arrears on June 30 and December 31, commencing on June 30, 2000.
(b) It is not intended by the holder of the Note, and nothing contained
in this Agreement or the Note shall be deemed, to establish or require the
payment of a rate of interest in excess of the maximum rate permitted by
applicable federal, state or other law (the "Maximum Rate") and, to prevent such
------------
an occurrence, any agreement which may now or hereafter be in effect between the
Company and the holder of the Note regarding the payment of fees or interest to
such holder is hereby limited by the provisions of this Section 3.4(b). If, in
any month, the effective interest rate applicable to the principal outstanding
under the Note, absent the Maximum Rate limitation contained herein, would have
exceeded the Maximum Rate, then the effective interest rate applicable to the
Note for that month shall be the Maximum Rate, and, if in any subsequent month,
the effective interest rate would otherwise be less than the Maximum Rate, then
the effective interest rate applicable to the Note for such month shall be
increased to the Maximum Rate until such time as the amount of interest paid
hereunder equals the amount of interest which would have been paid in respect of
the Note if the same had not been limited by the Maximum Rate. In the event
that, upon payment in full of the principal outstanding under the Note, the
total amount of interest paid or accrued in respect of the Note under the terms
of this Agreement is less than the total
<PAGE>
-5-
amount of interest which would have been paid or accrued in respect of the Note
had the interest not been limited hereby to the Maximum Rate, then the Company
shall, to the extent permitted by such applicable federal, state or other law,
pay to the holder of the Note an amount equal to the excess, if any, of (i) the
lesser of (A) the amount of interest which would have been charged in respect of
the Note if the Maximum Rate had, at all times, been in effect with respect to
the Note and (B) the amount of interest which would have accrued in respect of
the Note had the effective interest rate applicable with respect to the Note at
all times not been limited hereunder by the Maximum Rate over (ii) the amount of
interest actually paid or accrued in respect of the Note held by such holder
under this Agreement. In the event that the holder of the Note receive, collect
or apply as interest any sum in excess of the Maximum Rate, such excess or part
thereof remaining, shall be paid to the Company.
3.5. Senior Subordinated Notes. All Indebtedness of the Company evidenced
-------------------------
by the Note shall be pari passu in right of payment to the Indebtedness of the
Company evidenced by the Senior Subordinated Notes.
4. SUBORDINATION.
-------------
4.1. Agreement to Subordinate. The Company agrees, and any holder of the
------------------------
Note by accepting the Note agrees, that the Indebtedness, interest and other
Obligations of any kind evidenced by the Note and this Agreement is subordinated
in right of payment, to the extent and in the manner provided in this Section 4,
to the prior payment in full in cash of all Senior Debt (whether outstanding on
the date hereof or hereafter created, incurred, assumed or guaranteed), and that
the subordination is for the benefit of the holders of Senior Debt.
4.2. Certain Definitions.
-------------------
"Designated Senior Debt" means (i) any Indebtedness outstanding under the
New Credit Facility (as defined in the Indenture) and (ii) any other Senior Debt
permitted under the Indenture the principal amount of which is $10.0 million or
more and that has been designated by the Company as "Designated Senior Debt";
provided, however, that so long as the New Credit Facility remains in effect,
lenders holding a majority in aggregate amount of the loan commitments
thereunder shall have consented, in writing, to such designation of additional
Indebtedness as Designated Senior Debt.
"Permitted Junior Securities" means Equity Interests (as defined in the
Indenture) in the Company or debt securities that are unsecured and subordinated
to all Senior Debt (and any debt securities issued in exchange for Senior Debt)
to at least the same extent as, or to a greater extent than, the Note is
subordinated to Senior Debt pursuant to this Agreement (without limiting the
foregoing, such Permitted Junior Securities shall have no required principal
payments or equity redemption requirements until after the final maturity of all
Senior Debt).
<PAGE>
-6-
4.3. Liquidation; Dissolution; Bankruptcy. Upon any distribution to
------------------------------------
creditors of the Company whether in cash, properties, securities or otherwise,
in a liquidation or dissolution of the Company or in a bankruptcy,
reorganization, insolvency, receivership or similar proceeding relating to the
Company, or its property, an assignment for the benefit of creditors or any
marshaling of the Company's assets and liabilities, the holders of Senior Debt
shall be entitled to receive payment in full in cash of all Obligations due in
respect of such Senior Debt (including interest after the commencement of any
such proceeding at the rate specified in the applicable Senior Debt whether or
not allowed as a claim in any such proceeding) before the holder of the Note
will be entitled to receive any payment with respect to the Note, and until all
Obligations with respect to Senior Debt are paid in full in cash, any
distribution to which the holder of the Note would be entitled shall be made to
the holders of Senior Debt (except that the holder of the Note may receive and
retain Permitted Junior Securities).
To the extent any payment of Senior Debt (whether by or on behalf of the
Company or any Subsidiary, as proceeds of security or enforcement of any right
of setoff or otherwise) is declared to be fraudulent or preferential, set aside
or required to be paid to any receiver, trustee in bankruptcy, liquidating
trustee, agent or other similar Person under any bankruptcy, insolvency,
receivership, fraudulent conveyance or similar law, then if such payment is
recovered by, or paid over to, such receiver, trustee in bankruptcy, liquidating
trustee, agent or other similar Person, the Senior Debt or part thereof
originally intended to be satisfied shall be deemed to be reinstated and
outstanding as if such payment had not occurred. To the extent the obligation to
repay any Senior Debt is declared to be fraudulent, invalid, or otherwise set
aside under any bankruptcy, insolvency, receivership, fraudulent conveyance or
similar law, then the obligations so declared fraudulent, invalid or otherwise
set aside (and all other amounts that would come due with respect thereto had
such obligation not been affected) shall be deemed to be reinstated and
outstanding as Senior Debt for all purposes hereof as if such declaration,
invalidity or setting aside had not occurred.
4.4. Default on Designated Senior Debt. The Company also may not make any
---------------------------------
payment upon or in respect of the Note (except in Permitted Junior Securities)
if (i) a default in the payment of the principal of, premium, if any, or
interest on Senior Debt occurs and is continuing or (ii) any other default
occurs and is continuing with respect to Designated Senior Debt that currently,
or with the passage of time or giving of notice, permits holders of the
Designated Senior Debt as to which such default relates to accelerate its
maturity and, in the case of any such default described in this clause (ii), the
holder of the Note receives a notice of such default of the type referred to in
this clause (ii) (a "Payment Blockage Notice") from the Company or the holders
of any Designated Senior Debt. Payments on the Note may and shall be resumed (a)
in the case of a payment default, upon the date on which such default is cured
or waived in
<PAGE>
-7-
writing by the holders of the applicable Senior Debt and (b) in case of a
nonpayment default, the earlier of the date on which such nonpayment default is
cured or waived in writing by the holders of Designated Senior Debt or 179 days
after the date on which the applicable Payment Blockage Notice is received by
the holder of the Note, unless the maturity of any Designated Senior Debt has
been accelerated. No new period of payment blockage may be commenced under
clause (ii) above unless and until (i) 360 days have elapsed since the initial
effectiveness of the immediately prior Payment Blockage Notice and (ii) all
scheduled payments of principal of, premium, if any, and interest on the Note
that have come due have been paid in full in cash. No nonpayment default that
existed and was continuing on the date of delivery of any Payment Blockage
Notice to the holder of the Note shall be, or be made, the basis for a
subsequent Payment Blockage Notice unless such default shall have been waived in
writing or cured for a period of not less than 90 days. In the event that the
Company makes any payment to any holder of the Note prohibited by the foregoing,
such payment will be required to be held in trust for and paid over to the
holders of Senior Debt (or the representative thereof). The holder of the Note
will not challenge or contest the enforceability or validity of the New Credit
Facility or any obligation, Lien (as defined in the Indenture) or encumbrance
thereunder.
4.5. Acceleration of Securities. If payment of the Note is accelerated
--------------------------
because of an Event of Default, the Company shall promptly notify holders of
Senior Debt of the acceleration.
4.6. When Distribution Must Be Paid Over. In the event that the holder of
-----------------------------------
the Note receives any payment of any Obligations with respect to the Note at a
time when such payment is prohibited by Section 4.4 hereof, and, if such holder
is not an Affiliate of the Company, such holder had actual knowledge at the time
that such payment is prohibited by Section 4.4 hereof, such payment shall be
held by such holder, in trust for the benefit of, and shall be paid forthwith
over and delivered, upon written request, to, the holders of Senior Debt as
their interests may appear or their Representative under the indenture or other
agreement (if any) pursuant to which Senior Debt may have been issued, as their
respective interests may appear, for application to the payment of all
Obligations with respect to Senior Debt remaining unpaid to the extent necessary
to pay such Obligations in full in cash in accordance with their terms, after
giving effect to any concurrent payment or distribution to or for the holders of
Senior Debt.
With respect to the holders of Senior Debt, any holder of the Note
undertakes to perform only such obligations on the part of any holder of the
Note as are specifically set forth in this Section 4, and no implied covenants
or obligations with respect to the holders of Senior Debt shall be read into
this Agreement against any holder of the Note.
<PAGE>
-8-
4.7. Notice by Company. The Company shall promptly notify the holder of
-----------------
the Note of any facts known to the Company that would cause a payment of any
Obligations with respect to the Note to violate this Section 4, but failure to
give such notice shall not affect the subordination of the Note to the Senior
Debt as provided in this Section 4.
4.8. Subrogation. After all Senior Debt is paid in full in cash and until
-----------
the Note is paid in full, the holder of the Note shall be subrogated (equally
and ratably with all other Indebtedness pari passu with the Note, including the
Senior Subordinated Notes) to the rights of holders of Senior Debt to receive
distributions applicable to Senior Debt to the extent that distributions
otherwise payable to the holder of the Note have been applied to the payment of
Senior Debt. A distribution made under this Section 4 to holders of Senior Debt
that otherwise would have been made to the holder of the Note is not, as between
the Company and the holder of the Note, a payment by the Company on the Note.
4.9. Relative Rights. This Section 4 defines the relative rights of any
---------------
holder of the Note and holders of Senior Debt. Nothing in this Section 4 shall:
(a) impair, as between the Company and any holder of the Note, the
obligation of the Company, which is absolute and unconditional, to pay
principal of and interest on the Note in accordance with its terms;
(b) affect the relative rights of any holder of the Note and
creditors of the Company other than their rights in relation to holders of
Senior Debt; or
(c) prevent the holder of the Note from exercising its available
remedies upon a Default or Event of Default, subject to the rights of
holders and owners of Senior Debt to receive distributions and payments
otherwise payable to the holder of the Note.
If the Company fails because of this Section 4 to pay principal of or interest
on the Note on the due date, the failure is still a Default or Event of Default;
provided, that, notwithstanding anything to the contrary set forth above, such
Default or Event of Default shall be deemed to be cured under the circumstances
set forth, and as provided, in Section 7.5 herein.
4.10. Subordination May Not Be Impaired by Company. No right of any
--------------------------------------------
holder of Senior Debt to enforce the subordination of the Indebtedness evidenced
by the Note shall be impaired by any act or failure to act by the Company the
holder of the
<PAGE>
-9-
Note or by the failure of the Company the holder of the Note to comply with this
Agreement.
The holder of the Note agrees that it will not challenge the validity,
enforceability or perfection of any Senior Debt or the liens, guarantees and
security interests securing the same and that as between the holders of the
Senior Debt on the one hand and the holder of the Note on the other, the terms
hereof shall govern even if all or part of the Senior Debt or such liens and
security interests are avoided, disallowed, subordinated, set aside or otherwise
invalidated in any judicial proceeding or otherwise, regardless of the theory
upon which such action is premised.
Without in any way limiting the generality of this Section 4.10, the
holders of Senior Debt may, at any time and from time to time, without the
consent of or notice to the holder of the Note, without incurring responsibility
to the holder of the Note and without impairing or releasing the subordination
provided in this Section 4 or the obligations hereunder of the holder of the
Note to the holders of Senior Debt, do any one or more of the following: (a)
change the manner, place or terms of payment or extend the time of payment of,
or renew or alter, Senior Debt, the New Credit Facility or any instrument
evidencing the same or any agreement under which Senior Debt is outstanding or
secured: (b) sell, exchange, release, foreclose against or otherwise deal with
any property pledged, mortgaged or otherwise securing Senior Debt; (c) release
any Person liable in any manner for the collection of Senior Debt; and (d)
exercise or refrain from exercising any rights against the Company, any
Subsidiary thereof or any other Person.
4.11. Distribution or Notice to Representative. Whenever a distribution
----------------------------------------
is to be made or a notice given to holders of any Senior Debt, the distribution
may be made and the notice given to their Representative.
Upon any payment or distribution of assets of the Company referred to in
this Section 4, the holder of the Note shall be entitled to rely upon any order
or decree made by any court of competent jurisdiction or upon any certificate of
such Representative(s) or of the liquidating trustee or agent or other Person
making any distribution to the holder of the Note for the purpose of
ascertaining the Persons entitled to participate in such distribution, all
holders of the Senior Debt and other Indebtedness of the Company, the amount
thereof or payable thereon, the amount or amounts paid or distributed thereon
and all other facts pertinent thereto or to this Section 4.
4.12. Authorization to Effect Subordination. If the holder of the Note
-------------------------------------
does not file a proper proof of claim or proof of debt in the form required in
any proceeding
<PAGE>
-10-
related to the Company, its creditors or its property or otherwise of the type
referred to in Section 6.09 of the Indenture at least 30 days before the
expiration of the time to file such claim, the Representative is hereby
authorized to file an appropriate claim for and on behalf of the holder of the
Note.
4.13. Amendments. The provisions of this Section 4 shall not be amended
----------
or modified without the written consent of the Agent.
5. REPRESENTATIONS AND WARRANTIES.
------------------------------
In order to induce the Investor to enter into this Agreement and to
purchase the Note, the Company hereby represents and warrants that, both before
and immediately after the date of this Agreement:
5.1. Organization and Good Standing. The Company and each of its
------------------------------
Subsidiaries is duly organized and existing in good standing in its jurisdiction
of incorporation, is duly qualified as a foreign corporation and authorized to
do business in all other jurisdictions in which the nature of its business or
property makes such qualification necessary, except where the failure to so
qualify would not have a material adverse effect on the business of the Company
or such Subsidiary, and has the corporate power to own its properties and to
carry on its business as now conducted and as proposed to be conducted.
5.2. Authorization. The execution, delivery and performance by the
-------------
Company of this Agreement and the issuance and sale by the Company of the Note
hereunder, (a) are within the Company's corporate power and authority, (b) have
been duly authorized by all necessary corporate proceedings, and (c) do not
conflict with or result in any breach of any provision of or the creation of any
lien upon any of the property of the Company or require any consent or approval
pursuant to the Certificate of Incorporation or bylaws of the Company, or any
law, regulation, order, judgment, writ, injunction, license, permit, agreement
or instrument.
5.3. Enforceability. The execution and delivery by the Company of this
--------------
Agreement to which it is a party, and the issuance and sale by the Company of
the Note hereunder, will result in legally binding obligations of the Company,
enforceable against the Company in accordance with the respective terms and
provisions hereof and thereof, except to the extent that (a) such enforceability
is limited by bankruptcy, insolvency, reorganization, moratorium or other laws
relating to or affecting generally the enforcement of creditors' rights and (b)
the availability of the remedy of specific performance or injunctive or other
equitable relief will be subject to the discretion of the court before which any
proceeding therefor may be brought.
5.4. Governmental Approvals. The execution, delivery and performance by
----------------------
the Company of this Agreement to which it is a party, and the issuance and sale
by the
<PAGE>
-11-
Company of the Note hereunder, do not require the approval or consent of, or any
filing with, any governmental authority or agency prior to the date of this
Agreement other than those already obtained or filed.
6. INVESTMENT REPRESENTATIONS.
--------------------------
(a) The Investor represents and warrants to the Company that (i) the
Investor is an "accredited investor" as such term is defined in Rule 501
promulgated under the Securities Act and (ii) the Investor is acquiring the Note
for investment, and not with a view to selling or otherwise distributing the
Note; provided, however, that the disposition of the Investor's property shall
-------- -------
at all times be and remain in the Investor's control, subject to the provisions
of Section 8 hereof.
(b) The Investor understands that the Note has not been registered under
the Securities Act on the grounds that the offer and sale of the Note to the
Investor are exempt from the registration requirements of the Securities Act
under Section 4(2) thereof as a transaction not involving any public offering of
the Note. The Investor understands that the Company's reliance on such
exemption is predicated in part on the representations of the Investor which are
contained herein.
(c) The Investor understands that it must bear the economic risk of the
investment in the Note contemplated hereby for an indefinite period of time
because the Note has not been registered under the Securities Act and,
therefore, cannot be sold unless they are subsequently registered under the
Securities Act or an exemption from such registration is available.
7. DEFAULTS.
--------
7.1. Events of Default. Subject to Section 4 hereof, the holders of the
-----------------
Note(s) will be entitled to exercise the remedies provided by Section 7.2 hereof
in accordance with the terms thereof if any one or more of the following events
("Events of Default") shall occur:
-----------------
(a) the Company defaults for 30 days in the payment when due of
interest on the Note;
(b) the Company defaults in the payment when due of principal of or
premium, if any, on the Note;
(c) a default occurs under any mortgage, indenture or instrument
under which there may be issued or by which there may be secured or
evidenced any Indebtedness for money borrowed by the Company (or the
payment of which is guaranteed by the Company), whether such Indebtedness
or guarantee now exists, or is created after the date of this Agreement,
which default results
<PAGE>
-12-
in the acceleration of such Indebtedness prior to its express maturity and,
in each case, the principal amount of such Indebtedness, together with the
principal amount of any other such Indebtedness the maturity of which has
been so accelerated, aggregates $5.0 million or more (other than Existing
Indebtedness (as defined in the Indenture) to the extent it is secured by
or paid by the drawing against a letter of credit permitted to be issued
under the Indenture);
(d) an Event of Default (as defined in the Indenture) specified in
Sections 6.01(f), (g) or (h) of the Indenture shall have occurred.
7.2. Remedies. Subject to Section 4 hereof, upon the occurrence and
--------
continuance of any of the Events of Default under Section 7.1 hereof, in each
and every such case, the holder of the Note may proceed to protect and enforce
its rights by suit in equity, action at law and/or other appropriate proceedings
either for specific performance of any covenant, provision or condition
contained or incorporated by reference in this Agreement or in the Note, or in
aid of the exercise of any power granted in this Agreement or in the Note, and
(unless there shall have occurred an Event of Default under Section 7.1(d)
hereof, in which case the unpaid balance of the Note shall automatically become
due and payable) may by notice to the Company, declare all or any part of the
unpaid principal amount of the Note then outstanding to be forthwith due and
payable, and thereupon such unpaid principal amount or part thereof, together
with interest accrued thereon and any applicable prepayment charge and all other
sums, if any, payable under this Agreement or the Note shall become so due and
payable without presentation, presentment, protest or further demand or notice
of any kind, all of which are hereby expressly waived, and such holder or
holders may proceed to enforce payment of such amount or part thereof in such
manner as it or they may elect.
7.3. Waivers. The Company hereby waives, to the extent not prohibited by
-------
applicable law, (a) all presentments, demands for performance and notices of
nonperformance (except to the extent specifically required by the provisions
hereof), (b) any requirement of diligence or promptness on the part of the
holder of Note in the enforcement of its rights under the provisions of this
Agreement, and (c) any and all notices of every kind and description which may
be required to be given by any statute or rule of law.
7.4. Course of Dealing. No course of dealing between the Company or any
-----------------
of its Subsidiaries on the one hand, and the Investor or the holder of Note, on
the other hand, shall operate as a waiver of any of the Investor's or such
holder's rights under this Agreement. No delay or omission in exercising any
right under this Agreement shall operate as a waiver of such right or any other
right. A waiver on any one occasion shall not be construed as a bar to or
waiver of any right or remedy on any other occasion.
<PAGE>
-13-
7.5. Default Waiver. If the Company fails to make any payment of principal
--------------
and/or interest due and owing under or in respect of the Note at any time while
such payment is prohibited by the subordination provisions contained in Section
4 herein, and such amounts (excluding amounts due after acceleration of the
Note, if accelerated) are paid within 30 days after the date on which such
payment is no longer prohibited under such Section 4, any Default or Event of
Default resulting from such nonpayment shall be deemed to have been cured on the
date on which payment of such amounts has been received and any acceleration of
any payment obligations under the Note after such nonpayment shall be deemed to
have been rescinded provided no other Default or Event of Default is then
continuing, without requirement, in either case, of any further notice or
consent of the holder of the Note.
8. RESTRICTIONS ON TRANSFER.
------------------------
8.1. Transfer.
--------
(a) The Investor shall not sell, assign, pledge or otherwise transfer
("Transfer") the Note to any other Person other than a Transfer in full of the
--------
Note (or in such smaller principal amounts with the consent of the Agent) to (i)
an Affiliate of the Investor or (ii) any Person holding, at the time of such
Transfer, an aggregate principal amount of not less than $5,000,000 of the
Senior Subordinated Notes then outstanding.
(b) In the event of any Transfer of the Note in breach of this Agreement,
commencing immediately upon the date of such attempted Transfer (a) such
Transfer shall be void and of no effect, (b) no interest payment of any kind or
any distribution pursuant to any liquidation, redemption or otherwise shall be
paid by the Company to the purported transferee in respect of such Note (all
such rights to payment by the transferor and/or the purported transferee being
deemed waived), and (c) neither the transferor nor the purported transferee
shall be entitled to exercise any rights with respect to such Note until such
Transfer in breach of this Agreement has been rescinded.
8.2. Notice of Transfer. Prior to any transfer of any Note, the holder
------------------
thereof shall be required to give written notice to the Company describing in
reasonable detail the manner and terms of the proposed transfer and the identity
of the proposed transferee (the "Transfer Notice"), accompanied by, if
---------------
reasonably determined by the Company to be necessary with respect to such
transfer, an opinion of Bingham Dana LLP addressed to the Company, or other
counsel reasonably acceptable to the Company, that such transfer may be effected
without registration of such Notes under the Securities Act.
8.3. Restrictive Legends. Except as otherwise permitted by this Section
-------------------
8, each Security shall bear the following legend:
<PAGE>
-14-
"This Note has not been registered under the Securities Act of 1933, as
amended, and may not be sold or otherwise transferred in the absence of
such registration or an exemption therefrom under such Act or any
applicable state securities laws. Furthermore, this Note may be sold or
otherwise transferred only in compliance with the conditions specified in
the Note Purchase Agreement referred to hereinafter, a complete and correct
copy of which is available for inspection at the principal office of IMPAC
Group, Inc. and will be furnished without charge to the holder of this Note
upon written request."
9. NOTICES.
-------
Any notice provided for in this Agreement or the Note will be in writing
and will be deemed properly delivered if either personally delivered or sent by
telecopier, overnight courier or mailed certified or registered mail, return
receipt requested, postage prepaid, to the recipient at the address specified
below:
If to the Company, to 1950 North Ruby Street, Melrose Park, Illinois 60160,
to the attention of the Chief Executive Officer, or at such other address
as such person shall have specified by notice actually received by the
addressor.
If to the Investor, then to the Investor at the address set forth on the
signature page hereto, or at such other address as the Investor shall have
specified by notice actually received by the addressor.
Any such notice shall be effective (a) if delivered personally or by telecopier
when received, (b) if sent by overnight courier, when receipted for, and (c) if
mailed, five (5) days after being mailed as described above.
10. AMENDMENTS AND WAIVERS.
----------------------
Any term of this Agreement or the Note may be amended and the observance of
any term of this Agreement may be waived (either generally or in a particular
instance and either retroactively or prospectively) only with the written
consent of the Company and the Investor and for amendments, the Agent under the
Loan Agreement, and any successor. Any amendment or waiver effected in
accordance with this Section 10 shall be binding upon the holder of the Note
sold pursuant to this Agreement and the Company. In connection with any
refinancing of the Loan Agreement, the parties hereto agree to execute any
amendments and/or restatements hereof as reasonably requested by any new
Lender(s) thereunder to evidence the continuing effect of the subordination
agreements hereunder.
<PAGE>
-15-
11. CONSTRUCTION.
------------
The language used in this Agreement will be deemed to be the language
chosen by the parties to express their mutual intent, and no rule of strict
construction will be applied against any party.
12. MISCELLANEOUS.
-------------
This Agreement (including Exhibits and Schedules) sets forth the entire
understanding of the parties hereto with respect to the transactions
contemplated hereby and supersedes any prior written or oral understandings with
respect thereto. The parties hereto acknowledge and agree that in entering into
this Agreement they have not in any way relied upon any oral or written
agreements, statements, promises, information, arrangements, understandings,
representations or warranties, express or implied, not specifically set forth in
this Agreement. The invalidity or unenforceability of any term or provision
hereof shall not affect the validity or enforceability of any other term or
provision hereof. The headings in this Agreement are for convenience of
reference only and shall not alter or otherwise affect the meaning hereof. THIS
AGREEMENT MAY BE EXECUTED IN ANY NUMBER OF COUNTERPARTS WHICH TOGETHER SHALL
CONSTITUTE ONE INSTRUMENT, SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH
THE DOMESTIC SUBSTANTIVE LAWS OF THE COMMONWEALTH OF MASSACHUSETTS WITHOUT
GIVING EFFECT TO ANY CHOICE OR CONFLICT OF LAW PROVISION OR RULE THAT WOULD
CAUSE THE APPLICATION OF THE DOMESTIC SUBSTANTIVE LAWS OF ANY OTHER STATE, AND
SHALL BIND AND INURE TO THE BENEFIT OF THE PARTIES HERETO AND THEIR RESPECTIVE
SUCCESSORS AND ASSIGNS. ANY RIGHT TO TRIAL BY JURY WITH RESPECT TO ANY ACTION
OR PROCEEDING ARISING IN CONNECTION WITH ANY MATTER REFERRED TO IN THIS
AGREEMENT OR UNDER THIS AGREEMENT OR THE NOTE IS HEREBY WAIVED BY THE PARTIES
HERETO.
<PAGE>
-16-
IN WITNESS WHEREOF, and intending to be legally bound hereby, the parties
hereto have caused this Agreement to be duly executed as of the date and year
first above written.
THE COMPANY:
-----------
IMPAC GROUP, INC.
By: /s/ David C. Underwood
----------------------------
Title: Chief Financial Officer
THE INVESTOR:
------------
HERITAGE FUND II INVESTMENT
CORPORATION
By: /s/ Michel Reichert
----------------------------
Title: President
Address: 30 Rowes Wharf
Boston, MA 02110
<PAGE>
-17-
List of Exhibits
----------------
Exhibit A Form of Note
<PAGE>
Exhibit A
------- -
Subordinated Note
This Note has not been registered under the Securities Act of 1933, as
amended, and may not be sold or otherwise transferred in the absence of
such registration or an exemption therefrom under such Act or any
applicable state securities laws. Furthermore, this Note may be sold or
otherwise transferred only in compliance with the conditions specified in
the Note Purchase Agreement referred to hereinafter, a complete and correct
copy of which is available for inspection at the principal office of IMPAC
Group, Inc. and will be furnished without charge to the holder of this Note
upon written request.
$4,900,000 November 17, 1999
IMPAC GROUP, INC., a Delaware corporation (hereinafter called the
"Company"), for value received, hereby promises to pay to HERITAGE FUND II
-------
INVESTMENT CORPORATION, a Delaware corporation ("Payee"), or its registered
-----
assigns, the entire principal amount of FOUR MILLION NINE HUNDRED THOUSAND
DOLLARS ($4,900,000), payable in the amounts and at the times specified in
Section 3 of the Note Purchase Agreement (as hereinafter defined) and with a
final maturity on March 31, 2006 (the "Maturity Date"), and to pay interest on
-------- ----
the unpaid principal amount hereof from the date hereof until and including the
payment in full of the unpaid principal amount hereof, such interest accruing
and compounding at the rate per annum set forth in Section 3.4(a) of the Note
Purchase Agreement (as hereinafter defined) (computed on the basis of actual
number of days elapsed and a 360-day year). The Company hereby promises to pay
such interest on the dates specified in the Note Purchase Agreement (as
hereinafter defined) until the obligation of the Company with respect to the
payment thereof shall be discharged. All payments of principal and interest
hereof shall be made in lawful money of the United States of America to the
account of the holder hereof upon presentation hereof at such address of the
holder hereof as such holder shall have designated to the Company in writing.
This Note is the Note of the Company issued pursuant to the Note Purchase
Agreement, dated as of November 17, 1999 (the "Note Purchase Agreement"),
---- -------- ---------
between the Company and the Payee. The holder of this Note is entitled to
enforce the provisions of
<PAGE>
-2-
the Note Purchase Agreement and to enjoy the benefits thereof to the extent
provided therein and is subject to the obligations thereunder as a holder of a
Note.
The Company shall be permitted, at certain times and under certain
circumstances, to prepay all or any portion of this Note, together with all
accrued and unpaid interest thereon, and the maturity hereof may be accelerated
by the holder of the Note outstanding following an Event of Default (as defined
in the Note Purchase Agreement), all as provided in the Note Purchase Agreement,
to which reference is made for the terms and conditions of such provisions as to
prepayment and acceleration. No mandatory prepayments of this Note are required.
Any transfer of this Note permitted in accordance with the transfer
restriction provisions set forth in the Note Purchase Agreement is registrable
on the note register of the Company upon presentation at the principal office of
the Company accompanied by a written instrument of transfer in form satisfactory
to the Company duly executed by, or on behalf of, the holder hereof. This Note
may also be exchanged at such office for one or more Notes in any authorized
denominations, as requested by the holder, of a like aggregate unpaid principal
amount. Except as permitted in the Note Purchase Agreement, this Note may not be
transferred, negotiated or assigned.
Prior to due presentment for registration of transfer, the Company and any
agent of the Company may treat the person in whose name this Note is registered
as the owner hereof for the purpose of receiving payment of principal and
interest as herein provided and for all other purposes.
The holder of this Note, by acceptance hereof, agrees with the Company that
this Note and all payments hereunder shall be subordinate and junior in right of
payment to the prior payment in full in cash of all Senior Debt (as defined in
the Note Purchase Agreement) to the extent and in the manner provided in the
Note Purchase Agreement.
All indebtedness of the Company evidenced by this Note is a general
unsecured obligation of the Company and shall be pari passu in right of payment
---- -----
to the Indebtedness (as defined in the Note Purchase Agreement) of the Company
evidenced by the Senior Subordinated Notes (as defined in the Note Purchase
Agreement).
<PAGE>
-3-
This Note shall be deemed to take effect as a sealed instrument under
the laws of the Commonwealth of Massachusetts and for all purposes shall be
construed in accordance with such laws.
IMPAC GROUP, INC.
By:
--------------------------------
Name:
Title:
<PAGE>
EXHIBIT 10.113
SUBORDINATED NOTE
This Note has not been registered under the Securities Act of 1933,
as amended, and may not be sold or otherwise transferred in the
absence of such registration or an exemption therefrom under such
Act or any applicable state securities laws. Furthermore, this Note
may be sold or otherwise transferred only in compliance with the
conditions specified in the Note Purchase Agreement referred to
hereinafter, a complete and correct copy of which is available for
inspection at the principal office of IMPAC Group, Inc. and will be
furnished without charge to the holder of this Note upon written
request.
$4,900,000 November 17, 1999
IMPAC GROUP, INC., a Delaware corporation (hereinafter called the
"Company"), for value received, hereby promises to pay to HERITAGE FUND II
-------
INVESTMENT CORPORATION, a Delaware corporation ("Payee"), or its registered
-----
assigns, the entire principal amount of FOUR MILLION NINE HUNDRED THOUSAND
DOLLARS ($4,900,000), payable in the amounts and at the times specified in
Section 3 of the Note Purchase Agreement (as hereinafter defined) and with a
final maturity on March 31, 2006 (the "Maturity Date"), and to pay interest on
-------------
the unpaid principal amount hereof from the date hereof until and including the
payment in full of the unpaid principal amount hereof, such interest accruing
and compounding at the rate per annum set forth in Section 3.4(a) of the Note
Purchase Agreement (as hereinafter defined) (computed on the basis of actual
number of days elapsed and a 360-day year). The Company hereby promises to pay
such interest on the dates specified in the Note Purchase Agreement (as
hereinafter defined) until the obligation of the Company with respect to the
payment thereof shall be discharged. All payments of principal and interest
hereof shall be made in lawful money of the United States of America to the
account of the holder hereof upon presentation hereof at such address of the
holder hereof as such holder shall have designated to the Company in writing.
This Note is the Note of the Company issued pursuant to the Note Purchase
Agreement, dated as of November 17, 1999 (the "Note Purchase Agreement"),
-----------------------
between the Company and the Payee. The holder of this Note is entitled to
enforce the provisions of
<PAGE>
-2-
the Note Purchase Agreement and to enjoy the benefits thereof to the extent
provided therein and is subject to the obligations thereunder as a holder of a
Note.
The Company shall be permitted, at certain times and under certain
circumstances, to prepay all or any portion of this Note, together with all
accrued and unpaid interest thereon, and the maturity hereof may be accelerated
by the holder of the Note outstanding following an Event of Default (as defined
in the Note Purchase Agreement), all as provided in the Note Purchase Agreement,
to which reference is made for the terms and conditions of such provisions as to
prepayment and acceleration. No mandatory prepayments of this Note are
required.
Any transfer of this Note permitted in accordance with the transfer
restriction provisions set forth in the Note Purchase Agreement is registrable
on the note register of the Company upon presentation at the principal office of
the Company accompanied by a written instrument of transfer in form satisfactory
to the Company duly executed by, or on behalf of, the holder hereof. This Note
may also be exchanged at such office for one or more Notes in any authorized
denominations, as requested by the holder, of a like aggregate unpaid principal
amount. Except as permitted in the Note Purchase Agreement, this Note may not be
transferred, negotiated or assigned.
Prior to due presentment for registration of transfer, the Company and any
agent of the Company may treat the person in whose name this Note is registered
as the owner hereof for the purpose of receiving payment of principal and
interest as herein provided and for all other purposes.
The holder of this Note, by acceptance hereof, agrees with the Company that this
Note and all payments hereunder shall be subordinate and junior in right of
payment to the prior payment in full in cash of all Senior Debt (as defined in
the Note Purchase Agreement) to the extent and in the manner provided in the
Note Purchase Agreement.
All indebtedness of the Company evidenced by this Note is a general
unsecured obligation of the Company and shall be pari passu in right of payment
----------
to the Indebtedness (as defined in the Note Purchase Agreement) of the Company
evidenced by the Senior Subordinated Notes (as defined in the Note Purchase
Agreement).
<PAGE>
-3-
This Note shall be deemed to take effect as a sealed instrument under the
laws of the Commonwealth of Massachusetts and for all purposes shall be
construed in accordance with such laws.
IMPAC GROUP, INC.
By: /s/ David C. Underwood
---------------------------
Name: David C. Underwood
Title: Chief Financial Officer
<PAGE>
Exhibit 10.114
SIXTH AMENDMENT
This Sixth Amendment (this "Amendment") to the Credit Agreement (as
defined below) is entered into as of this 2nd day of November, 1999 among IMPAC
GROUP, INC., a Delaware corporation (the "Company"), AGI INCORPORATED, an
Illinois corporation ("AGI"). KLEARFOLD, INC., a Pennsylvania corporation
("Klearfold", and together with AGI, each a "L/C Borrower" and collectively, the
"L/C Borrowers"), Bank of America, N.A., as Agent (the "Agent"), and the
financial institutions from time to time party thereto (the "Lenders"). Unless
otherwise specified herein, capitalized terms used in this Amendment shall have
the meanings ascribed to them by the Credit Agreement (as defined below).
RECITALS
WHEREAS, the Company, the L/C Borrowers, the Agent and the Lenders
are party to the Amended and Restated Multicurrency Credit Agreement, dated as
of March 12, 1998 and as amended and restated as of July 7, 1998 (as amended by
that certain First Amendment dated September 11, 1998, that certain Second
Amendment dated November 13th, 1998, that certain Third Amendment dated November
16, 1998, that certain Fourth Amendment dated December 10, 1998 and that certain
Fifth Amendment dated January 11, 1999 and as the same may be further amended,
supplemented, restated or otherwise modified from time to time in accordance
with its terms and in effect, the "Credit Agreement");
WHEREAS, the Company, the L/C Borrowers, the Agent and the
undersigned Lenders now wish to enter into certain further amendments to the
Credit Agreement to, among other things, permit the Company to acquire all of
the capital stock of Thamesdown Colour Limited, a limited company under the laws
of England and Wales ("Thamesdown") all as more specifically set forth herein;
NOW THEREFORE, in consideration of the mutual execution hereof and
other good and valuable consideration, the parties hereto agree as follows:
Section 1. Amendments. A. Section 1.01 of the Credit Agreement is
hereby amended by inserting the following new definitions in alphabetical order
as appropriate:
"Atlantic" means Atlantic Packaging Corporation, a Delaware
corporation.
"Atlantic Acquisition" means the acquisition by the Company of all
of the issued and outstanding capital stock of Atlantic pursuant to the
Atlantic Acquisition Documents and as more fully described on Schedule
1(c) hereto.
"Atlantic Acquisition Documents" has the meaning specified in
Section 6.25(b) hereto.
*Confidential treatment requested: material has been omitted and filed
separately with the Commission.
<PAGE>
"Capex Allowance" has the meaning specified in Section 8.19 hereto.
"Charter" has the meaning specified in the final proviso of Section
8.05 hereto.
"Heritage" means Heritage Fund II Investment Corporation, a Delaware
corporation.
"Heritage Subordinated Liquidity Facility" has the meaning specified
in Section 7.20 hereof.
"New Acquisition Documents" has the meaning specified in Section
7.20 hereto.
*****
"***** Acquisition" means the acquisition by the Company or a
Wholly-Owned Subsidiary of the Company of all of the issued shares in each
class of capital stock of ****** pursuant to the ****** Acquisition
Documents and as more fully described on Schedule 1(c) hereto.
"***** Acquisition Documents" has the meaning specified in Section
6.25(b) hereto.
"Subordinated Acquisition Debt" has the meaning specified in Section
8.05(k) hereto.
"Thamesdown" means Thamesdown Colour Limited, a limited company
organized under the laws of England and Wales.
"Thamesdown Acquisition" means the acquisition by the Company of all
of the issued shares in each class of capital stock of Thamesdown pursuant
to the terms of the Thamesdown Acquisition Documents and as more fully
described on Schedule 1(c) hereto.
"Thamesdown Acquisition Documents" has the meaning specified in
Section 6.25(b) hereto.
B. Section 1.01 of the Credit Agreement is hereby amended by
deleting the grid within the definition of "Applicable Margin" and inserting in
lieu thereof the following grid, and then by adding the following proviso at the
end of the text of such definition before the period:
- --------------------------------------------------------------------------------
Base Rate Loans Offshore Rate Loans
- --------------------------------------------------------------------------------
*Confidential treatment requested: material has been omitted and filed
separately with the Commission.
-2-
<PAGE>
- --------------------------------------------------------------------------------
Revolving
Commitment
Fee and
Revolving Loan Term Loan
Revolving Loan and Commitment
Level and Term Loan A Term Loan B Term Loan A Term Loan B Fee
- ----- --------------- ----------- ----------- ----------- ---
- --------------------------------------------------------------------------------
I 1.75% 2.50% 2.75% 3.50% 0.50%
- --------------------------------------------------------------------------------
II 1.50% 2.50% 2.50% 3.50% 0.50%
- --------------------------------------------------------------------------------
III 1.25% 2.50% 2.25% 3.50% 0.50%
- --------------------------------------------------------------------------------
IV 1.00% 2.50% 2.00% 3.50% 0.375%
- --------------------------------------------------------------------------------
; provided, further, that notwithstanding anything above, for the period from
October 29, 1999 until the date that is the first day after the Compliance
Certificate is delivered to the Lenders pursuant to Section 7.02(b) for the
fiscal year ending December 31, 1999, the Applicable Margin shall be deemed to
be Level I"
C. Section 1.01 of the Credit Agreement is hereby amended by
replacing the definitions of "Bidco" and "Target" in such section with the
following:
"Bidco" shall mean IMPAC Europe Holdings Limited (f/k/a IMPAC
Europe Public Limited Company, a public limited company incorporated under the
laws of England and Wales).
"Target" means IMPAC Europe Limited, a limited company
incorporated under the laws of England and Wales f/k/a Tinsley Robor PLC, which
was a public limited company incorporated under the laws of England and Wales
(Registered no. 948646).
D. Section 2.07(j)(ii) of the Credit Agreement is hereby
amended by adding the following language at the end thereof:
" Notwithstanding anything else in this Section 2.07(j)(ii) to the contrary,
proceeds from the issuance by the Company of (I) Subordinated Acquisition Debt
issued in connection with and substantially at the time of either the ******
Acquisition or Atlantic Acquisition (as such Acquisitions are permitted by
Section 8.05(b) hereof) shall be excluded from the requirement to make a
mandatory prepayment under this Section 2.07(j)(ii) to the extent the proceeds
of such Subordinated Acquisition Debt are used to finance either the ******
Acquisition or the Atlantic Acquisition and (II) indebtedness incurred under the
Heritage Subordinated Liquidity Facility in an aggregate principal amount of up
to $4,900,000 shall be excluded from the requirement to make a mandatory
prepayment under this Section 2.07(j)(ii) plus any additional amount for Capital
Leases incurred pursuant to Section 8.10 (c) or (d) as in effect after taking
into account that certain Sixth Amendment to the Credit Agreement."
E. Section 6.25 of the Credit Agreement is hereby amended in
its entirety to read as follows:
"6.25 Transaction Agreements and New Acquisition Documents. (a) The
agreements in connection with the Transaction (including, without limitation,
the Press Release, the Offer Documents, the Equity Document, and the agreements
relating to the refinancing of
* Confidential treatment requested material has been omitted and filed
separately with the commission.
-3-
<PAGE>
certain Indebtedness of the Target and certain of its then existing Target
Subsidiaries) ("Transaction Agreements") are, or when executed will be, in full
force and effect, and if previously executed, have not been terminated,
rescinded or withdrawn, and no material portion thereof has been amended or
waived by any party. All requisite approvals by governmental authorities and
regulatory bodies having jurisdiction over a Credit Party and other Persons
referenced therein, with respect to the transactions contemplated by the
Transaction Agreements, have been obtained, and no such approvals impose any
conditions to the consummation of the transactions contemplated by the
Transaction Agreements or to the conduct in any material respect by a Credit
Party and its Subsidiaries of its business thereafter. To the best of each
Credit Party's knowledge, none of any Person's representations or warranties in
the Transaction Agreements contain any untrue statement of a material fact or
omit any fact necessary to make the facts therein not misleading.
(b) The agreements in connection with (i) the Thamesdown Acquisition
(the Thamesdown Acquisition Documents"), (ii) the ***** Acquisition (the
"****** Acquisition Documents"), and (iii) the Atlantic Acquisition (the
"Atlantic Acquisition Documents" and together with each of the Thamesdown
Acquisition Documents and the ****** Acquisition Documents, collectively, the
"New Acquisition Documents") are, or when executed will be, in full force and
effect, and if previously executed, have not been terminated, rescinded or
withdrawn, and no material portion thereof has been amended or waived by any
party. All requisite approvals by governmental authorities and regulatory bodies
having jurisdiction over a Credit Party and other Persons referenced therein,
with respect to the transactions contemplated by the New Acquisition Documents,
have been obtained or will be obtained prior to the consummation of any such
Acquisition, and no such approvals impose any conditions to the consummation of
the transactions contemplated by the New Acquisition Documents or to the conduct
in any material respect by a Credit Party and its Subsidiaries of its business
thereafter. To the best of each Credit Party's knowledge, none of any Person's
representations or warranties in the New Acquisition Documents contain or will
contain when made any untrue statement of a material fact or omit any fact
necessary to make the facts therein not misleading."
F. The Credit Agreement Is hereby amended by adding the
following new Section 7.20:
"Section 7.20 Heritage Subordinated Liquidity Facility. The
Company shall within fourteen (14) days (or such longer period as the Agent
shall permit) after the consummation of the Thamesdown Acquisition:
(a) enter into a Note Purchase Agreement with Heritage,
providing for Heritage to loan the Company at least $4,900,000 in
principal amount of subordinated Indebtedness (the "Heritage Subordinated
Liquidity Facility"), and such subordinated Indebtedness shall (i) be
issued pursuant to fully executed documents, promissory notes and
agreements reasonably acceptable in form and substance to Agent; (ii) be
subject to a valid and effective subordination agreement on customary and
commercially reasonable terms and conditions as determined by the Agent
which are at least as favorable in all material respects to the Lenders as
the subordination provisions set forth in the Senior Subordinated Note
Indenture; (iii) be unsecured; (iv) require no
-4-
*Confidential treatment requested: material has been omitted and filed
separately with the Commission.
<PAGE>
more than semi-annual interest payments; (v) have a market interest rate
(as acknowledged by the Agent), which in any event must be less than 12%
per annum (including all capitalized fees and expenses); (vi) have a
maturity date of no earlier than March 31, 2006 and require no scheduled
or mandatory principal prepayments or repayments before the maturity date
except as permitted under Section 8.20(vi)(II) hereof; (vii) have no
financial covenants of any type and have other affirmative and negative
covenants which are no more restrictive than those in the Senior
Subordinated Note Indenture as of the time such Heritage Subordinated
Liquidity Facility is incurred; (viii) not be required to use (and shall
not voluntarily use) the proceeds thereof to prepay the Senior
Subordinated Notes or to redeem the Preferred Stock; and (ix) only be
issued on or after delivery to the Agent of a legal opinion from counsel
to the Company and Heritage reasonably acceptable to the Agent, and in
form and substance acceptable to the Agent including, without limitation,
opinions concerning the execution, delivery, validity and enforceability
of all agreements related to the Heritage Subordinated Liquidity Facility,
opinions that such agreements do not conflict with, violate or require any
prepayments under this Agreement, the Senior Subordinated Note Documents
or the Preferred Stock Documents, and opinions that all Obligations under
this Agreement constitute "Senior Debt" under the Heritage Subordinated
Liquidity Facility; and
(b) provide the Agent with evidence that the Company
shall have received in immediately available funds at least $4,900,000 as
a loan from Heritage under the Heritage Subordinated Liquidity Facility."
G. Subsections 8.01(j) and (k) of the Credit Agreement are
hereby amended in their entirety to read as follows:
"(j) purchase money security interests on any property
acquired or held by a Credit Party or its Subsidiaries in the ordinary
course of business, securing Indebtedness incurred or assumed for the
purpose of financing all or any part of the cost of acquiring such
property; provided that (i) any such Lien attaches to such property
concurrently with or within 20 days after the acquisition thereof, (ii)
such Lien attaches solely to the property so acquired in such transaction
and (iii) the principal amount of the Indebtedness secured by any and all
such purchase money security interests shall not at any time exceed,
together with Indebtedness permitted under Section 8.05(i) $1,500,000;
provided, however, for purposes of this Section 8.01(j), purchase money
security interests created in connection with the construction of new
printing presses or new converting equipment utilized by a Credit Party or
a Subsidiary of a Credit Party shall be permitted in amounts not to exceed
$5,000,000 in the aggregate at any one time outstanding in favor of the
manufacturer(s) of such presses or converting equipment to the extent such
Lien is limited solely to such press or presses or converting equipment
being manufactured, and provided that such Liens secure amounts incurred
in the ordinary course which do not constitute Indebtedness and such Liens
are released in full within ninety (90) days after the completion and
acceptance by the Company of such press or presses or converting
equipment;
-5-
<PAGE>
(k) Liens securing Capital Lease Obligations on assets subject
to such Capital Leases, provided that such Capital Leases are otherwise
permitted under Section 8.10(a), (c) or (d); and"
H. Subsection 8.03(b) of the Credit Agreement Is hereby
amended in its entirety to read as follows:
"(b) (I) the Company (indirectly through a Wholly-Owned
Subsidiary) may use up to $8,500,000 in the aggregate to purchase
substantially all of the assets and business of Music Print B.V. whether
or not the Squeeze-Out Date has occurred, so long as such transaction is
consummated on or before November 30, 1998 except for the purchase of the
related real estate which must occur on or before January 30, 1999; and
(II) on and after October 25, 1999 a Credit Party or a
Subsidiary Guarantor or, subject to the limitations set forth below, a
Wholly-Owned Subsidiary of the Company which is not a Subsidiary Guarantor
or a Credit Party may enter into an Acquisition (including the Thamesdown
Acquisition, ***** Acquisition and the Atlantic Acquisition) provided
that (i) in any such Acquisition (whether in one transaction or a series
of related transactions) the aggregate consideration consisting of cash,
assumed Indebtedness and Capital Lease Obligations, earn-outs, promissory
notes or other instruments or similar items (other than common stock of
the Company) (the "Non-Equity Consideration") does not exceed $15,000,000
for a single Acquisition and $25,000,000 for all Acquisitions without the
prior written approval of the Majority Lenders, (ii) no Default or Event
of Default is in existence both before and after giving effect to such
Acquisition (and/or as set forth in clause (vi) below, the creation of a
new Subsidiary), (iii) such Acquisition is undertaken in all material
respects in accordance with all applicable Requirements of Law, (iv) the
target business of, or the assets subject to, such Acquisition are shown
in good faith by the Company to have generated positive EBITDA on a pro
forma basis for the twelve month period immediately preceding the date of
such Acquisition based on assumptions showing cost savings reasonably
acceptable to the Agent, (v) the prior, effective written consent or
approval to such Acquisition of the board of directors or equivalent
governing body of the acquiree is obtained, (vi) such Acquisition shall be
structured as an asset acquisition by a Credit Party or a Subsidiary
Guarantor, or subject to the limitations act forth below, a Wholly-Owned
Subsidiary of the Company which is not a Subsidiary Guarantor or a Credit
Party, or the purchase of all of the capital stock of the target of such
Acquisition by a Credit Party or a Subsidiary Guarantor or, subject to the
limitations set forth below, a Wholly-Owned Subsidiary of the Company
which is not a Subsidiary Guarantor or a Credit Party, provided that such
target or the Person purchasing the assets of such target will be merged
with and into a Credit Party or a Subsidiary Guarantor or shall execute a
counterpart of and become a party to a Guaranty (pursuant to documentation
reasonably acceptable to the Agent) simultaneously with the consummation
of such Acquisition, (vii) the business being acquired is otherwise
permitted by Section 8.13, (viii) except as set forth in paragraph (e)
below, the Agent (on behalf of the Lenders) will simultaneously with the
consummation of such Acquisition be granted a first priority perfected
security interest (subject to Permitted Liens) in any assets being so
acquired and any capital stock
-6-
*Confidential treatment requested: material has been omitted and filed
separately with the Commission.
<PAGE>
if a new Subsidiary is being formed, (ix) at least fifty percent (50%) of
the first $10,000,000 of aggregate Non-Equity Consideration and one
hundred percent (100%) of all amounts above $10,000,000 paid in connection
with the ***** Acquisition and the Atlantic Acquisition and one hundred
percent (100%) of the Non-Equity Consideration paid in any other
Acquisition (other than the Thamesdown Acquisition) must be financed
through the substantially simultaneous issuance of Subordinated
Acquisition Debt, the assumption of Capital Leases, and/or the sale by the
Company of additional shares of its common stock (all as otherwise
permitted hereunder) and (x) except with respect to the Thamesdown
Acquisition, the Company shall have received a loan of at least $4,900,000
from Heritage under the Heritage Subordinated Liquidity Facility prior to
the consummation of any such Acquisition."
1. Section 8.03 of the Credit Agreement is hereby further
amended by deleting the "and" at the end of paragraph (d) thereof and by
inserting the following new paragraph (e):
"(e) with respect to the Thamesdown Acquisition and *****
Acquisition, the requirement in subparagraphs (b)(II)(vi) and
(b)(II)(viii) above relating to receipt by the Agent of evidence that
Thamesdown and ****** became Subsidiary Guarantors and that a first
priority perfected security interest in the assets of Thamesdown and
****** was granted to the Agent (on behalf of the Lenders) shall be
waived except to the extent that now or in the future the Company is
required to have any Person or entity acquired pursuant to such
Acquisition (or their successors) guaranty the Senior Subordinated Notes
pursuant to the terms of the Senior Subordinated Note Indenture; provided,
however, that the waiver referenced above will only continue to be
effective to the extent that the Company provides to the Agent within 90
days (or such longer period as the Agent shall agree) after the
consummation of each of the Thamesdown Acquisition and the ******
Acquisition, a written description which is reasonably acceptable to the
Agent describing in reasonable detail the nature and extent of any adverse
tax consequences it reasonably believes it will suffer should such
acquired entities be required to guaranty any Indebtedness hereunder; and"
J. Subsection 8.04(d) of the Credit Agreement is hereby
amended by deleting such subsection in its entirety and inserting in lieu
thereof the following new subsection:
"(d) Investments incurred in order to consummate Acquisitions
otherwise permitted herein except as prohibited by Section 8.09 hereof."
K. Section 8.05(d) of the Credit Agreement is hereby amended
by deleting the "and" at the end of paragraph (i) thereof, inserting the word
"and at the end of paragraph (j) thereof and adding the following new paragraph
(k):
"(k) the Company shall be permitted to issue (I)
$4,900,000 in principal amount of Indebtedness under the Heritage
Subordinated Liquidity Facility in accordance with the terms and
conditions of Section 7.20 hereof, and (II) up to
-7-
*Confidential treatment requested: material has been omitted and filed
separately with the Commission.
<PAGE>
$15,000,000 (less the Dollar Equivalent of the amount of any Capital Lease
Obligations assumed (directly or indirectly) in connection with
Acquisitions permitted by Section 8.03(b) other than the Thamesdown
Acquisition) in principal amount of new subordinated indebtedness
("Subordinated Acquisition Debt") so long as such Subordinated Acquisition
Debt (A) is issued pursuant to fully executed documents, promissory notes
and agreements reasonably acceptable in form and substance to Agent; (B)
is subject to a valid and effective subordination agreement on customary
and commercially reasonable terms and conditions as determined by the
Agent which are at least as favorable in all material respects to the
Lenders as the subordination provisions set forth in the Senior
Subordinated Note Indenture; (C) is unsecured; (D) requires no more than
semi-annual interest payments; (E) has a market interest rate (as
acknowledged by the Agent), which in any event must be less than 14% per
annum (including all capitalized fees and expenses); (F) has a maturity
date of no earlier than March 31, 2006 and requires no scheduled or
mandatory principal prepayments or repayments before the maturity date;
(H) has no financial covenants of any type and the other affirmative and
negative covenants with respect thereto are less restrictive than those in
the Senior Subordinated Note Indenture as of the time such Subordinated
Acquisition Debt is incurred; (I) is not required to be used (and is not
voluntarily used) to prepay the Senior Subordinated Notes or to redeem the
Preferred Stock; (3) is only issued on or after delivery to the Agent of a
legal opinion from counsel to the Company and the lender of such
Subordinated Acquisition Debt reasonably acceptable to the Agent, and in
form and substance acceptable to the Agent including, without limitation,
opinions concerning the execution, delivery, validity and enforceability
of all agreements related to the Subordinated Acquisition Debt, opinions
that such agreements do not conflict with, violate or require any
prepayments under this Agreement, the Senior Subordinated Note Documents
or the Preferred Stock Documents, and opinions that all Obligations under
the Credit Agreement constitute "Senior Debt" under the agreements with
respect to the Subordinated Acquisition Debt; and (K) provided that the
Company amend the Charter to ensure that the incurrence of such
Subordinated Acquisition Debt does not have the consequences of the
incurrence of Ratio Debt specified in clauses (A) and (B) of the paragraph
commencing "Notwithstanding the foregoing," in the definition of
"Permitted Indebtedness" in Article 10 of the Charter;"
L. Section 8.06 of the Credit Agreement is hereby amended by
replacing the "and" at the end of paragraph (b) thereof with a ", " and adding
the following new language at the end of such section before the period:
"and (d) the Company shall be permitted to enter into the Heritage
Liquidity Facility and the Subordinated Acquisition Debt and to incur the
Indebtedness thereunder in accordance with the terms and conditions set
forth in this Agreement"
M. Section 8.09 of the Credit Agreement is hereby amended by
adding the following new language at the end of such section before the period:
", the Thamesdown Acquisition Documents and the ***** Acquisition
Documents"
-8-
*Confidential treatment requested: material omitted and filed separately with
the Commission.
<PAGE>
N. Section 8.10 of the Credit Agreement is hereby amended by
deleting the "and" at the end of paragraph (b) of such section, deleting the
existing paragraph (c) of such section and by inserting the following new
paragraphs (c) and (d) at the end of such section:
"(c) Capital Leases other than those permitted under clause (a) of
this Section, entered into by a Credit Party or any of its Subsidiaries
after the Initial Funding Date to finance the acquisition of equipment;
provided that the aggregate Capital Lease Obligations for all such Capital
Leases shall not at any time exceed $1,500,000 plus up to an additional
$1,400,000 of Capital Lease Obligations of Music Print B.V. assumed in
connection with the Acquisition of such Subsidiary; and
(d) Capital Lease Obligations of Thamesdown or any other Person
being acquired pursuant to an Acquisition permitted by Section 8.03(b)
which are assumed by the Company (or its Subsidiaries to the extent
permitted under the Senior Subordinated Note Indenture) in connection with
such permitted Acquisitions in an aggregate amount not to exceed the
Dollar equivalent of (pound)1,910,000 in connection with the Thamesdown
Acquisition and $2,600,000 in the aggregate with respect to all other
Acquisitions consummated after October 25, 1999; provided, however, that
the Company shall not incur any Capital Lease Obligations in connection
with any such permitted Acquisition without first causing the Charter to
be amended such that either (i) any such assumed Capital Lease Obligations
shall not cause a reduction in the $40,000,000 basket provided in clause
(i) in the definition of "Permitted Indebtedness" in Article 10 of the
Chatter; or (ii) the assumption of such Capital Lease Obligations shall
not have the consequences of an incurrence of Ratio Debt specified in
clauses (A) and (B) of the paragraph commencing "Notwithstanding the
foregoing," in such definition."
O. Section 8.15 of the Credit Agreement is hereby amended by
deleting the section in its entirety and inserting in lieu thereof the following
new section:
"8.15 Total Leverage Ratio. The Company shall not permit, as of the
last day of each calendar quarter during the periods listed below, its Total
Leverage Ratio at such time for the twelve month period (taken as one accounting
period) then ended, to be greater than the ratio set forth below opposite the
respective period in which the determination is being made:
Period Ratio
- ------ -----
From and including the Initial Funding Date through and including 6.85:1.00
September 29, 1999
From and including September 30, 1999 through 5.50:1.00
and including December 30, 2000
From and including December 31, 2000 through 5.25:1.00
and including December 30, 2001
-9-
<PAGE>
From and including December 31, 2001 through 5.00:1.00
and including December 30, 2002
Thereafter 4.50:1.00"
P. Section 8.16 of the Credit Agreement is hereby amended by
deleting the section in its entirety and inserting in lieu thereof the following
new section:
"8.16 Senior Leverage Ratio. The Company shall not permit, as
of the last day of each calendar quarter during the periods listed below, its
Senior Leverage Ratio at such time for the twelve month period (taken as one
accounting period) then ended, to be greater than the ratio set forth below
opposite the respective period in which the determination is being made:
Period Ratio
- ------ -----
From and including the Initial Funding Date through and including 3.85:1.00
September 29, 1999
Front and including September 30, 1999 3.50:1.00
through and including December 30, 2000
From and including December 31, 2000 3.25:1.00
through and including December 30. 2001
From and including December 31, 2001 through and 2.75:1.00
including December 30, 2002
From and including December 31, 2002 through and 2.50:1:00
including December 30, 2003
Thereafter 2.00:1.00"
Q. Section 8.17 of the Credit Agreement is hereby amended by
deleting the section in its entirety and inserting in lieu thereof the following
new section:
"8.17 Interest Coverage Ratio. The Company shall not permit,
as of the last day of each calendar quarter during the periods listed below, its
Interest Coverage Ratio at such time for the twelve month period (taken as one
accounting period) then ended, to be less than the ratio set forth below
opposite the respective period in which the determination is being made:
Period Ratio
- ------ -----
-10-
<PAGE>
Period Ratio
- ------ -----
From and including the Initial Funding Date through and including 1.75:1.00
September 29, 1999
From and including September 30, 1999 2.25:1.00
through and including December 30, 2000
Thereafter 2.50:1.00"
R. Section 8.18 of the Credit Agreement is hereby amended by
deleting the section in its entirety and inserting in lieu thereof the following
new section:
"8.18 Fixed Charge Coverage Ratio. The Company shall not permit, as
of the last day of each calendar quarter during the periods listed below,
its Fixed Charge Coverage Ratio at such time for the twelve month period
(taken as one accounting period) then ended, to be less than the ratio set
forth below opposite the respective period in which the determination is
being made:
Period Ratio
- ------ -----
From and including the Initial Funding Date 1.70:1.00
through and including December 30, 2001
From and including December 31, 2001 1.80:1.00
through and including December 30, 2002
Thereafter 2.00:1.00"
S. Section 8.19 of the Credit Agreement is hereby amended by
deleting the section in its entirety and inserting in lieu thereof the following
new section:
"8.19 Permitted Capital Expenditures. The Company may make
Capital Expenditures during any fiscal year beginning January 1, 2000, in an
amount not to exceed $27,000,000 (the "Capex Allowance"); provided, however,
that to the extent Capital Expenditures of the Company during any fiscal year
are less than the Capex Allowance for such fiscal year, 50% of the difference
between the Capex Allowance and the actual Capital Expenditures for such fiscal
year may be utilized by the Company and its Subsidiaries solely during the next
fiscal year in addition to the Capex Allowance for such fiscal year.
Notwithstanding anything in this Section 8.19 to the contrary, during the period
from September 1, 1999 to December 31, 1999, the Company and its Subsidiaries
may make Capital Expenditures in an amount not to exceed $ 12,000,000 (such
amount not to he carried forward if not used during such period)."
-11-
<PAGE>
T. Section 8.20 of the Credit Agreement is hereby further
amended by deleting the "and" at the end of paragraph (iv) thereof, by deleting
paragraph (v) in its entirety, by inserting the following paragraph (v) and the
following new paragraph (vi):
"(v) The Company shall not amend or modify (i) the rights,
preferences, powers, privileges and restrictions, qualifications, limitations,
terms and conditions of the Preferred Stock or (ii) the Preferred Stock
Documents; provided, however, the Company shall be permitted to amend the
Charter of the Company to the extent necessary to comply with Section
8.05(k)(II)(K), or the proviso to Section 8.10(d) hereof; and
(vi) (I) change or amend the terms of any Subordinated
Acquisition Debt or Heritage Subordinated Liquidity Facility (or any indenture,
note or other agreement in connection therewith) if the effect of such amendment
is to: (1) increase the interest rate on such Subordinated Acquisition Debt or
Heritage Subordinated Liquidity Facility; (2) change the dates upon which
payments of principal or interest are due on such Subordinated Acquisition Debt
or Heritage Subordinated Liquidity Facility other than to extend such dates; (3)
change any default or event of default relating thereto other than to delete or
make less restrictive any default provision therein, or add any covenant with
respect to such Subordinated Acquisition Debt or Heritage Subordinated Liquidity
Facility; (4) change the redemption or prepayment provisions of such
Subordinated Acquisition Debt or Heritage Subordinated Liquidity Facility other
than to extend the dates therefor or to reduce the premiums payable in
connection therewith; (5) grant any security or Lien to secure such Subordinated
Acquisition Debt or Heritage Subordinated Liquidity Facility; (6) change any
subordination provisions, terms or conditions; or (7) change or amend any other
term if such change or amendment would materially increase the obligations of
the obligor or confer additional material rights to the holder of such
Subordinated Acquisition Debt or Heritage Subordinated Liquidity Facility in a
manner adverse to a Credit Party or any of its Subsidiaries, the Agent or any
Lender, or (II) prepay, defease or purchase any Subordinated Acquisition Debt or
Heritage Subordinated Liquidity Facility, except that the Company may
voluntarily prepay the Heritage Subordinated Liquidity Facility at any time
pursuant to a conversion of any Indebtedness outstanding under such Heritage
Subordinated Liquidity Facility into common stock of the Company so long as such
conversion is permitted under and would not trigger or require a prepayment or
redemption of any kind under the Preferred Stock Documents or the Senior
Subordinated Note Documents."
U. Section 8.21 of the Credit Agreement is hereby further
amended by deleting paragraph (v) thereof and replacing it with the following
new paragraph (v):
"(v) in no event shall the aggregate amount of such
intercompany indebtedness owing by the Subsidiaries other than the Credit
Parties to the Credit Parties exceed the amount permitted pursuant to Section
8.04(1) plus $20,000,000, provided, however, that no more than $10,000,000 of
such amount shall be intercompany loans to Van De Steeg Packaging B.V., and no
more than (x) at any time prior to the date the Target delivers the Target
Security Document, $10,000,000 and (y) thereafter $5,000,000, shall be
attributable to intercompany loans made to a Subsidiary that is not a Subsidiary
Guarantor; provided, further, that in addition to the amounts set forth in this
paragraph (v) above the Company may also make intercompany
-12-
<PAGE>
loans to any Wholly-Owned Subsidiary of the Company that will be the acquiror of
Pollard in an aggregate amount up to $3,00,000 to fund the ****** Acquisition
plus up to $5,500,000 to any Wholly-Owned Subsidiary that may be created to
purchase Atlantic in connection with the Atlantic Acquisition, so long as such
new Subsidiary created in the Atlantic Acquisition becomes a Subsidiary
Guarantor simultaneous with the making of such intercompany loans."
V. Section 9.01(c) of the Credit Agreement is hereby amended
by deleting such subsection in its entirety and inserting in lieu thereof the
following new subsection:
"(c) Specific Defaults. Any Credit Party fails to perform or
observe any term, covenant or agreement contained in any of Sections 7.01, 7.02,
7.03, 7.06, 7.12, 7.16 or 7.20 or in Article VIII; or"
W. Section 9.01(g)(ii) of the Credit Agreement is hereby
amended by inserting before the ";" at the end thereof the following new
language:
", or presentation of a petition for an administration order
under the Insolvency Act 1986 [UK]"
X. A new Section 10.13 shall he added to the Credit Agreement
to read in its entirety as follows:
"10.13 Assignment under Dutch Law. In connection with any
assignment and delegation of all, or any part of, the Loans, the Commitments,
the L/C Obligations and the other rights or obligations of any Lender (or former
Lender) hereunder, the Agent is authorized on behalf of both the assignor Lender
and the assignee Lender, without necessity of any notice to or further consent
from such Lenders (or former Lenders, if applicable), to take any action the
Agent deems reasonably necessary or appropriate to assign a corresponding
interest in the community of Lenders (which is a community in accordance with
Article 166 (and subsequent articles) of Book 3 of the Dutch Civil Code),
including without limitation the rights and interests of such assignor Lender
(whether held directly or indirectly through the Agent) under any Loan Documents
in any pledged stock or equity interest of any corporation or other Legal entity
organized under the laws of the Kingdom of the Netherlands and constituting
Collateral, to the assignee Lender. The Agent will notify the Company and each
pledgor of any pledged stock or equity interest of any such corporation or other
legal entity organized under the laws of the Kingdom of the Netherlands of the
assignment of the rights under this Agreement and under any deed of pledge or
similar Loan Documents evidencing such security interest to the assignee Lender
in writing in advance. Each such pledgor and the Company acknowledge and agree
that Lenders may assign their interests from time to time as described in this
Section 10.13."
Y. A new Schedule 1(c) is added to the Agreement in the form
of Exhibit A hereto and the existing Schedule 6.19 to the Credit Agreement is
hereby amended by replacing such schedule in its entirety with the Schedule 6.19
attached hereto as Exhibit B.
* Confidential treatment requested material omitted and filed separately with
the commission.
-13-
<PAGE>
Section 2. Consent to Amendment of Charter. The Agent and the
undersigned Lenders hereby consent to the amendment of (a) the Fourth Amended
and Restated Certificate of Incorporation of the Company in a form reasonably
satisfactory to the Agent to permit the transactions contemplated by this
Amendment and by the New Acquisition Documents and (b) the Preferred Stock
Documents to waive the requirement for delivery of legal opinions in connection
with transfers of securities referred to therein to affiliates of the holders
thereof.
Section 3. Reference to and Effect Upon the Credit Agreement.
(a) Except as specifically amended above, the Credit Agreement
shall remain in full force and effect and is hereby ratified and
confirmed.
(b) The execution, delivery and effectiveness of this
Amendment shall not operate as a waiver of any right, power or remedy of
the Agent or any Lenders under the Credit Agreement, nor constitute a
waiver of any provision of the Credit Agreement, except as specifically
set forth herein. Upon the effectiveness of this Amendment, each reference
in the Agreement to "this Agreement", "hereunder", "hereof", "herein" or
words of similar import shall mean and be a reference to the Credit
Agreement as amended hereby.
Section 4. GOVERNING LAW. THIS AMENDMENT SHALL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE INTERNAL LAWS OF THE STATE OF ILLINOIS.
Section 5. Headings. Section headings in this Amendment are included
herein for convenience of reference only and shall not constitute a part of this
Amendment for any other purposes.
Section 6. Counterparts. This Amendment may be executed in any
number of counterparts, each of which when so executed shall be deemed an
original but all such counterparts shall constitute one and the same instrument.
Section 7. Amendment Fee. In connection with the approval of this
Amendment, the Company hereby agrees to pay to the Agent for the pro-rata
benefit of each Lender consenting to this Amendment prior to 5:00 p.m. (Chicago
time) on November 2, 1999 an amendment fee equal to 1/3% of each such consenting
Lender's Commitment (the "Amendment Fee").
Section 8. Effectiveness.
This Amendment shall become effective as of the date first written
above after completion of the following:
(a) delivery to the Agent of executed signature pages for this
Amendment signed by the Company, the L/C Borrowers, the Subsidiary
Guarantors, the Agent and Lenders constituting both Majority Lenders and
holding at least 85% of the Term Loan B Commitment;
-14-
<PAGE>
(b) receipt by the Agent of an executed legal opinion from counsel
to the Company and Heritage in form and substance acceptable to the Agent
including, without limitation, opinions Concerning the execution,
delivery, validity, and enforceability of this Amendment and opinions that
this Amendment does not conflict with, violate or require any prepayments
under the Senior Subordinated Note Documents or the Preferred Stock
Documents;
(c) delivery to the Agent of certified copies of the Thamesdown
Acquisition Documents in form and substance reasonably satisfactory to
Agent together with evidence reasonably acceptable to the Agent of the
consummation of the Thamesdown Acquisition in accordance therewith;
(d) payment in cash of the Amendment Fee to the Agent on behalf of
the Lenders;
(e) delivery to the Agent of a certified copy of the amendment to
the Preferred Stock Documents in form and substance acceptable to the
Agent together with evidence of the filing and effectiveness of an
amendment to the Company's Certificate or Incorporation as called for
thereunder; and
(f) such other approvals, opinions, documents or materials as the
Agent may reasonably request.
Section 9. Representations and Warranties. Each of the Company and
each L/C Borrower hereby represents and warrants as to itself that:
(a) The execution, delivery and performance by each such Person of
this Amendment have been duly authorized by all necessary corporate action
and that this Amendment constitutes the legal, valid and binding
obligation of such Person, enforceable against such Person in accordance
with their respective terms, except as enforceability may be limited by
applicable bankruptcy, insolvency, or similar laws affecting the
enforcement of creditors' rights generally or by equitable principles
relating to enforceability;
(b) the execution, delivery and performance by each such Person of
this Amendment, the consummation of the New Acquisitions (the Proposed
Acquisition Transactions") and the issuance of any Subordinated
Acquisition Debt will not conflict with or result in any breach or
contravention of, or the creation of any Lien under, any document
evidencing any Contractual Obligation (including, but not limited to, the
Preferred Stock Documents and the Senior Subordinated Note Documents) to
which such Person is a party or any order, injunction, writ or decree of
any Governmental Authority to which such Person or its property is
subject, and will not require any prepayment of the Senior Subordinated
Notes or any redemption of the Preferred Stock;
(c) Each of the representations and warranties contained in the
Credit Agreement, after giving effect to this Amendment and the Proposed
Acquisition Transactions is true and correct in all material respects on
and as of the date hereof as if
-15-
<PAGE>
made on the date hereof (except to the extent such representations and
warranties expressly refer to an earlier date, in which case they are true
and correct as of such earlier date); and
(d) After giving effect to this Amendment, no Default or Event of
Default has occurred and is continuing.
Section 10. Reaffirmation of Guaranties. The Company and each L/C
Borrower and Subsidiary Guarantor as a guarantor of the Obligations under each
Guaranty and the other Loan Documents, hereby reaffirms its continuing
obligations and liabilities thereunder, and agrees that each such Guaranty and
the other Loan Documents shall remain in full force and effect and cover and
extend to all Obligations under the Credit Agreement (as amended hereby).
[Signature Pages Follow]
-16-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Amendment
by their duly authorized officers as of the date first written above.
IMPAC GROUP, INC.
By: /s/ David C. Underwood
---------------------------------------------
Title: CHIEF FINANCIAL OFFICER
------------------------------------------
AGI INCORPORATED
By: /s/ David C. Underwood
---------------------------------------------
Title: CHIEF FINANCIAL OFFICER
------------------------------------------
KLEARFOLD, INC.
By: /s/ David C. Underwood
---------------------------------------------
Title: CHIEF FINANCIAL OFFICER
------------------------------------------
BANK OF AMERICA, N.A., as Agent
By:
---------------------------------------------
Title:
------------------------------------------
BANK OF AMERICA, N.A.,
individually as a Lender, the Swing Line
Lender and the Issuing Bank
By:
---------------------------------------------
Title:
------------------------------------------
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Amendment
by their duly authorized officers as of the date first written above.
IMPAC GROUP, INC.
By:
---------------------------------------------
Title:
------------------------------------------
AGI INCORPORATED
By:
---------------------------------------------
Title:
------------------------------------------
KLEARFOLD, INC.
By:
---------------------------------------------
Title:
------------------------------------------
BANK OF AMERICA, N.A., as Agent
By: /s/ Michael Parashlu
---------------------------------------------
Title: Agency Officer
------------------------------------------
BANK OF AMERICA, N.A.,
individually as a Lender, the Swing Line
Lender and the Issuing Bank
By: /s/ [ILLEGIBLE]
---------------------------------------------
Title: Senior Vice President
------------------------------------------
<PAGE>
SOCIETE GENERALE, as a Lender
By: /s/ Michael O. Lincoln
---------------------------------------------
Name: Michael O. Lincoln
-------------------------------------------
Title: Director
------------------------------------------
ABN AMRO BANK, N.V., as a Lender
By:
---------------------------------------------
Name:
-------------------------------------------
Title:
------------------------------------------
By:
---------------------------------------------
Name:
-------------------------------------------
Title:
------------------------------------------
DRESDNER BANK AG NEW YORK
AND GRAND CAYMAN BRANCHES,
as a Lender
By:
---------------------------------------------
Name:
-------------------------------------------
Title:
------------------------------------------
By:
---------------------------------------------
Name:
-------------------------------------------
Title:
------------------------------------------
<PAGE>
SOCIETE GENERALE, as a Lender
By:
---------------------------------------------
Name:
-------------------------------------------
Title:
------------------------------------------
ABN AMRO BANK, N.V., as a Lender
By:
---------------------------------------------
Name:
-------------------------------------------
Title:
------------------------------------------
By:
---------------------------------------------
Name:
-------------------------------------------
Title:
------------------------------------------
DRESDNER BANK AG NEW YORK
AND GRAND CAYMAN BRANCHES,
as a Lender
By: /s/ John R. Morrison
---------------------------------------------
Name: JOHN R. MORRISON
-------------------------------------------
Title: VICE PRESIDENT
------------------------------------------
By: /s/ Anthony C. Carabello
---------------------------------------------
Name: ANTHONY C. CARABELLO
-------------------------------------------
Title: VICE PRESIDENT
------------------------------------------
<PAGE>
THE BANK OF NOVA SCOTIA, as a Lender
By:
---------------------------------------------
Name:
-------------------------------------------
Title:
------------------------------------------
THE FUJI BANK, LIMITED, as a Lender
By:
---------------------------------------------
Name:
-------------------------------------------
Title:
------------------------------------------
SENIOR DEBT PORTFOLIO, as a Lender
By: Boston Management and Research, as Investment
Advisor
By: /s/ Scott H. Page
---------------------------------------------
Name: SCOTT H. PAGE
-------------------------------------------
Title: VICE PRESIDENT
------------------------------------------
UNION BANK OF CALIFORNIA, N.A., as a Lender
By:
---------------------------------------------
Name:
-------------------------------------------
Title:
------------------------------------------
<PAGE>
THE BANK OF NOVA SCOTIA, as a Lender
By:
---------------------------------------------
Name:
-------------------------------------------
Title:
------------------------------------------
THE FUJI BANK, LIMITED, as a Lender
By:
---------------------------------------------
Name:
-------------------------------------------
Title:
------------------------------------------
SENIOR DEBT PORTFOLIO, as a Lender
By: Boston Management and Research, as Investment
Advisor
By:
---------------------------------------------
Name:
-------------------------------------------
Title:
------------------------------------------
UNION BANK OF CALIFORNIA,N.A., as a Lender
By: /s/ Bryan F. Bowles
---------------------------------------------
Name: Bryan F. Bowles
-------------------------------------------
Title: Investment Banking Officer
------------------------------------------
<PAGE>
Acknowledged and Agreed to by the undersigned as of the date first set forth
above.
KF - INTERNATIONAL, INC.
By: /s/ David C. Underwood
---------------------------------------------
Title: CHIEF FINANCIAL OFFICER
------------------------------------------
KF - DELAWARE, INC.
By: /s/ David C. Underwood
---------------------------------------------
Title: CHIEF FINANCIAL OFFICER
------------------------------------------
IMPAC EUROPE HOLDINGS LIMITED (f/k/a/IMPAC
EUROPE LIMITED)
By: /s/ David C. Underwood
---------------------------------------------
Title: CHIEF FINANCIAL OFFICER
------------------------------------------
LEVELPROMPT LIMITED
By: /s/ David C. Underwood
---------------------------------------------
Title: CHIEF FINANCIAL OFFICER
------------------------------------------
IMPAC EUROPE LIMITED (f/k/a/ TINSLEY ROBOR
LIMITED)
By: /s/ David C. Underwood
---------------------------------------------
Title: CHIEF FINANCIAL OFFICER
------------------------------------------
<PAGE>
Acknowledged and Agreed to by the undersigned as of the date first set forth
above.
KF - INTERNATIONAL, INC.
By:
---------------------------------------------
Title:
------------------------------------------
KF - DELAWARE, INC.
By:
---------------------------------------------
Title:
------------------------------------------
IMPAC EUROPE HOLDINGS LIMITED (f/k/a/IMPAC
EUROPE LIMITED)
By: /s/ L. Newbon /s/ M.S. Lawson
---------------------------------------------
Title: L. Newbon M.S. Lawson
------------------------------------------
Director Director
LEVELPROMPT LIMITED
By: /s/ L. Newbon /s/ M.S. Lawson
---------------------------------------------
Title: L. Newbon M.S. Lawson
------------------------------------------
Director Director
IMPAC EUROPE LIMITED (f/k/a/ TIMSLEY ROBOR
LIMITED)
By: /s/ L. Newbon /s/ M.S. Lawson
---------------------------------------------
Title: L. Newbon M.S. Lawson
------------------------------------------
Director Director
<PAGE>
TINSLEY ROBOR LABELS LIMITED
By: /s/ L. Newbon /s/ M.S. Lawson
---------------------------------------------
Title: L. Newbon M.S. Lawson
------------------------------------------
Director Director
JAMES UPTON LIMITED
By: /s/ L. Newbon /s/ M.S. Lawson
---------------------------------------------
Title: L. Newbon M.S. Lawson
------------------------------------------
Director Director
SONICON LIMITED
By: /s/ L. Newbon /s/ M.S. Lawson
---------------------------------------------
Title: L. Newbon M.S. Lawson
------------------------------------------
Director Director
TINSLEY ROBOR AUDIO AND COMPUTER
SERVICES LIMITED
By: /s/ L. Newbon /s/ M.S. Lawson
---------------------------------------------
Title: L. Newbon M.S. Lawson
------------------------------------------
Director Director
TINSLEY ROBOR SALES LIMITED
By: /s/ L. Newbon /s/ M.S. Lawson
---------------------------------------------
Title: L. Newbon M.S. Lawson
------------------------------------------
Director Director
TOPHURST PROPERTIES LIMITED
By: /s/ L. Newbon /s/ M.S. Lawson
---------------------------------------------
Title: L. Newbon M.S. Lawson
------------------------------------------
Director Director
<PAGE>
TINSLEY ROBOR (OVERSEAS) LIMITED
By: /s/ M.S Lawson /s/ A.T. Smith
---------------------------------------------
Title: M.S Lawson A.T. Smith
------------------------------------------
Director Secretary
<PAGE>
Exhibit A
SCHEDULE 1(c)
Description of New Acquisitions
Atlantic Acquisition: The acquisition of all of the outstanding capital
stock of Atlantic Packaging Corporation ("Atlantic") by the Company, or a
transitory Subsidiary of the Company which will be merged with and into
Atlantic, for an aggregate purchase price of $7,500,000 (subject to proposed
adjustments for changes in shareholders' equity), of which $5,500,000 (subject
to adjustment as stated) will be payable in cash at closing pursuant to a Stock
Purchase Agreement with the shareholders of Atlantic, and $2,000,000 will be
paid in stock of the Company pursuant to a Stock Exchange Agreement between the
Company and the shareholders of Atlantic.
*****
Thamesdown Acquisition: The acquisition by the Company of all of the
outstanding stock of Thamesdown Colour Limited for an aggregate purchase price
of (Pound)6,537,750 ($10,721,910), subject to certain adjustments, of which
(Pound)1,487,500 ($2,857,500) will be paid in stock of the Company,
(Pound)150,000 ($246,000) will be paid following completion of the initial
post-closing audit, with the remainder of the purchase price (i.e.,
(Pound)4,950,250 or $8,118,410) being paid to the sellers at closing. In
addition, capital leases of approximately (Pound)1,902,000 ($3,119,280) (figure
as of July 1999) will be assumed.
In describing the Thamesdown and ****** Acquisitions, an exchange rate of
$1.64 : (Pound)1 was used (as of October 27th)
*Confidential treatment requested: material omitted and filed separately with
the Commission.
<PAGE>
Exhibit B
SCHEDULE 6.19
Capitalization; Subsidiaries and Minority Interests
(a) Subsidiaries
(i) IMPAC Group, Inc.:
Klearfold, Inc., a Pennsylvania corporation - all of the issued and
outstanding shares (100) of common stock of Klearfold, Inc. are owned by
the Company.
AGI Incorporated, an Illinois corporation - all of the issued and
outstanding shares (100) of common stock of AGI Incorporated are owned by
the Company.
IMPAC Europe Holdings Limited, a private limited company
incorporated under the laws of England and Wales ("IEHL"), previously
known as IMPAC Europe Limited - ninety-nine (99) shares of capital stock
of IEHL are owned by the Company, and one (1) share of capital stock of
IEHL is owned by Levelprompt Limited.
Levelprompt Limited, a private limited company incorporated under
the laws of England and Wales - all of the issued and outstanding shares
of capital stock of Levelprompt Limited are owned by the Company.
(ii) Klearfold, Inc.:
KF-Delaware, Inc., a Delaware corporation - all of the issued and
outstanding shares (100) of common stock of KF-Delaware, Inc. are owned by
Klearfold, Inc.
KF-International, Inc., a U.S. Virgin Islands corporation - all of
the issued and outstanding shares (1,000) of common stock of
KF-International, Inc. are owned by Klearfold, Inc.
(iii) IMPAC Europe Holdings Limited:
IEHL owns all of the issued and outstanding shares of capital stock
of Impac Europe Limited, a private limited company incorporated under the
laws of England and Wales previously known as Tinsley Robor Limited. Impac
Europe Limited is the
<PAGE>
-2-
beneficial owner of one hundred percent of the shares of capital stock of
each of its Subsidiaries, as shown on Attachment A to this Schedule 6.19.
James Upton Holding B.V., a limited company organized under the laws of
the Netherlands and a wholly-owned subsidiary of Impac Europe Limited, is
the beneficial owner of one hundred percent of the shares of capital stock
of each of its Subsidiaries, also as shown on such Attachment A.
(b) Equity Investments
TR ESOP Limited, a Subsidiary of Impac Europe Limited, owns a nominal
amount (in most instances, 1 share) of the capital stock of certain competitors
of the Company and its Subsidiaries.
(c) Capitalization
The capitalization of the Company is as follows:
(i) Authorized:
1,000,000 shares of Series A Common Stock, $0.001 par value per share.
100,000 shares of Series B Common Stock, $0.001 par va1ue per share.
50,000 shares of Series A Redeemable Preferred Stock, $0.001 par value per
share.
(ii) Issued and Outstanding:
A: Series A Common Stock
161,919.59 shares of Series A Common Stock, held as set forth on Attachment B to
this Schedule 6.19.
B: Series B Common Stock:
4,500 shares of Series B Common Stock, held by Heritage Fund II, L.P.
C: Series A Redeemable Preferred Stock:
20,000 shares of Series A Redeemable Preferred Stock, held as follows:
<PAGE>
-3-
Name of Holder Number of Shares
- -------------- ----------------
BT Capital Investors, L.P. 12,000
Phoenix Home Life Mutual 8,000
Insurance Company
(iii) Options:
A: Options for the purchase of 760 shares of the Company's Series A Common
Stock are outstanding under the Company's 1998 Stock Option Plan. Stock to
be issued under these options is to be acquired by the Company from Melvin
Herrin, Scott Herrin and their respective trusts, pursuant to the Stock
Purchase Agreement, dated as of March 12, 1998, which is listed as item
(e) in Schedule 8.06 hereto.
B. Second 1998 Stock Option Plan of the Company, approved by the Company's
Board of Directors on December 14, 1998, provides for issuance of up to
20,000 shares of Series A Common Stock to employee or directors of, or
consultants to, the Company or any of its Subsidiaries. Options to acquire
a total of 17,199 shares of Series A Common Stock have been granted under
this Plan.
C. Pursuant to the Executive Share Option Scheme 1988 and the Senior
Executive Incentive Scheme 1994 of Impac Europe Limited, certain holders
of options to acquire the stock of Impac Europe Limited issued when that
company was known as Tinsley Robor plc have converted such options into
options to acquire approximately 3,457 shares of the Company's Series B
Common Stock.
(iv) Warrants:
Warrants for the purchase of 6,918.33 shares of the Company's Series A
Common Stock, held as follows:
Name of Holder Warrants for Following
- -------------- ----------------------
Number of Shares
----------------
BT Capital Investors, L.P. 4,148
Phoenix Home Life Mutual 2,765.33
Insurance Company
<PAGE>
Attachment A
Impac Europe Limited Group Structure -----------------
(each a limited company organized in Impac Europe (100% shareholding in all
England and Wales, unless otherwise Limited subsidiary companies)
stated) -----------------
[Organizational Chart Omitted]
-----------------------------------------------------------
The following companies are non-trading companies, all of
whose shares are held by Impac Europe Limited:
Tinsley Robor Audio and Computer Services Limited
Pinepoint Limited
Tinsley-Robor (Overseas) Limited
Admat Labels Limited
S. Tinsley & Company Limited
TRG Graphics Limited
Arun Labels Limited
R&B Litho Reproductions Limited
Icon Communications Limited
TR Displayprint Limited
Pinepoint Colour Response Limited
Tinsley Robor Packaging Limited
-----------------------------------------------------------
<PAGE>
Attachment B
================================================================================
Series A Common Stockholders - By Name
<TABLE>
<CAPTION>
================================================================================================
Stockholder Name Shares
================================================================================================
<S> <C> <C>
Arthur S. Keyser, Matthew H. Kamens and H. Total Shares: 7,958,500
Scott Herrin, as Trustees under an
irrevocable Deed of Trust dated 8/12/92 f/b/o
H. Scott Herrin
Percent of Total Outstanding: 4.92%
Baker, Colin Total Shares: 150,980
Percent of Total Outstanding: 0.10%
Block, Richard Total Shares: 19,005,350
Percent of Total Outstanding: 11.74%
Block, Zenea Total Shares: 293,000
Percent of Total Outstanding: 0.18%
Block, Freya, as Trustee of the Richard A. Total Shares: 4,024,000
Block Family Trust u/t/a/ dated 4/1/94
Percent of Total Outstanding: 2.49%
Brodrip, Alex Total Shares: 10,140
Percent of Total Outstanding: 0.01%
Coll, Michael Total Shares: 160,980
Percent of Total Outstanding: 0.10%
Doherty, Paula Total Shares: 500,000
Percent of Total Outstanding: 0.31%
Donald W. Kosterka, as Trustee of the Total Shares: 1,551,940
Donald Kosterka Trust dated 5/17/92
Percent of Total Outstanding: 0.96%
Ellason, Robert Total Shares: 220,500
Percent of Total Outstanding: 0.14%
Frazier, Steve Total Shares: 73,500
Percent of Total Outstanding: 0.05%
Griffin, Mary Frances Total Shares: 484,000
Percent of Total Outstanding: 0.30%
</TABLE>
1
<PAGE>
<TABLE>
<CAPTION>
================================================================================================
Stockholder Name Shares
================================================================================================
<S> <C> <C>
Henkel, Dean Total Shares: 1,891,000
Percent of Total Outstanding: 1.17%
Heritage Fund I, L.P. Total Shares: 56,431,150
Percent of Total Outstanding: 34.65%
Heritage Fund II Investment Corporation Total Shares: 6,227,320
Percent of Total Outstanding: 3.85%
Heritage Fund II, L.P. Total Shares: 36,577,690
Percent of Total Outstanding: 22.59%
Herrin, Melvin B. Total Shares: 4,954,000
Percent of Total Outstanding: 3.07%
Horowitz, David H. Total Shares: 588,000
Percent of Total Outstanding: 0.36%
Lawson, M. Shaun Total Shares: 645,000
Percent of Total Outstanding: 0.40%
Menkoff, Gary Total Shares: 2,941,000
Percent of Total Outstanding: 1.62%
Maranov, John Total Shares: 1,028,000
Percent of Total Outstanding: 0.64%
Matthew H. Kamen and Arthur S. Keyser, as Total Shares: 3,916,000
Trustees under an irrevocable Deed of Trust
dated 8/4/96 of Melvin B. Herrin
Percent of Total Outstanding: 2.42%
Mazurek, Richard Total Shares: 73,500
Percent of Total Outstanding: 0.05%
McGuin, Dennis Total Shares: 484,000
Percent of Total Outstanding: 0.30%
McInerney, John Total Shares: 499,390
Percent of Total Outstanding: 0.31%
Onufrey, Steve Total Shares: 50,000
Percent of Total Outstanding: 0.03%
</TABLE>
Company Name: IMPAC Group, Inc. 2
Date: 10/28/1999
<PAGE>
<TABLE>
<CAPTION>
================================================================================================
Stockholder Name Shares
================================================================================================
<S> <C> <C>
Oppenheimer, James Total Shares: 3,113,500
Percent of Total Outstanding: 1.92%
Oppenheimer, Richard Total Shares: 4,440,000
Percent of Total Outstanding: 2.74%
Panveno, Mike Total Shares: 100,000
Percent of Total Outstanding: 0.05%
Parker, Ian Total Shares: 16,100
Percent of Total Outstanding: 0.01%
Underwood, David Total Shares: 3,318,470
Percent of Total Outstanding: 2.05%
Van Heppen, Geri Total Shares: 12,880
Percent of Total Outstanding: 0.01%
Wilson, Craig Total Shares: 73,500
Percent of Total Outstanding: 0.05%
Yoos, Jay Total Shares: 85,000
Percent of Total Outstanding: 0.05%
_____________
Grand Total Shares: 161,919,590
</TABLE>
Company Name: IMPAC Group, Inc. 3
Date: 10/28/1999
<PAGE>
Exhibit 10.115
IMPAC GROUP, INC.
SECOND
1998 Stock Option Plan
<PAGE>
Article 1. Establishment, Effective Date, Objectives, and Duration ..... 1
Article 2. Definitions ................................................. 1
Article 3. Administration .............................................. 5
Article 4. Shares Subject to the Plan .................................. 6
Article 5. Eligibility and General Conditions of Options ............... 7
Article 6. Stock Options ............................................... 7
Article 7. Rights of Employees ......................................... 9
Article 8. Amendment, Modification, and Termination .................... 9
Article 9. Withholding ................................................. 10
Article 10. Pooling of Interests Accounting ............................. 11
Article 11. Cash Out of Options and Sale of Shares ...................... 11
Article 12. Successors .................................................. 12
Article 13. Additional Provisions ....................................... 12
<PAGE>
Impac Group, Inc.
1998 Second Stock Option Plan
Article 1. Establishment, Effective Date, Objectives, and Duration
1.1 Establishment of Plan. Impac Group, Inc., a Delaware corporation (the
"Company"), hereby establishes the Impac Group, Inc. Second 1998 Stock Option
Plan (the "Plan"), as set forth herein, effective ______ (the "Effective Date").
The Plan has been adopted by the Board of Directors of the Company and approved
by the stockholders of the Company.
1.2 Objectives of the Plan. The purposes of the Plan are to encourage
employees of the Company and its Subsidiaries to acquire a proprietary and
vested interest in the growth and performance of the Company, to generate an
increased incentive to contribute to the Company's future success and
prosperity, thus enhancing the value of the Company for the benefit of
shareholders, and to enhance the ability of the Company and its Subsidiaries to
attract and retain individuals of exceptional talent upon whom, in large
measure, the sustained progress, growth and profitability of the Company
depends.
1.3 Duration of the Plan. The Plan shall commence on the Effective Date
and shall remain in effect, subject to the right of the Board to amend or
terminate the Plan at any time pursuant to Article 9 hereof, until all Shares
subject to it shall have been acquired according to the Plan's provisions.
Article 2. Definitions
Whenever used in the Plan, the following terms shall have the meanings set
forth below:
2.1 "Article" means an Article of the Plan.
2.2 "Board" means the Board of Directors of the Company.
2.3 "Cause" means, unless otherwise defined in any Employment Agreement or
Option Agreement, any one or more of the following:
(i) a Grantee's commission of a crime which, in the judgment of the
Committee, is likely to result in injury to the Company or a Subsidiary;
(ii) the material violation by the Grantee of written policies of
the Company or a Subsidiary;
(iii) the habitual neglect by the Grantee in the performance of his
or her duties to the Company or a Subsidiary; or
<PAGE>
(iv) action or inaction by the Grantee in connection with his or her
duties to the Company or a Subsidiary resulting, in the judgment of the
Committee, in a material injury to the Company or a Subsidiary.
2.4 "Change of Control" means any of the following:
(i) the acquisition or holding (other than by the Company or any
current shareholder of the Company or any person under common control with
any current shareholder of the Company) by any person, entity or "group"
within the meaning of Section 13(d)(3) or 14(d)(2) of the Securities
Exchange Act of 1934 ("1934 Act"), (excluding, for this purpose, the
Company or its Subsidiaries) of beneficial ownership (within the meaning
of Rule 13d-3 promulgated under the 1934 Act) of the greater of 50% or
more of either the then-outstanding Common Stock or the combined voting
power of the Company's then-outstanding voting securities entitled to vote
generally in the election of directors ("Voting Power"); except that (A)
the following securities will not be considered in calculating the 50%
amount: (1) any securities acquired directly from the Company pursuant to
a written agreement with the Company, (2) any securities held by the
Company or a subsidiary or any employee benefit plan (or any related
trust) of the Company or a subsidiary and (B) no Change of Control shall
be deemed to have occurred solely by reason of (I) any such acquisition by
a corporation with respect to which, after such acquisition, more than 50%
of both the then-outstanding common shares of such corporation and the
Voting Power of such corporation are then beneficially owned, directly or
indirectly, by the persons who were the beneficial owners of the Common
Stock and voting securities of the Company immediately before such
acquisition in substantially the same proportion as their ownership,
immediately before such acquisition, of the then outstanding Common Stock
or the Voting Power of the Company, as the case may be or (II) an initial
public offering of Common Stock;
(ii) approval by the shareholders of the Company of (A) a merger,
reorganization or consolidation with respect to which persons who were the
respective beneficial owners of the Common Stock and Voting Power of the
Company immediately before such merger, reorganization or consolidation do
not, immediately thereafter, beneficially own, directly or indirectly,
more than 50% of, respectively, the then-outstanding common shares and the
Voting Power of the corporation resulting from such merger, reorganization
or consolidation, or (B) a liquidation or dissolution of the Company or
(C) the sale or other disposition of all or substantially all of the
assets of the Company.
2.5 "Code" means the Internal Revenue Code of 1986, as amended from time
to time, and regulations and rulings thereunder. References to a particular
section of the Code include references to successor provisions.
2.6 "Committee" has the meaning set forth in Article 3.
-2-
<PAGE>
2.7 "Common Stock" means the Series A common stock, $.O01 par value, of
the Company.
2.8 "Company" means Impac Group, Inc.
2.9 "Disability" means, unless otherwise defined in an Employment
Agreement or Option Agreement, a mental or physical condition which, in the
judgment of the Committee, renders a Grantee unable to perform any of the
principal job responsibilities which such Grantee held or the tasks to which
such Grantee was assigned at the time the disability was incurred, and which
condition is expected to be permanent or for an indefinite duration exceeding
two years.
2.10 "Effective Date" -- see Section 1.1.
2.11 "Eligible Person" means any employee (including any officer),
consultant or director of the Company or any Subsidiary.
2.12 "Employment Agreement" means, with respect to any Grantee, any
employment agreement by and between the Company or Subsidiary and such Grantee.
2.13 "Exchange Act" means the Securities Exchange Act of 1934, as amended
from time to time. References to a particular section of the Exchange Act
include references to successor provisions.
2.14 "Fair Market Value" means, with respect to Shares, as of any date,
(i) the closing price on the date of determination on the New York Stock
Exchange (or, if no sale of Shares was reported for such date, on the next
preceding date on which a sale of Shares was reported), (ii) if the Shares are
not listed on the New York Stock Exchange, the closing price on the date of
determination on such other national exchange on which the Shares are
principally traded or as reported by the National Market System, or similar
organization (or, if no sale of Shares was reported for such date, on the next
preceding date on which a sale of Shares was reported), or if no such quotations
are available, the average of the high bid and low asked quotations in the
over-the-counter market as reported by the National Quotation Bureau
Incorporated or similar organizations; or (iii) in the event that there shall be
no public market for the Shares, the fair market value of the Shares as
determined (which determination shall be conclusive) by the Committee.
2.15 "Fully Diluted Shares" means the total number of Shares then
outstanding plus all Shares issuable upon the conversion or exercise of any
Convertible Securities then outstanding but excluding any Shares issuable or
issued upon exercise of Options granted under this Plan or otherwise reserved
for issuance under this Plan.
2.16 "Grant Date" -- see Section 5.2.
-3-
<PAGE>
2.17 "Grantee" means an individual who has been granted an Option.
2.18 "including" or "includes" means "including, without limitation," or
includes, without limitation", respectively.
2.19 "Option" means an option granted under Article 6 of the Plan.
2.20 "Option Agreement" means the written agreement by which an Option
shall be evidenced.
2.21 "Option Price" means the price at which a Share may be purchased by a
Grantee pursuant to an Option.
2.22 "Option Term" means the period beginning on the Grant Date of an
Option and ending on the expiration date of such Option, as specified in the
Option Agreement for such Option and as may, in the discretion of the Committee
and consistent with the provisions of the Plan, be extended from time to time
prior to or after the expiration date of such Option then in effect.
2.23 "Permitted Transferee" means a person who is Grantee's spouse, lineal
ancestor, lineal descendant, a spouse of such ancestor or descendant, a trust
primarily for the benefit of Grantee or one or more of such persons, or a
partnership all the partners of which are Grantee or one or more of such
persons.
2.24 "Plan" means the Impac Group, Inc. Second 1998 Stock Option Plan, as
set forth herein and as amended from time to time.
2.25 "Required Withholding" -- see Article 9.
2.26 "Retirement" means by any Grantee, a Termination of Employment by the
Grantee on or after attaining age 62.
2.27 "Rule 16b-3" means Rule 16b-3 promulgated by the SEC under the
Exchange Act, as amended from time to time, together with any successor rule, as
in effect from time to time.
2.28 "SEC" means the United States Securities and Exchange Commission, or
any successor thereto.
2.29 "Section" means, unless the context otherwise requires, a Section of
the Plan.
2.30 "Share" means a share of Common Stock.
-4-
<PAGE>
2.31 "Subsidiary" means a United States or foreign corporation with
respect to which the Company owns, directly or indirectly, 50% (or such lesser
percentage as the Committee may specify, which percentage may be changed from
time to time and may be different for different entities) or more of the Voting
Power of such corporation.
2.32 "Termination of Employment" occurs on the first day on which an
individual is for any reason no longer employed by the Company or any Subsidiary
and is not a consultant or director of the Company or any Subsidiary. A
Termination of Employment shall include with respect to an individual who is an
employee of a Subsidiary or a consultant or director of a Subsidiary, the first
day on which such corporation ceases to be a Subsidiary.
Article 3. Administration
3.1 Committee. Subject to Article 8, and to Section 3.2, the Plan shall be
administered by the Board, or a committee appointed by the Board to administer
the Plan. Any references herein to "Committee" are references to the Board, or a
committee established by the Board, as applicable. To the extent the Board
considers it desirable to comply with or qualify under Rule 16b-3, the Committee
shall consist of two or more directors of the Company, all of whom qualify as
"non-employee directors" within the meaning of Rule 16b-3. The number of members
of the Committee shall from time to time be increased or decreased, and shall be
subject to such conditions, in each case as the Board deems appropriate to
permit transactions in Shares pursuant to the Plan to satisfy the conditions of
Rule 16b-3 as then in effect.
3.2 Powers of Committee. Subject to the express provisions of the Plan,
the Committee has full and final authority and sole discretion as follows:
(i) to determine when, to whom and in what amounts Options should be
granted and the terms and conditions applicable to each Option;
(ii) to construe and interpret the Plan and to make all
determinations necessary or advisable for the administration of the Plan;
(iii) to make, amend, and rescind rules relating to the Plan,
including rules with respect to the exercisability and nonforfeitability of
Options upon the Termination of Employment of a Grantee;
(iv) to determine the terms and conditions of all Option Agreements
(which need not be identical) and, with the consent of the Grantee, to amend any
such Option Agreement; provided that the consent of the Grantee shall not be
required for any amendment which (A) does not adversely affect the rights of the
Grantee, or (B) is necessary or advisable (as determined by the Committee) to
carry out the purpose of the
-5-
<PAGE>
Option as a result of any new or change in existing applicable law;
(v) to cancel, with the consent of the Grantee, outstanding Options
and to grant new Options in substitution therefor;
(vi) to accelerate the exercisability of, and to accelerate or waive
any or all of the terms and conditions applicable to, any Option or any group of
Options for any reason and at any time, including in connection with a
Termination of Employment (other than for Cause);
(vii) subject to Sections 1.3 and 5.3, to extend the time during
which any Option or group of Options may be exercised;
(viii) to make such adjustments or modifications to Options to
Grantees working outside the United States as are advisable to fulfill the
purposes of the Plan or to comply with applicable local law;
(ix) to impose such additional terms and conditions upon the grant,
exercise or retention of Options as the Committee may, before or concurrently
with the grant thereof, deem appropriate, including limiting the percentage of
Options which may from time to time be exercised by a Grantee; and
(x) to take any other action with respect to any matters relating to
the Plan for which it is responsible.
All determinations on all matters relating to the Plan or any Option
Agreement may be made in the sole and absolute discretion of the Committee and
all such determinations of the Committee shall be final, conclusive and binding
on all persons. No member of the Committee shall be liable for any action or
determination made in good faith with respect to the Plan or any Option.
Article 4. Shares Subject to the Plan
4.1 Number of Shares Available for Grants. Subject to adjustment as
provided in Section 4.2, the total number of Shares hereby reserved for issuance
under the Plan shall be 20,000 Shares. If any Shares hereunder are forfeited or
such Option otherwise terminates without the issuance of such Shares, the Shares
subject to such Option to the extent of any such forfeiture or termination shall
again be available for grant under the Plan. The Committee shall from time to
time determine the appropriate methodology for calculating the number of shares
issued pursuant to the Plan. Shares issued pursuant to the Plan may be treasury
shares or newly-issued Shares.
4.2 Adjustments in Authorized Shares. In the event of any merger,
reorganization, consolidation, recapitalization, stock dividend, stock split,
spin-off or other change in
-6-
<PAGE>
corporate structure affecting the Shares, such adjustment shall be made in the
aggregate number and class of Shares which may be delivered under the Plan, and
in the number, class and option price of Shares subject to outstanding Options
granted under the Plan, as may be determined to be appropriate by the Committee,
in its sole discretion, provided that the number of Shares subject to any Option
may include a fractional share. The grant of Options pursuant to the Plan shall
not affect in any way the right or power of the Company to make adjustments,
reclassifications, reorganizations or changes in its capital or business
structure or to merge or to consolidate or to dissolve, liquidate, or sell or
transfer all or any part of its business or assets.
Article 5. Eligibility and General Conditions of Options
5.1 Eligibility. The Committee may in its discretion grant Options to any
Eligible Person, whether or not he or she has previously received an Option.
5.2 Grant Date. The Grant Date of an Option shall be the date on which the
Committee grants the Option or such later date as specified in advance by the
Committee.
5.3 Maximum Term. Any provision of the Plan to the contrary
notwithstanding, the Option Term or other period during which an Option may be
outstanding shall under no circumstances extend more than 10 years after the
Grant Date, and shall be subject to earlier termination as herein provided.
5.4 Option Agreement. To the extent not set forth in the Plan, the terms
and conditions of each Option (which need not be the same for each grant or for
each Grantee) shall be set forth in an Option Agreement.
5.5 Restrictions on Share Transferability. The Committee may impose such
restrictions on any Shares acquired pursuant to the exercise or vesting of an
Option as it may deem advisable, including restrictions under applicable federal
securities laws, restrictions under any form of stockholders agreement between
the Company and the Grantee and requiring the Grantee to be bound by any or all
of the provisions contained in agreements between the Company and any of its
stockholders.
5.8 Nontransferability of Options. Each Option granted hereunder shall not
be assignable or transferable other than by will or the laws of descent and
distribution provided, however, that a Grantee may in any manner specified by
the Committee, (i) designate in writing a beneficiary who is a Permitted
Transferee to exercise his Option after the Grantee's death, and (ii) transfer
an Option to a Permitted Transferee if and to the extent permitted by the
Committee.
-7-
<PAGE>
Article 6. Stock Options
6.1 Grant of Options. Subject to the terms and provisions of the Plan,
Options may be granted to any Eligible Person in such number, and upon such
terms, and at any time and from time to time as shall be determined by the
Committee.
6.2 Option Agreement. Each Option grant shall be evidenced by an Option
Agreement that shall specify the Option Price, the Option Term, the number of
Shares to which the Option pertains, the time or times at which such Option
shall be exercisable and such other provisions as the Committee shall determine.
6.3 Option Price. The Option Price of an Option under this Plan shall be
determined in the sole discretion of the Committee.
6.4 Exercisability. Options shall be exercisable at such time or times as
determined by the Committee; provided that (a) in the case of a Grantee who has
an Employment Agreement if during the term of the agreement the Grantee is
terminated by the Company or Subsidiary (not for Cause) or if the Grantee
resigns for Good Reason (only if defined in the Employment Agreement and then to
the extent defined in the Employment Agreement), the Grantee's then outstanding
Options shall be exercisable on the date of such Termination of Employment
(provided that notwithstanding the foregoing, an Option shall not become
exercisable for Good Reason if the circumstances giving rise to such Good Reason
existed at the time the Option was granted); (b) all then outstanding Options
shall be exercisable upon a Change of Control; and (c) if a Grantee who is an
employee of a Subsidiary or a consultant or director of a Subsidiary has a
Termination of Employment as a result of the corporation ceasing to be a
Subsidiary, the Grantee's then outstanding Options shall be exercisable on the
date of such Termination of Employment. In the event that any Grantee shall have
a Termination of Employment for any reason which in the opinion of the Committee
shall constitute Cause, any Option still held by such person at such time shall
automatically terminate. The decision of the Committee as to what shall
constitute Cause shall be final and binding upon all concerned. Except as
otherwise provided in an Option Agreement, an Option may be exercised only if
the Grantee has been an employee of the Company or of any Subsidiary at all
times during the period beginning with the Grant Date and ending ninety (90)
days before the date of such exercise; provided that in the case of a Grantee
who has a Termination of Employment due to Retirement, Death or Disability (as
determined by the Committee), the ninety (90) days shall be extended to one (1)
year; and further provided that in the case of a Grantee who has an Employment
Agreement, if during the term of the agreement the Grantee is terminated by the
Company or Subsidiary (not for Cause) or if the Grantee resigns for Good Reason
(only if defined in the Employment Agreement and then to the extent defined in
the Employment Agreement), an Option may be exercised at any time prior to the
end of the term of the Employment Agreement if this results in a longer period
to exercise than otherwise provided for in this sentence. Except as otherwise
permitted by the Committee, only those Options exercisable at the date the
-8-
<PAGE>
Grantee's employment is terminated may be exercised during the period following
such termination, whether such termination is by Retirement or otherwise.
6.5 Payment. Options granted under this Article 6 shall be exercised by
the delivery of a written notice of exercise to the Company, setting forth the
number of Shares with respect to which the option is to be exercised,
accompanied by full payment for the Shares made by any one or more of the
following means subject to the approval of the Committee:
(A) in cash, by personal check or wire transfer;
(B) in Shares which have been held by the Grantee for at least six
months valued at their Fair Market Value on the date of exercise; or
(C) subject to applicable law, pursuant to procedures previously
approved by the Company, through the sale of the Shares acquired on
exercise of the Option through a broker dealer to whom the Grantee
has submitted an irrevocable notice of exercise and irrevocable
instructions to deliver promptly to the Company the amount of sale
or loan proceeds sufficient to pay for such Shares, together with,
if requested by the Company, the amount of federal, state, local or
foreign withholding taxes payable by Grantee by reason of such
exercise.
Article 7. Rights of Employees
7.1 Employment. Nothing in the Plan shall interfere with or limit in any
way the right of the Company or a Subsidiary to terminate any Grantee's
employment at any time, nor confer upon any Grantee the right to continue in the
employ of the Company or Subsidiary.
7.2 Participation. No employee shall have the right to be selected to
receive an Option under this Plan, or, having been so selected, to be selected
to receive a future Option.
-9-
<PAGE>
Article 8. Amendment, Modification, and Termination
8.1 Amendment, Modification, and Termination. Subject to the terms of the
Plan, the Board may at any time and from time to time, alter, amend, suspend or
terminate the Plan in whole or in part without the approval of the Company's
stockholders, except to the extent that such stockholder approval may be
required under the listing requirements of any securities exchange or national
market system on which are listed the Company's equity securities; provided that
shareholder approval is required to increase the number of Shares available
under the Plan (except as provided in Section 4.2).
8.2 Options Previously Granted. Notwithstanding any other provision of the
Plan to the contrary, no termination, amendment, or modification of the Plan
shall adversely affect in any material way any Option previously granted under
the Plan, without the written consent of the Grantee of such Option.
Article 9. Withholding
9.1 Mandatory Tax Withholding.
(a) Whenever under the Plan, Shares are to be delivered upon exercise of
an Option, the Company shall be entitled to require (i) that the Grantee remit
an amount in cash, sufficient to satisfy all federal, state, and local tax
withholding requirements related thereto ("Required Withholding"), (ii) the
withholding of such Required Withholding from compensation otherwise due to the
Grantee or (iii) any combination of the foregoing.
(b) Any Grantee who makes an election under Section 83(b) of the Code
shall remit to the Company an amount sufficient to satisfy all resulting
Required Withholding; provided that, in lieu of or in addition to the foregoing,
the Company shall have the right to withhold such Required Withholding from
compensation otherwise due to the Grantee.
9.2 Elective Share Withholding.
a. If permitted by the Committee in an Option Agreement and subject to the
following subsection, a Grantee may elect the withholding ("Share Withholding")
by the Company of a portion of the Shares otherwise deliverable to such Grantee
upon the exercise of an Option (a "Taxable Event") having a Fair Market Value
equal to (i) the minimum amount necessary to satisfy Required Withholding
liability attributable to the Taxable Event; or (ii) a greater amount, not to
exceed the estimated total amount of such Grantee's tax liability with respect
to the Taxable Event.
b. Each Share Withholding election shall be subject to the following
conditions:
(1) the Grantee's election must be made before the
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<PAGE>
date (the "Tax Date") on which the amount of tax to be withheld is
determined; and
(2) the Grantee's election shall be irrevocable.
9.3 Notification under Code Section 83(b). If the Grantee, in connection
with the exercise of any Option, makes the election permitted under Section
83(b) of the Code to include in such Grantee's gross income in the year of
transfer the amounts specified in Section 53(b) of the Code, then such Grantee
shall notify the Company of such election within 10 days of filing the notice of
the election with the Internal Revenue Service, in addition to any filing and
notification required pursuant to regulations issued under Section 83(b) of the
Code. The Committee may, in connection with the grant of an Option or at any
time thereafter, prohibit a Grantee from making the election described above.
Article 10. Pooling of Interests Accounting
If the Committee determines, prior to a sale or merger of the Company that
the Committee determines is reasonably likely to occur, that the grant or
exercise of Options would preclude the use of pooling of interests accounting
("pooling") after the consummation of such sale or merger and that such
preclusion of pooling would have a material adverse effect on such sale or
merger, the Committee may (a) make any adjustments in such Options prior to the
sale or merger that will permit pooling after the consummation of such sale or
merger or (b) cause the Company to pay the benefits attributable to such Options
(including for this purpose not only the spread between the then Fair Market
Value of the Shares subject to such Options and the Option Price applicable
thereto, but also the additional value of such Options, in excess of such
spread, as determined by the Committee) in the form of Shares if such payment
would not cause the transaction to remain or become ineligible for pooling.
-11-
<PAGE>
Article 11. Cash Out of Options and Sale of Shares
11.1 Change of Control. In connection with the occurrence of a Change of
Control involving the transfer of the Common Stock issuable upon exercise of
Options granted pursuant to this Plan (whether such transfer occurs pursuant to
a merger, reorganization, consolidation, sale or otherwise) (such transfer being
called a "Sale Transaction"), the Company may elect (which election shall be
evidenced by the Company's execution of a definitive agreement pertaining to the
Sale Transaction) to cancel unexercised Options concurrent with the closing of
the Sale Transaction provided that the Company causes the holders of such
Options to receive, as consideration for such cancellation, payment in an amount
(such amount being called the "Option Payment") equal to (A) the difference
between the per share consideration being paid to the holders of outstanding
Common Stock pursuant to the Sale Transaction and the per share exercise price
of the Option, (B) multiplied by the number of shares subject to such Option,
and (C) minus all applicable withholding taxes. Subject to the foregoing, the
Option Payment shall be payable to the Option holder at such times and subject
to such terms and conditions (including, without limitation, form of
consideration, time of payment, indemnity obligations and the like) as are
applicable generally to holders of outstanding Common Stock being transferred
pursuant to such Sale Transaction. If the Company elects to cancel the Options
pursuant to this Section 11.1, the Option holder shall be prohibited from
exercising his or her Options in connection with such Sale Transaction. The
terms of this Section 11.1 shall supersede the terms of Section 6.4 providing
for acceleration of Options upon a Change of Control and any other term of this
Plan inconsistent herewith.
11.2 Sale of Subsidiary. If a Grantee who is an employee of a Subsidiary
or a consultant or director of a Subsidiary has a Termination of Employment as a
result of the corporation ceasing to be a Subsidiary, the Grantee may during the
90-day period following such Termination of Employment elect to sell, and the
Company shall purchase, any Shares acquired on or after Termination of
Employment by the Grantee upon Option exercise at their Fair Market Value.
Article 12. Successors
All obligations of the Company under the Plan with respect to Options
granted hereunder shall be binding on any successor to the Company, whether the
existence of such successor is the result of a direct or indirect purchase,
merger, consolidation, or otherwise of all or substantially all of the business
and/or assets of the Company.
-12-
<PAGE>
Article 13. Additional Provisions
13.1 Gender and Number. Except where otherwise indicated by the context,
any masculine term used herein also shall include the feminine; the plural shall
include the singular and the singular shall include the plural.
13.2 Severability. If any part of the Plan is declared by any court or
governmental authority to be unlawful or invalid, such unlawfulness or
invalidity shall not invalidate any other part of the Plan. Any Section or part
of a Section so declared to be unlawful or invalid shall, if possible, be
construed in a manner which will give effect to the terms of such Section or
part of a Section to the fullest extent possible while remaining lawful and
valid.
13.3 Requirements of Law. The granting of Options and the issuance of
Shares under the Plan shall be subject to all applicable laws, rules, and
regulations, and to such approvals by any governmental agencies or national
securities exchanges as may be required. Notwithstanding any provision of the
Plan or any Option, Grantees shall not be entitled to exercise, or receive
benefits under, any Option, and the Company shall not be obligated to deliver
any Shares or deliver benefits to a Grantee, if such exercise or delivery would
constitute a violation by the Grantee or the Company of any applicable law or
regulation.
13.4 Securities Law Compliance. (a) If the Committee deems it necessary to
comply with any applicable securities law, or the requirements of any stock
exchange upon which Shares may be listed, the Committee may impose any
restriction on Shares acquired pursuant to Options under the Plan as it may deem
advisable. All certificates for Shares delivered under the Plan pursuant to any
Option or the exercise thereof shall be subject to such stop transfer orders and
other restrictions as the Committee may deem advisable under the rules,
regulations and other requirements of the SEC, any stock exchange upon which
Shares are then listed, any applicable securities law, and the Committee may
cause a legend or legends to be put on any such certificates to make appropriate
reference to such restrictions. If so requested by the Company, the Grantee
shall make a written representation to the Company that he or she will not sell
or offer to sell any Shares unless a registration statement shall be in effect
with respect to such Shares under the Securities Act of 1933, as amended, and
any applicable state securities law or unless he or she shall have furnished to
the Company an opinion of counsel, in form and substance satisfactory to the
Company, that such registration is not required.
(b) If the Committee determines that the exercise of, or delivery of
Shares pursuant to, any Option would violate any applicable provision of
securities laws or the listing requirements of any national securities exchange
or national market system on which are listed any of the Company's equity
securities, then the Committee may postpone any such exercise or delivery, as
applicable, but the Company shall use all reasonable efforts to cause such
exercise or delivery to comply with all such provisions at the earliest
-13-
<PAGE>
practicable date.
13.5 No Rights as a Stockholder. A Grantee shall not have any rights as a
stockholder of the Company with respect to the Shares which may be deliverable
upon exercise of such Option until such shares have been delivered to him or
her.
13.6 Nature of Payments. Options shall be special incentive payments to
the Grantee and shall not be taken into account in computing the amount of
salary or compensation of the Grantee for purposes of determining any pension,
retirement, death or other benefit under (a) any pension, retirement,
profit-sharing, bonus, insurance or other employee benefit plan of the Company
or any Subsidiary or (b) any agreement between (i) the Company or any Subsidiary
and (ii) the Grantee, except as such plan or agreement shall otherwise expressly
provide.
13.7 Governing Law. The Plan, and all agreements hereunder, shall be
construed in accordance with and governed by the laws of the State of Delaware,
other than its laws respecting choice of law.
-14-
<PAGE>
Exhibit 10.116
TINSLEY ROBOR plc
0771K/RJK
---------------------------------
RULES OF THE SENIOR EXECUTIVE
INCENTIVE SCHEME 1994
---------------------------------
LAYTONS
Carmelite
50 Victoria Embankment
Blackfriars
London
EC4Y 0LS
<PAGE>
TINSLEY ROBOR plc
RULES OF THE SENIOR EXECUTIVE
INCENTIVE SCHEME 1994
1. PRELIMINARY
1.1 Definitions: In these Rules:
"Accounts" - means the statutory consolidated accounts of the
Company and its subsidiaries and subsidiary
undertakings for the relevant Financial Year
approved by shareholders of the Company in general
meeting;
"the Auditors" - means the auditors of the Company for the time
being;
"the Board" - means the Remuneration Committee of the Board of
Directors of the Company as from time to time
constituted (or if at the relevant time there be
no such Committee, then the Board of Directors of
the Company or such other committee as it shall
appoint for operation of the Scheme);
"Bonus Entitlement" - means the bonus entitlement which following the
end of a Financial Year a member of the Scheme is
actually or contingently entitled to receive in
respect of that Financial Year;
"Cash Element" - means such part of a Bonus Entitlement or of the
Pool (as the context requires) as is to be paid in
cash pursuant to Rule 3.1;
"the Company" - means Tinsley Robor plc;
"Deferred Element" - means such part of a Bonus Entitlement or of the
Pool (as the context requires) which is to be
applied pursuant to Rule 3.2;
"EBT" - means an employee benefit trust established by the
Company;
"Financial Year" - means a financial year or other accounting
reference period of the Company;
"the Option Scheme" - means the Tinsley Robor Executive Share Option
Scheme 1988 as from time to time amended or such
other share option scheme (as from time to time
amended) as the Board may from time to time
consider appropriate for the purposes of the
Scheme;
<PAGE>
"Participant" - means a person who is to participate in the Scheme
in respect of the relevant Financial Year;
"PBT" - means such sum as the Auditors certify to be the
result of taking the consolidated profit before
taxation of the Company and its subsidiaries and
subsidiary undertakings shown in the consolidated
Accounts and making the following adjustments:
(a) writing back the amount of any Bonus
Entitlement under the Scheme;
(b) making any adjustments in respect of
exceptional items that the Remuneration
Committee directs;
(c) if the Financial Year is other than a period
of twelve months, converting the figure to a
twelve month equivalent upon the assumption
that profits accrue evenly from day to day
throughout the Financial Year;
"Pool" - means the sum calculated for the relevant
Financial Year as determined pursuant to Rule 2.1
as the total amount out of which Bonus
Entitlements are to be paid;
"Relevant Remuneration" - means in respect of a member of the Scheme all
earnings from his office or employment with the
Company but excluding therefrom benefits liable to
income tax pursuant to Chapter II, Part V of the
Income and Corporation Taxes Act 1988;
"Rules" - shall mean these rules as from time to time
amended in accordance with their terms and a
reference to a "Rule" shall be construed as a
reference to the equivalent numbered paragraph of
these Rules;
"the Scheme" - means the Scheme constituted by these Rules as
from time to time varied and in force;
"Shares" - means ordinary shares in the capital of the
Company;
"Trustees" - means the trustee or trustees for the time being
of the EBT
1.2 Clause headings shall be ignored in interpretation
1.3 Scheme Title: The Scheme shall be entitled "THE TINSLEY ROBOR SENIOR
EXECUTIVE INCENTIVE SCHEME 1994"
<PAGE>
(3)
2. ANNUAL ESTABLISHMENT OF PARTICIPATION AND ENTITLEMENT
2.1 Board Decisions: No later than the end of the first month of each Financial
Year the Board shall decide and declare to Participants in respect of that
Financial Year:
(a) the basis of calculation of the Pool, such calculation to make provision
as the Board considers necessary in respect of (i) the costs to the
Company of operating the Scheme (including secondary national insurance
contributions payable by the Company in respect of any Bonus Entitlement),
and (ii) the basis for adjustment in the event of any increase or
variation of the share capital of the Company, or a takeover, merger or
acquisition in respect thereof;
(b) any performance condition required to be satisfied before value accrues to
the Pool;
(c) the identity of the persons who are to be Participants;
(d) the respective parts of the Pool to which each Participant is to be
prospectively entitled having regard, inter alia, to Rule 2.5;
(e) the proportion of the Pool which is to be payable in cash pursuant to Rule
3.1;
(f) the proportion of the Pool which is to be deferred and applied in
accordance with Rule 3.2;
2.2 No Dividends: Notwithstanding any other provision of the Rules, the amount
of the Pool and of any Bonus Entitlement shall be nil in respect of any
Financial Year in respect of which no second interim or final dividend is
recommended by directors for payment in respect of that Financial Year at the
annual general meeting of the Company relating to it
2.3 Certification of Pool: Immediately following approval by directors of the
Accounts the Board shall cause the Auditors to certify the amount of the Pool
for that year and such Certificate shall be final subject only to the preceding
Rule 2.2
2.4 No Precedent: The Board may decide the matters referred to in Rule 2.1 in
its discretion (and in particular without reference to any prior year) and there
shall be no implication that any of those matters or the amount of any benefit
in respect of any Financial Year will be continued or improved upon in respect
of any subsequent Financial Year and no Participant shall have any claim if the
amount of the Pool or of his Bonus Entitlement in respect of any Financial Year
is different from or less than that in any earlier year
2.5 Maximum Bonus Entitlement: The Bonus Entitlement which a member of the
Scheme may receive in respect of any Financial Year shall not be greater than
one half of that member's Relevant Remuneration for that Financial Year
3. PAYMENT OF BONUS ENTITLEMENT
3.1 Cash Element: The Company shall pay the Cash Element of each Bonus
Entitlement to the Participant entitled to the same on the normal date for the
payment of wages or salaries for the calendar month following certification of
the Pool pursuant to Rule 2.3.
<PAGE>
(4)
3.2 Deferred Element: Following certification of the Pool pursuant to Rule 2.3
and subject to the recommendation of a second interim or final dividend in
respect of the period to which the approved Accounts relate, the Company shall
request the Trustees, to the extent that the Trustees are placed in funds and
within such period, consistant with the grant of options under the Option
Scheme, in which share dealings are permitted by directors under The Stock
Exchange Model Code for Securities Transactions by Directors of Limited
Companies:
(a) to purchase through the market or by private treaty existing Shares at an
aggregate purchase cost (inclusive of expenses) equal to the Deferred
Element of the Pool less such taxation and national insurance
contributions as the Company or any subsidiary of the company would be
required to deduct if that Deferred Element were paid to the Participants
in proportion to their respective entitlements instead of being made
available to the Trustees (and in the event of doubt upon the amount of
such deductions the certificate of the Auditors upon the same shall be
conclusive);
(b) to grant to the Participants under the Option Scheme, free from conditions
relating to the financial performance of the Company and its subsidiaries,
options over that proportion of the Shares purchased by the Trustees as is
represented by the Deferred Element of his Bonus Entitlement in respect of
the relevant Financial Year;
(c) subject to Rule 4.4, to pay to each Participant on the later of (i) three
years from approval of the Accounts for the Financial Year in respect of
which the relevant Deferred Element is paid, and (ii) the date upon which
that Participant exercises his option to purchase the Shares to which that
Deferred Element relates, a sum equal to that Deferred Element (and if
such option is never exercised by the Participant before its lapse, no
such payment will be made) and if the Trustees do not comply with such
requests in respect of any Participant the Company shall pay to that
Participant the Deferred Element of his Bonus Entitlement on the third
anniversary of the date upon which the corresponding Cash Element of his
Bonus Entitlement fell due for payment
3.3 Notional Dividend: The Company shall pay to each Participant from time to
time by way of further bonus a sum equal to the gross amount of each dividend
payable upon Shares over which he holds a subsisting option granted by the
Trustees pursuant to Rule 3.2(b) and for this purpose:
(a) a dividend shall be payable if it is actually paid or if it would have
been payable had the right to receive it not been waived by the holder of
the relevant Shares;
(b) an option shall be subsisting if it has been granted and has neither been
exercised nor lapsed under the Rules of the Option Scheme.
<PAGE>
(5)
Provided always that no such bonus shall be paid unless the Trustees have waived
all dividend rights in respect of the Shares over which the Participant holds a
subsisting option
4. LAPSE OF ENTITLEMENT
4.1 Early Termination: If a Participant ceases to be employed by the Company and
its subsidiaries for any reason during a Financial Year, the amount of his Bonus
Entitlement in respect of that Financial Year shall be nil or such greater sum
as the Board in its discretion may determine (not in any event being more than
the amount of the Bonus Entitlement to which he would have been entitled had he
continued to be so employed until the end of that Financial Year) and so much of
that Bonus Entitlement as the Participant thereby ceases to be entitled to
receive shall be forfeited to the Company and shall not revert to the Pool, nor
shall any Participant be entitled to receive any part of it
4.2 Late Commencement: In determining the Participants and their entitlement
pursuant to Rule 2.1 in respect of any Financial Year, the Board may reserve
part of the Pool for that Financial Year to a notional participant and to the
extent of any such notional participation thereby reserved or with the consent
in writing of the Participants entitled to receive three quarters of the Pool,
the Board may award an entitlement out of the Pool part way through a Financial
Year and in that event the entitlement of the Participant so joining in respect
of that Financial Year shall be that proportion of the Bonus Entitlement to
which he would have been entitled had he been employed from the beginning of
that Financial Year which the period of his employment during that Financial
Year bears to the entire Financial Year
4.3 Cash Element: Termination of the employment of a Participant after the end
of a Financial Year shall not affect his entitlement to receive the Cash Element
of his Bonus Entitlement in respect of that Financial Year
4.4 Deferred Element: The entitlement of Participant in respect of the Deferred
Element of his Bonus Entitlement shall cease absolutely if for any reason he
ceases to be employed by the Company and its subsidiaries before the third
anniversary of the date upon which payment was made of the corresponding Cash
Element of his Bonus Entitlement. Provided always that a Participant's
entitlement shall not so cease as aforesaid if he ceases to be employed by
reason of an event in respect of which an option may be exercised pursuant to
Rule 5.3(a), (b), (c) or (d) of the Option Scheme
5. ADMINISTRATION
5.1 Board Decisions: Any decision of the Board pursuant to Rule 2.1 or relating
to the interpretation of the Scheme shall be conclusive
5.2 Auditors' Certificate: Any Certificate given by the Auditors shall be final
and conclusive
<PAGE>
(6)
5.3 Pension Contributions: Any Participant may irrevocably elect that any Cash
Element of his Bonus Entitlement be waived in whole or in part. The Participant
may request that the Board consider payment in like amount to that waived into a
pension scheme approved by the Board for his benefit
5.4 Pensionability: Any bonus Entitlement shall not rank for calculation of
entitlement to pension contributions by the Company nor for calculation of the
amount of any benefits payable under any pension scheme
5.5 Variations: The Scheme may be varied from time to time by decision of the
Board but no variation may affect the entitlement of any Participant in respect
of any Financial Year which commenced before the date such variation was made
save with his prior written consent
5.6 Compensation: Each Participant by participating in the Scheme irrevocably
waives any right to payment of compensation or damages in relation to
termination of his employment to the extent the same relates to any entitlement
or prospective entitlement under the Scheme and agrees that any such entitlement
shall be disregarded in computing any such compensation or damages
5.7 Previous Schemes: The Group Directors Performance Related Bonus Scheme 1988
and any other profit sharing or bonus scheme for directors of the Company or of
any subsidiary shall cease to have effect upon 31st March 1994
5.8 No Partnership: Nothing in these Rules or participation in the Scheme shall
constitute any Participant a partner in the business of the Company or any of
its subsidiaries nor render him liable to contribute to any losses
<PAGE>
Exhibit 10.117
- --------------------------------------------------------------------------------
RULES
of the
TINSLEY ROBOR plc EXECUTIVE SHARE OPTION SCHEME 1988
Approved under the provisions of section 185 and Schedule 9
Income and Corporation Taxes Act 1988
- --------------------------------------------------------------------------------
AMENDED ON 7TH SEPTEMBER 1994
and
AMENDED ON 19TH AUGUST 1996
(such amendments providing for the
addition of an unapproved part to the Scheme)
INCLUDING FINANCE ACT 1996 PROVISIONS
WITH DIRECT EFFECT
LAYTONS
Carmelite
50 Victoria Embankment
Blackfriars
London
EC4Y 0LS
Draft 1/0323E/GNC/26.6.96
<PAGE>
INDEX
Clause Headings Clause Numbers Page Numbers
DEFINITIONS AND INTERPRETATION 1 1
Definitions 1.1 1
Interpretation 1.2 4
Statutory Provisions 1.3 4
Clause headings 1.4 4
References 1.5 4
Title 1.6 4
OFFERS TO GRANT OPTIONS PURSUANT
TO THE SCHEME 2 4
Discretion 2.1 4
Timing of Grants 2.2 4
Restriction or Retiring Employees 2.3 4
Option Conditions 2.4 5
Amendment of Conditions 2.5 5
GRANT OF OPTIONS 3 5
Individual Limitations 3.1 5
Grant and Certification 3.2 6
SCHEME LIMITATION 4 6
Aggregate Limitation 4.1 6
Specific Limitation 4.2 7
Annual Limits 4.3 7
Options to be Disregarded 4.4 7
EXERCISE OF OPTIONS 5 7
General 5.1 7
Performance Condition 5.2 8
Exceptional Circumstances 5.3 8
Lapse 5.4 9
Avoidance of Doubt 5.5 10
Overriding Restriction of Exercise 5.6 10
VARIATION OF CAPITAL 6 10
Adjustment 6.1 10
Auditors' Confirmation 6.2 10
Inland Revenue Approval 6.3 10
Notice of Adjustment 6.4 10
TAKEOVER OFFERS AND LIQUIDATION 7 11
General Offers 7.1 11
Scheme of Reconstruction 7.2 11
Sections 428-430 Companies Act 1985 7.3 11
Acquiring Company 7.4 11
Voluntary Winding Up 7.5 12
Lapse of Options 7.6 12
Meaning of Control 7.7 12
Restrictions 7.8 12
Avoidance of Doubt 7.9 12
<PAGE>
EXERCISE OF OPTION 8 12
Notice 8.1 12
Minimum Subscription 8.2 13
Allotment 8.3 13
Events after Allotment 8.4 13
Transfer 8.5 13
ALTERATION OF THE SCHEME 9 13
Discretion of the Board 9.1 13
Requirement for Inland Revenue Consent 9.2 13
Members Consent 9.3 13
Relaxation of Requirement for Consent 9.4 14
Approval by the Inland Revenue 9.5 14
Rights or the Participators 9.6 14
Notice of Alteration 9.7 14
GENERAL 10 14
Availability of Shares 10.1 14
Employment Rights 10.2 14
Non-Admission 10.3 15
Consequence of Lapse 10.4 15
Transfer Assignment or Charge 10.5 15
Termination 10.6 15
Administration and Implementation 10.7 15
Bankruptcy 10.8 15
Disputes 10.9 15
Status of Auditors 10.10 15
Notices 10.11 15
Cost 10.12 16
SCHEDULE 1
Form of Option Certificate *
SCHEDULE 2
Form of Notice exercising Options 17
Proposed form of conditional option ("existing condition") 18
Proposed form of conditional option ("alternative condition") *
SCHEDULE (UNAPPROVED OPTION GRANTS) 20
(Note: * denotes a form of option certificate which is no longer in current use
and is not therefore reproduced).
<PAGE>
RULES OF THE TINSLEY ROBOR plc EXECUTIVE SHARE OPTION SCHEME 1988
approved under section 185 and Schedule 9
Income and Corporation Taxes Act 1988
1. DEFINITIONS AND INTERPRETATION
1.1 Definitions: In this Scheme:
"the Act" - means the provisions of the Taxes Act (and any
statutory modification or re-enactment thereof
for the time being in force) relating to and
governing approved share option schemes;
"Associated Company" - means any associated company of the Company
within the meaning of section 416 of the Taxes
Act;
"the Auditors" - means the auditors of the Company for the time
being in office;
"the Board" - means the board of directors of the Company as
from time to time constituted or a duly
constituted committee of such board;
"the Commencement Date" - means the date on which time Scheme is approved
by the Company in general meeting or (if later)
the date upon which any condition subject to
which approval is granted has been met;
"the Company" - means Tinsley Robor plc (registered number
948696);
"Control" - bears the meaning ascribed to that term by
section 840 of the Taxes Act;
"Exercise Period" - means any period designated hereunder as a
period during which Options may be exercised;
"Expected Retirement Date" - means the date on which the Board expects a
Qualifying Employee to cease to be employed by
the Company or an Associated Company by reason
of retirement;
"Grant Date" - means in relation to an Option the date on which
the Option was granted;
"Index of Retail Prices" - means the Index of retail prices from time to
time published by the Department of Employment
or any replacement or modification of the same
providing a guide to the Increase in retail
prices over a defined period;
<PAGE>
(2)
"Market Value" - means on any day the market value of a Share
determined In accordance with the provisions of
Part VIII of the Capital Gains Tax Act 1979 and
agreed in advance for the purposes of the
Scheme with the Inland Revenue Shares Valuation
Division or (at any time after the Shares have
been admitted to the Official List of The Stock
Exchange) the middle market quotation of the
Shares derived from The Stock Exchange Daily
Official List;
"Materially Interested - means a director or employee of any one or more
Person" of the Participating Companies who has, or
within the preceding twelve months has had, a
material interest in a close company within the
meaning of paragraph 8 of Schedule 9 to the
Taxes Act or sub-section 187(3) thereof;
"Option" - means an Option to Subscribe and/or an Option to
Purchase;
"Option to Purchase" - means an Option which confers a right to
purchase Shares granted by the Trustees under
the Scheme;
"Option to Subscribe" - means an Option which confers a right to
subscribe for Shares granted by the Company
under the Scheme;
"Option Certificate" - means a certificate recording the terms of grant
of an Option in accordance with the Rules;
"Option Price" - means the price per Share determined pursuant to
the Rules (and subject to any adjustment as
therein specified) at which Qualifying Employees
may acquire Shares in respect of the Options
granted to them being not less (in any case)
than the greater of:
(a) the nominal value of each Share; and
(b) the Market Value of each Share on the
dealing day last preceding the Grant Date;
"Ordinary Share Capital" - has the meaning ascribed by section 832(1) of
the Taxes Acts;
"Participator" - means a person who has subsisting rights under
an Option or the personal representatives of a
person who had such rights immediately prior to
his death;
"Participating Company" - means the Company and any Subsidiary which is
for the time being under the Control of the
Company;
<PAGE>
(3)
"Qualifying Employee" - means any person who:
(a) is a full-time employee or full-time
director employed by any one or more of
the Participating Companies and required
to devote substantially the whole of his
working hours to the business of such
Participating Company or Companies (and
in particular for the purposes of this
definition an employee or director will
be regarded as 'full-time' if his term
of employment require him to devote to
the duties of his office or employment
in each week not less than twenty five
hours in the case of a director and
twenty hours in the case of an employee
who is not a director in both cases
excluding meal breaks); and
(b) is not a Materially interested Person;
"Relevant Emoluments" - has the meaning which the terms bears in
sub-paragraph 28 (2) of Schedule 9 to the Taxes
Act by virtue of sub-paragraph 28(4) thereof;
(Note: This definition ceased to be of effect from 29th April 1996 by virtue of
the Finance Act 1996, save in respect of unapproved option grams pursuant to the
Schedule)
"Rules" - means these rules as from time to time amended;
"Share" - means a fully paid irredeemable Ordinary Share
in the capital of the Company ranking pari passu
in all respects with the existing Ordinary
Shares in the capital of the Company as at the
Commencement Date and any other share which
becomes subject to an Option pursuant to clause
7 and which complies with paragraphs 10 to 14 of
Schedule 9 to the Taxes Act;
"Schedule" - means the schedule appended to the Rules
providing for the grant and options which are
not approved pursuant to Schedule 9 to the Taxes
Act;
"Scheme" - means this executive share option scheme as from
time to-time amended;
"Subscription Price" - means the amount payable in respect of the
exercise of an Option pursuant to the Rules
being the product of the Option Price and the
number of Shares in
<PAGE>
(4)
respect of which the Option is exercised;
"Subsidiary" - means a subsidiary of the Company within the
meaning of Section 736 of die Companies Act
1985;
"Subsisting Option" - means an Option which has neither lapsed nor
been exercised:
"Taxes Act" - means the Income and Corporation Taxes Act
1988;
"The Stock Exchange" - means The International Stock Exchange of the
United Kingdom amid the Republic of Ireland
Limited;
"the Trustees" - means the trustees of the Tinsley Robor plc
Employee Benefit Trust 1994;
"Year of Assessment" - means inclusively 6th April to 5th April in the
year next following
1.2 Interpretation: Where the context so admits the singular includes the plural
and vice versa and each gender includes each other gender
1.3 Statutory Provisions: Any reference to a statutory provision is to be
construed as a reference to that provision as for the time being amended or
re-enacted
1.4 Clause headings shall be ignored in interpretation
1.5 References: Unless otherwise expressly stated, references in the Rules to
clauses, sub-clauses and paragraphs are to clauses, sub-clauses and paragraphs
or the Rules and references to sections and sub-sections are to sections and
sub-sections or the Taxes Act
1.6 Title: The Scheme shall be entitled the "Tinsley Robor plc Executive Share
Option Scheme 1988"
2. OFFERS TO GRANT OPTIONS PURSUANT TO THE SCHEME
2.1 Discretion: The Board may grant Options to Subscribe or procure or arrange
the grant of Options to Purchase subject to and in accordance with these Rules
to such Qualifying Employees as it may in its absolute discretion decide but no
Qualifying Employee shall be entitled as of right to be granted an Option
2.2 Timing of Grants: Options may be granted only during the period of ten years
beginning with the Commencement Date, and then only in that period commencing on
the day following the announcement of the interim or final results of the
Company for any financial year or part thereof and ending forty-two (42) days
thereafter and any grant of an Option shall be effected by the issue, as a deed,
of an Option Certificate
2.3 Restriction on Retiring Employees: No Option shall be granted to a
Qualifying Employee within two (2) years of his Expected Retirement Date
<PAGE>
(5)
2.4 Option conditions: The grant of any Option may be made subject to such
objective conditions and limitations (additional to any conditions and
limitations contained in any other of these Rules) imposed by the Board in its
absolute discretion (subject to the agreement of the Trustees in respect of an
Option to Purchase) upon the exercise of such an Option; provided that such
additional conditions and limitations shall be:
(a) set out in full in the Option Certificate;
(b) such that the right to exercise the Option after the fulfilment of any
specified condition and/or limitation is not dependent upon the discretion
of the Board, the Trustees or other person;
(c) agreed in advance of their imposition by the Board of Inland Revenue;
(d) not capable of amendment or waiver except in accordance with clause 2.5
2.5 Amendment of Conditions: In circumstances where conditions and/or
limitations are imposed pursuant to clause 2.4 in respect of any Option, the
Board may amend or waive the same so far as they relate to the financial
performance of the Company or Shares, if the Board acting reasonably and fairly
consider that the amended terms (which are objective and comply with clause
2.4(b) above) will be a fairer measure of performance and will be no more
difficult to satisfy than the original terms
3. GRANT OF OPTIONS
3.1 Individual Limitations: No Option shall be granted to any Qualifying
Employee if either:
(a) the aggregate Subscription Price of all options granted to him under the
Scheme or any other share option scheme approved by the Company (other
than SAYE share option schemes) during the period often years after the
Commencement Date; or
(b) the aggregate Subscription Price of all options held by him under the
Scheme or any other share option scheme approved wider Schedule 9 of the
Taxes Act and established by the Company or an Associated Company
would exceed four times his Relevant Emoluments for the current or preceding
Year of Assessment (whichever of those years gives the greater amount) provided
that for a Qualifying Employee not employed by a Participating Company at any
time during the previous Year of Assessment the limit shall be four times his
Relevant Emoluments relating to the period of twelve months beginning with the
first day during the current Year of Assessment in which the Grant Date falls in
respect of which there are Relevant Emoluments and provided further that in
respect of a Qualifying Employee who is not in receipt of Relevant Emoluments by
reason of being neither resident nor ordinarily resident
<PAGE>
(6)
in the United Kingdom the limit shall be four times the emoluments of the
employment by virtue of which the employee is eligible to participate as would
(if the same were liable to be paid under deduction of UK tax) have counted as
Relevant Emoluments for the current or preceding Year of Assessment (whichever
of those years gives the greater amount) or where the employee was not employed
by a Participating Company in the preceding Year of Assessment for the period of
twelve months beginning with the first day during the current Year of Assessment
in which the Grant Date falls in respect of which there would be Relevant
Emoluments had they been so treated or (pound) 100,000 whichever is the less
(Note: Rule 3.1 as drafted above ceased to be of effect from 29th April 1996 by
virtue of section 114 and schedule 16 to the Finance Act 1996. It is retained
for the purpose only of the unapproved part to the Scheme constituted by the
Schedule)
3.1 Individual Limitations: No Option shall be granted to the extent that
immediately following such grant the potential grantee would then have been
granted Options which would cause the aggregate Market Value of Shares which he
may acquire in pursuance of Aggregate Options to exceed or further exceed the
sum of Thirty Thousand Pounds ((pound) 30,000)
(Note: Rule 3.1 as set our above applies to approved option grants from 29th
April 1996, by virtue of the Finance Act 1996. The statutory limit is contained
in paragraph 28 of Schedule 9 to ICTA. The reference to "Market Value" is to the
value prevailing as at the date of grant of each option taken into account.
Options which have been exercised, waived or lapsed do not count for the
purposes of the limitation)
3.2 Grant and Certification: Each Option Certificate shall:
(a) specify the Grant Date; and
(b) subject to the provisions for adjustment hereinafter contained, specify
the Subscription Price payable for the Shares subject to the Option; and
(c) subject to the provisions for adjustment hereinafter contained, specify
the number of Shares subject to the Option; and
(d) specify the earliest and latest date on which a notice exercising the
Option may be given pursuant to the provisions of clause 4; and
(e) specifically refer the holder to the provisions of sub-clause 10.5; and
(f) subject as aforesaid be issued in such form and manner as the Board may
from time to time prescribe
(and the form of Option certificate proposed to be used for this purpose is set
out in Schedule I hereto)
4. SCHEME LIMITATION
4.1 Aggregate Limitation: No Option to Subscribe shall be granted pursuant to
the terms of the Scheme if such grant would result in the aggregate of:
<PAGE>
(7)
(a) the number of Shares then subject to Subsisting Options to Subscribe under
the Scheme; and
(b) the number of Shares which have been issued on the exercise of Options
granted under the Scheme; and
(c) the number of Shares over which subsisting options to subscribe have been
granted under any other share option scheme of the Company during the
period of ten years ending on the relevant Grant Date; and
(d) the number of Shares which have been issued pursuant to any other employee
share scheme of the Company (including a share option scheme) during the
period of ten years ending on the relevant Grant Date
exceeding such number of Shares as represents ten per cent (10%) of the issued
Ordinary Share Capital immediately prior to that day
4.2 Specific Limitation: The number of Shares in respect of which Options to
Subscribe may be granted under the Scheme on any day shall not when added to the
aggregate of:
(a) the number of Shares in respect of which Subsisting Options to Subscribe
previously so granted remain to be exercised: and
(b) the number of Shares which have been issued under the Scheme in the period
of ten years ending on that day
exceed such number of Shares as represents five percent (5%) of the issued
Ordinary Share Capital immediately prior to that day
4.3 Annual Limits: Without limiting sub-clause 4.1 but subject to any adjustment
made pursuant to clause 6 and to any variation approved by the company in
general meeting, the number of Shares over which Options to Subscribe may be
granted pursuant to the Scheme or any other share Incentive scheme established
by the Company shall not in any year and the preceding two years exceed three
percent (3%) of the issued Ordinary Share Capital of the Company from time to
time
4.4 Options to be Disregarded: For the purposes of this clause 4, Options
granted and Shares issued pursuant to Options granted prior to the Commencement
Date shall be disregarded
5. EXERCISE OF OPTIONS
5.1 General: Subject as otherwise provided herein an Option may be exercised
only by a notice given by the Participator to the Company:
(a) on or after the third anniversary but not later than the day prior to the
tenth anniversary of the Grant Date; but
(b) not during the period of two months immediately preceding the preliminary
announcement of the Company's annual results or of its interim results
together with dividends and distributions to be paid or passed or such
other period as may be specified from time to time for this purpose in The
Stock Exchange Model Code for Securities Transactions by Directors of
Listed Companies This
<PAGE>
(8)
restriction shall apply to all Participators and not only to Directors of
the Company
5.2 Performance Condition: Save in the circumstances set out in paragraphs 5.3
(a) and (b) and in clause 7 below where no performance conditions shall apply
and save in respect of Options granted after 31st August 1994 an Option may be
exercised in whole or in part if and only if over any period of three
consecutive years commencing no earlier than the Grant Date of the Option
concerned the growth in earnings per share of the Company (established In
accordance with the provisions of this sub-clause 5.2) exceeds the growth in the
Index of Retail Prices over the same period. For the purposes of this clause:
(a) growth in earnings per share shall be determined by dividing earnings per
share in respect of the accounting reference period of the Company ending
immediately prior to the last day of the third of the three consecutive
years by that achieved in respect of the accounting reference period of
the Company ending immediately prior to the first day of the first of the
three consecutive years (which earnings shall be deemed to be 0.01. pence
per Share in the event that the accounting reference period discloses a
loss);
(b) growth in the Index of Retail Prices shall be determined by dividing such
index as was published in respect of the month containing the last day of
the accounting reference period of the Company ending immediately prior to
the last day of the third of the three consecutive years by such index as
was published in respect of the month containing the last day of the
accounting period of the Company ending immediately prior to the first day
of the first of the three consecutive years
(c) "year" means a period of twelve months and "earnings per share" means the
earnings per share of the Company for the accounting reference period
concerned as certified by the Auditors calculated on the "nett" basis in
accordance with the relevant Statement of Standard Accounting Practice
issued by the Accounting Standards Committee from time to time in force
provided that the same may be adjusted to the extent considered by the
Auditors to be fair and reasonable in the circumstances in order to ensure
that the basis or calculation is consistent over the relevant period or to
take account of any issue of shares or reorganisation of share capital or
other matter. The certificate of the Auditors shall be final and
conclusive
5.3 Exceptional Circumstances: Subject to the provisions of sub-clause 5.5, an
Option may be exercised by a Participator within the period specified below in
relation to the relevant circumstances:
<PAGE>
(9)
(a) if the Participator shall die whilst in service as a director or employee
of a Participating Company, his personal representatives may exercise his
Option during the period of twelve months following the date of his death
and thereafter it shall lapse
(b) if the Participator ceases to be a Qualifying Employee by reason of injury
disability redundancy (within the meaning of the Employment Protection
(Consolidation) Act 1978), or by reason that a company by which he is for
the time being employed then ceases to be a Participating Company by
reason that the business within which he works is sold to a transferee
which is not a Participating Company, he may exercise his Option within a
period of twelve months following the date of such cessation or until the
expiry of the period of six months commencing on the earliest date
following such cessation on which the conditions mentioned in Sub-Section
185(5) are satisfied (whichever is the later) and thereafter the Option
shall lapse
(c) subject to the provisions of sub-paragraph (d) below if the Participator
ceases to be a Qualifying Employee in any circumstances other than those
specified in sub paragraphs (a) and (b) above, his Option shall thereupon
lapse Provided That:
(i) the Board may before such cessation permit such Option or part of it
to continue to subsist for such period as the Board shall determine
(being not longer than the period of twelve months following such
cessation or six months following the earlier of the date on which
the conditions set out in Sub-Section 185(5) are satisfied whichever
is the later) in which event the Option (or the part permitted to
subsist) shall lapse upon the expiration of the period so
determined; and
(ii) any female Participator whose employment has been terminated in
circumstances such that pursuant to part 3 of the Employment
Protection (Consolidation) Act 1978 she has a right to return to
work will be deemed not to have ceased to be an employee until such
time as such rights shall cease to subsist
(d) if a Participator ceases to be a Qualifying Employee by reason of his
retirement then his Option may be exercised within a period of twelve
months following the date of such retirement or until the expiry of a
period of six months commencing on the earliest date following such
cessation on which the conditions mentioned in sub-section 185(5) of the
Act are satisfied (whichever is the later) and thereafter the Option
shall lapse
5.4 Lapse: Except as provided in sub-clause 3.3 an Option shall lapse and cease
to be exercisable upon a Participator ceasing to be a director or employee of at
Participating Company
<PAGE>
(10)
5.5 Avoidance of Doubt: For the avoidance of doubt, notwithstanding anything in
the Scheme to the contrary no Option shall be capable of exercise after the day
before the tenth anniversary of the Grant Date and on the expiry of such period
all rights of the Participator whatsoever shall terminate in respect of that
Option except insofar as there has been a valid exercise of that Option and the
Company has not discharged all its duties under the Scheme in relation to such
exercise
5.6 Overriding Restriction of Exercise: Notwithstanding any other provision in
the Scheme to the contrary, no Option shall be capable of exercise at any time
when such exercise is precluded by the application of paragraph 8 of Schedule 9
to the Taxes Act nor where the Shares which may thereby be acquired are not
Shares as defined herein
6. VARIATION OF CAPITAL
6.1 Adjustment: In the event of any increase or variation of the Ordinary Share
Capital of the Company by way of capitalisation or rights issue or sub-division
consolidation or reduction of share capital but subject as provided in
sub-clauses 6.2 and 6.3, the Board may make (or in the case of an Option to
Purchase procure the making of such adjustment) such adjustment as shall be fair
and reasonable in all the circumstances:
(a) to the number of Shares mentioned in clause 4; and/or
(b) to the number of Shares which are subject to any Subsisting Option; and/or
(c) to the Subscription Price payable for the Shares subject to the Subsisting
Options; and/or
(d) to any other term of any such Subsisting Option
PROVIDED THAT the Option Price shall never be less than the nominal value of the
Share to which it relates and the aggregate amount payable on the exercise of an
Option in full is not increased and no adjustment shall cause any of the
conditions of the approval of the Scheme under Schedule 9 to the Taxes Act to be
thereby breached
6.2 Auditors' Confirmation: Except in the case of a capitalisation issue no
adjustment under sub-clause 6.1 shall be made without prior confirmation in
writing by the Auditors that the adjustment is in their opinion fair and
reasonable in all the circumstances
6.3 Inland Revenue Approval: No adjustment under sub-clause 6.1 shall be made
without prior confirmation in writing by the Board of the Inland Revenue
approving such proposed adjustment
6.4 Notice of Adjustment: As soon as reasonably practicable after making any
adjustment under sub-clause 6.1 the Board and/or the Trustees shall give notice
in writing to every Participator thereby affected PROVIDED THAT where any
adjustment is made to the terms of an Option prior to the issue of an Option
Certificate pursuant to sub-clause 3.2 the certificate shall set out details of
the Option so adjusted and shall be deemed to be sufficient notice of the
adjustment for the purpose of this sub-clause
<PAGE>
(11)
7. TAKEOVER OFFERS AND LIQUIDATION
7.1 General Offers: If any person obtains Control of the Company as a result of
making a general offer to acquire the whole of the issued Ordinary Share Capital
of the Company, whether or not made on a condition such that (if satisfied) the
person making the offer will have Control of the Company, any Subsisting Option
(subject to sub-clause 7.4) may be exercised within six months of the time when
the person making the offer has obtained Control of the Company and any
condition subject to which the general offer is made has been satisfied
7.2 Scheme of Reconstruction If under Section 425 of the Companies Act 1985 the
Court sanctions a compromise or arrangement proposed for the purposes of or in
connection with a scheme for the reconstruction of the Company or its
amalgamation with any other company or companies, any Subsisting Option (subject
to sub-clause 7.4) may be exercised within six months of the court sanctioning
the scheme of compromise or arrangement
7.3 Sections 428-430 Companies Act 1985: If any person becomes bound or entitled
to acquire Shares in the Company under sections 428 to 430 of the Companies Act
1985, any Subsisting Option (subject to sub-clause 7.4) may be exercised at any
time when that person remains so bound or entitled
7.4 Acquiring Company: If as a result of the events specified in sub-clauses 7.1
or 7.2 a company has obtained Control of the Company, or if a company has become
bound or entitled as mentioned in sub-clause 7.3 the Company shall seek the
agreement of that other company ("the Acquiring Company") and if such agreement
is obtained the option holder may release each Subsisting Option to Subscribe
within the periods mentioned in sub-clauses 7.1, 7.2 and 7.3 for a new Option
("the New Option") which satisfies the following conditions:
(a) is over shares in the Acquiring Company or a company controlling the
Acquiring Company which satisfy the conditions specified in paragraphs 10
to 14 Inclusive of Schedule 9 to the Taxes Act (and the term "Shares" in
this Scheme shall thereafter be construed accordingly);
(b) is a right to acquire such number of such Shares as has on acquisition of
the New Option an aggregate Market Value equal to the aggregate Market
Value of the Shares subject to the old Option on its release;
(c) has a subscription price per Share such that the aggregate price payable
on complete exercise equals the aggregate price which would have been
payable on complete exercise of the old Option; and
(d) is otherwise identical in terms to the old Option
The New Option shall, for all other purposes of this Scheme, be treated as
having been acquired at the same time as the old Option for which it is released
and following release of the old Option and the grant of the New Option, for the
purposes only of clauses 5.1, 6, 7, 8, 10.1, 10.9 and 10.11 the term "Company"
shall mean in relation to the New
<PAGE>
(12)
Option the company the share capital of which includes shares over which New
Options have been granted and the term "Board" for the same purposes shall mean
the board or directors of that Company or a duly constituted committee thereof A
new Option Certificate shall be issued accordingly and Schedules 1 and 2 to the
Rules shall be amended mutatis mutandis
7.5 Voluntary Winding Up: If the Company passes a resolution for voluntary
winding up any Subsisting Option may be exercised within six months of the
passing of the resolution
7.6 Lapse of Controls: Subject to a release being effected pursuant to
sub-clause 7.4, all Options granted pursuant to the Scheme shall automatically
lapse and cease to be exercisable six months after they have become exercisable
in accordance with this clause 7.
7.7 Meaning of Control: For the purposes of sub-clause 7.1 (and only for such
purpose) a person shall be deemed to have obtained Control of the Company if he
and others acting in concert with him have together obtained Control of the
Company
7.8 Restrictions: For the avoidance of doubt no Option may be exercised pursuant
to this clause in the circumstances mentioned in sub-clause 5.6
7.9 Avoidance of Doubts: For the avoidance of doubts where in accordance with
sub-clause 7.4 Subsisting Options to Subscribe are released and New Options
granted the New Options shall not be exercisable in accordance with sub-clauses
7.7. 7.2 and 7.3 by virtue of the event on which the New Options were granted
8. EXERCISE OF OPTION
8.1 Notice: Subsisting Options may be exercised in respect of all or any part of
the Shares which are the subject of them (subject to the minimum exercise
provisions imposed for the administrative convenience of the Company and
specified in sub-clause 8.2) by delivery of notice of exercise to the Secretary
of the Company or its duly appointed agent during the relevant Exercise Period
or in accordance with clauses 5 and 7 The Notice exercising the Option shall:
(a) specify the number of Shares in respect of which the Option Is exercised,
being not less than the number specified in sub-clause 8.2 unless the
Board or the Trustees in respect of an Option to Purchase shall otherwise
specifically consent; and
(b) be accompanied by an Option Certificate covering at least all the Shares
over which the Option is then to be exercised; and
(c) be accompanied by payment to the Company (or the Trustees as appropriate)
of an amount equal to the product of the number of Shares specified in the
Notice and the Option Price relative to each Share; and
(d) subject as aforesaid be given in such form and manner as the Board may
from time to time prescribe
<PAGE>
(13)
(and the form of such notice proposed to be used for this purpose is set out in
Schedule 2 hereto)
8.2 Minimum Subscription: In the case of a partial exercise of an Option or
Options no notice shall be given in respect of less than one hundred Shares save
where a balance remains after a previous partial exercise of an Option and the
number of Shares represents the whole of such balance On such partial exercise
the balance shall remain exercisable on the same terms as usually applied to the
whole Option and a certificate for the balance shall be issued forthwith.
8.3 Allotment: In respect of an Option to Subscribe die relevant Shares shall be
allotted within twenty eight days following receipt by the Company of a notice
complying with the provisions of sub-clause 8.1 Save for any rights determined
by reference to a date preceding the date of allotment, such Shares shall rank
pari passu with the other shares of the same class in issue at the date of
allotment
8.4 Events after Allotment: As soon as reasonably practicable after allotting
any Shares to a Participator under the Scheme, the Board on behalf of the
Company shall issue to the Participator a definitive share certificate in
respect of the Shares so allotted
8.5 Transfer: In respect of an Option to Purchase the relevant Shares shall be
transferred within twenty eight days following receipt by the Company (on behalf
of the trustees) of a notice complying with the provisions of sub-clause 8.1
9. ALTERATION OF THE SCHEME
9.1 Discretion of the Board: Subject to sub-clauses 9.2, 9.3 and 9.6, the Board
may at any time alter or add to all or any of the provisions of the Rules or the
Scheme in any respect PROVIDED THAT such alteration or addition shall not in the
opinion of the Auditors adversely affect or be capable of adversely affecting
the interests of the Participators
9.2 Requirement for Inland Revenue Consent: No addition or alteration shall be
made to the Rules or the Scheme in any circumstances without prior confirmation
in writing by the Board of the Inland Revenue approving such proposed addition
or alteration pursuant to the provisions of paragraph 3 of Schedule 9 to the
Taxes Act so far as that addition or alteration relates so that part of the
Scheme which is approved pursuant to Schedule 9 to the Taxes Act, so that if the
Scheme at any time comprises an approved and an unapproved part (or parts) (the
unapproved part (or parts) may be further amended without such approval
9.3 Member's Consent: Subject to sub-clauses 9.2 and 9.4 no alteration or
addition shall be made by the Board under the discretionary powers granted by
sub-clause 9.1 to:
(a) the basis of calculation of the Option price:
(b) the basis of calculation of the total number of Shares available for the
Scheme;
<PAGE>
(14)
(c) the basis of calculating the maximum number of Shares in respect of which
Options may be granted to any Qualifying Employee;
(d) the definitions of Qualifying Employee, Participator, Relevant Emoluments,
Share, Option Price, Market Value or Subscription Price:
(e) the provisions of clauses 2, 3, 4, 5.1(a), 5.2, 5.3, 6, 7.5, 7.6, 8.3,
10.5 and to this clause 9
without the prior approval by ordinary resolution of the members of the Company
in general meeting in any case where such alteration or addition would be to the
advantage of existing or future Participators
9.4 Relaxation of Requirement for Consent: Sub-clause 9.3 shall not apply to the
extent that any alteration or addition is necessary or desirable in order to
comply with or take account of the provisions of any proposed or existing
legislation or to take account of the occurrence of any of the events mentioned
in sub-clause 7.1 or to obtain or maintain favourable taxation treatment of the
Company or any Participating Company or any Subsidiary of such companies or any
Participator PROVIDED THAT any such alteration or addition shall not affect the
basic principles of the Scheme as an Approved Share Option Scheme under the Act
9.5 Approval by the Inland Revenue: Without prejudice to the generality of the
foregoing provisions, prior to the approval of the Scheme under the Act by the
inland Revenue the Board may alter such of the Rules in such manner as it
considers necessary in order to obtain such approval
9.6 Rights of the Participators: Save in relation to any alterations made
pursuant to sub-clause 9.5. no amendments shall be made to the Scheme which
would have the effect of abrogating or prejudicially affecting any of the
subsisting rights of the Participators except with such consent on their part as
would be required by the provisions of the Company's Articles of Association if
the Shares to be issued on the exercise of the Options were so issued and
constituted a separate class of share capital and if such provisions applied
mutatis mutandis thereto
9.7 Notice of Alteration: As soon as reasonably practicable after making any
alteration or addition under this clause the Board shall give notice in writing
thereof to any Participator who is thereby affected
10. GENERAL
10.1 Availability of Shares: The Company shall at all times keep available such
number of authorised but unissued shares as the Board may consider sufficient
for the purposes of the Scheme
10.2 Employment Rights: The rights and obligations of any individual under the
terms of his office or employment with the Company or any Participating Company
shall not be affected by his participation in the Scheme or any right which he
may have to participate therein and the Scheme shall afford such employee no
additional rights to
<PAGE>
(15)
compensation or damages in consequence of the termination of such office or
employment for any reason whatsoever
10.3 Non-Admission: No Qualifying Employee shall have any claim against a
Participating Company arising out of his not being admitted to participation in
the Scheme which (for the avoidance of all if any doubt) is entirely within the
discretion of the Board
10.4 Consequence of Lapse: No Participator shall be entitled to claim
compensation from any Participating Company in respect of any sums paid by him
pursuant to the Scheme or of any diminution or extinction of his rights or
benefits (actual or otherwise) under any Options held by him consequent upon the
lapse for any reason of any Option held by him or otherwise in connection with
the Scheme
10.5 Transfer Assignment or Charge: All Options granted to Qualifying Employees
are personal rights and are incapable of being transferred assigned or charged
in any circumstances whatsoever save as set out in sub-clause 7.4 Any purported
transfer assignment or charge (save as aforesaid) shall cause the Option to
lapse forthwith
10.6 Termination: The Board may terminate the Scheme at any time but Options
granted prior to such termination shall continue to be valid and exercisable in
accordance with the Rules
10.7 Administration and Implementation: The Board may from time to time make and
vary such rules and regulations not inconsistent herewith and establish such
procedures for administration and implementation of the Scheme as it thinks fit
10.8 Bankruptcy: An Option granted under the Scheme shall lapse forthwith if the
Participator is or becomes an adjudicated bankrupt
10.9 Disputes: In the event of any dispute or disagreement as to the
interpretation of the Scheme or of any rule regulation or procedure or as to any
question of right arising out of or in respect of the Scheme the decision of the
Board shall be final and binding
10.10 Status of Auditors: In any matter in which they are required to act under
the Scheme, the Auditors shall be deemed to be acting as experts and not as
arbitrators, their determination of the matter shall be final and conclusive and
the provisions of the Arbitration Acts 1950 to 1979 shall accordingly not apply
10.11 Notices: Any notice or other communication required to be given pursuant
to the terms of the Scheme may be given by personal delivery or by sending the
same by first class post in the case of a company to its registered office and
In the case of an individual to his last known address or where he is a director
or employee of the Company or any Participating Company either to his last known
address or to the address of the place of business from which he performs the
whole or substantially the whole of his duties of his office or employment and
where a notice or other communication is given by post it shall be deemed to
have been received forty eight hours after it was put into the post properly
addressed and stamped
<PAGE>
(16)
10.12 Cost: The cost of establishing and operating the Scheme shall be borne by
the Participating Companies in such proportions as the Board shall determine
<PAGE>
(17)
SCHEDULE 2
Form of Notice exercising Option
(To be printed on the reverse of the Option Certificate)
NOTICE OF EXERCISE
In order to exercise the Option referred to overleaf you should:
(i) complete and sign this document;
(ii) return this document within the prescribed time (as stated in the Rules)
to the Company Secretary of Tinsley Robor plc.
- --------------------------------------------------------------------------------
TO: The Secretary
Tinsley Robor plc.
OR
The Secretary
c/o The Trustees of the Tinsley Robor plc
Employee Benefit Trust 1994
Tinsley Robor plc
1. I hereby exercise the Option referred to in the Option Certificate
overleaf in respect of Ordinary Shares. (Insert the number of shares in
respect of which the Option is exercised).
2. I enclose my cheque for(pound) being the Subscription Price payable.
FULL NAME .......................
ADDRESS .......................
.......................
.......................
SIGNATURE .......................
DATE .......................
<PAGE>
(18)
[Proposed Form of Conditional Option Certificate - Existing Condition]
TINSLEY ROBOR plc
("the Company")
TINSLEY ROBOR plc EXECUTIVE SHARE OPTION SCHEME 1988
("the Scheme")
--------------------------
OPTION CERTIFICATE
THIS DOCUMENT IS IMPORTANT A form of notice for use by the Option Holder for the
exercise of the Option is set out overleaf.
Name of ................ Number of Shares ...................
Option Holder
Address of ................ Option ...................
Holder ................ Price per share
................ Maximum total ...................
Cost of shares
Grant Date ................ Last date for ...................
exercising Option
THIS IS TO CERTIFY that the Option Holder named above was on the Grant Date
specified above granted in accordance with the Scheme an Option to
[subscribe/purchase] for the above number of Ordinary Shares of (pound)[ ]
each in the capital of the Company at the above Option Price per share. The
Option is personal to the Option Holder and may not be transferred, assigned,
mortgaged, pledged or otherwise disposed of by him or her.
The Option is exercisable subject to and in accordance with the terms of the
Scheme, and subject to the following conditions and limitations:
Save in the circumstances set out in paragraphs 5.3(a) and (b) and in
clause 7 of the rules of the Scheme where the performance conditions shall
apply, an Option may be exercised in whole or in part if and only if over
any period of three consecutive years commencing no earlier than the Grant
Date of the Option concerned the growth in earnings per share of the
Company exceeds the growth in the Index of Retail Prices over the same
period. For the purposes of this condition:
<PAGE>
(19)
(a) growth in earnings per share shall be determined by dividing
earnings per share in respect of the accounting reference period of
the Company ending immediately prior to the last day of the third or
the three consecutive years by that achieved in respect of the
accounting reference period of the Company ending immediately prior
to the first day of the first of the three consecutive years (which
earnings shall be deemed to be 0.01 pence per share in the event
that the accounting reference period discloses a loss);
(b) growth in the Index of Retail Prices shall be determined by dividing
such index as was published in respect of the month containing the
last day of the accounting reference period of the Company ending
immediately prior to the last day of the third of the three
consecutive years by such index as was published in respect of the
month containing the last day of the accounting period of the
Company ending immediately prior to the first day of the first of
the three consecutive years
(c) "year" means a period of twelve months and "earnings per share"
means the earnings per share of the Company for the accounting
reference period concerned as certified by the Auditors calculated
on the "nett" basis in accordance with the relevant Statement of
Standard Accounting Practice issued by the Accounting Standards
Committee from time to time in force provided that the same may be
adjusted to the extent considered by the Auditors to be fair and
reasonable in the circumstances in order to ensure that the basis of
calculation is consistent over the relevant period or to take
account of any issue of shares or reorganisation of share capital or
other matter. The certificate of the Auditors shall be final and
conclusive.
If there is to be no charge to income tax on the exercise of an option then, in
addition to complying with the rules of the scheme, the exercise must be:
- - not earlier than three or later than ten years after the option was
granted and
- - not earlier than three years following the latest previous exercise by the
participant of an option (obtained under this or any other scheme (not
being a savings related share option scheme) approved by the Inland
Revenue) which enjoyed relief from income tax.
Executed and delivered as a )
Deed for and on behalf of )
Tinsley Robor plc by )
Director
Director/Secretary
OR
Executed and delivered as a )
Deed for and on behalf of )
Tinsley Robor ESOP Trustee )
Limited by )
Director
Director/Secretary
<PAGE>
(20)
SCHEDULE TO THE
RULES OF TINSLEY ROBOR PLC
EXECUTIVE SHARE OPTION SCHEME 1988
INDEX
-----
Paragraph Heading Paragraph
Number Number Page
- ------ ------ ----
INTERPRETATION 1 21
Interpretation 1.1 21
Purpose 1.2 21
GRANT OF OPTIONS 2 21
Discretion 2.1. 21
Status of Schedule 2.2 21
Amendments to Rules 2.3 21
APPENDIX A(U) - Option Certificate 23
<PAGE>
(21)
SCHEDULE TO THE
RULES OF TINSLEY ROBOR PLC
EXECUTIVE SHARE OPTION SCHEME 1988
1. INTERPRETATION AND PURPOSE
1.1 Interpretation: This Schedule shall be interpreted in accordance with the
Rules, of which this Schedule forms part as more particularly set out at
Paragraph 1.2
1.2 Purpose: This Schedule, adopted by way of an amendment by the Company in
general meeting on 19th August 1996 provides for the grant of Options which are
not Inland Revenue approved share options under Schedule 9 to the Taxes Act, so
that the Rules consist of two parts, one approved and one unapproved
2. GRANT OF OPTIONS
2.1 Discretion: The Board may grant Options pursuant to Rule 2.1 which, if
expressly stated in the Option Certificate to be granted under this Schedule,
shall be treated as granted pursuant to the unapproved part of the Rules and so
subject to the following:
(a) Rule 3.1 shall apply to any such grant, notwithstanding the application of
any lower limit which may be specified by paragraph 28, Schedule 9 to the
Taxes Act (as amended by the Finance Act 1996) or other legislation in
force from time to time;
(b) conditions relating to Inland Revenue approval contained in Rules 2.4(c),
9.2 and 9.4 shall not apply to any such grant;
(c) Rule 7.4(a) shall not apply to any such grant in respect of the part which
reads:
"which satisfy the conditions specified in paragraphs 10 to 14 inclusive
of Schedule 9 to the Taxes Act";
(d) the Market Value in relation to a share subject to any such grant shall be
the middle market quotation as derived from the Official Daily List of The
Stock Exchange for the Grant Date;
2.2 Status of schedule: This Schedule has been adopted by the Company by way of
an amendment to the Rules but shall not have any effect in respect of Options
granted pursuant thereto unless expressly stated to be subject to this Schedule
2.3 Amendments to Rules: The Rules shall be amended by the addition of the
following definition:
"Schedule" - means the schedule appended to the Rules providing for the grant of
Options which are not approved pursuant to Schedule 9 to the Taxes
Act;
<PAGE>
(22)
the main index shall be amended so as to take into account the
addition of this Schedule, and references to the Scheme being
"Approved" shall be deleted save in respect of references to the
approved part of the Scheme
<PAGE>
(23)
APPENDIX A(U)
TINSLEY ROBOR PLC
("the Company")
UNAPPROVED SHARE OPTION
granted pursuant to the Schedule to the Rules of the
TINSLEY ROBOR plc EXECUTIVE SHARE OPTION SCHEME 1988
("the Scheme")
--------------------------
OPTION CERTIFICATE
THIS DOCUMENT IS IMPORTANT A form of notice for use by the Option Holder for the
exercise of the Option is set out overleaf.
Name of ................ Number of Shares ...................
Option Holder
Address of ................ Option ...................
Holder ................ Price per share
................ Maximum total ...................
Cost of shares
Grant Date ................ Last date for ...................
exercising Option
THIS IS TO CERTIFY that the Option Holder named above was on the Grant Date
specified above granted in accordance with the Scheme an Option to
[subscribe/purchase] for the above number of Ordinary Shares of (pound)[ ]
each in the capital of the Company at the above Option Price per share. The
Option is personal to the Option Holder and may not be transferred, assigned,
mortgaged, pledged or otherwise disposed of by him or her.
The Option is exercisable subject to and in accordance with the terms of the
Scheme, and subject to the following conditions and limitations:
Save in the circumstances set out in paragraphs 5.3(a) and (b) and in
clause 7 of the rules of the Scheme where the performance conditions shall
apply, an Option may be exercised in whole or in part if and only if over
any period of three consecutive years commencing no earlier than the Grant
Date of the Option [ILLEGIBLE]
<PAGE>
Exhibit 10.118
AMENDMENT NO. 1 TO
WARRANTS FOR THE PURCHASE
OF
SERIES A COMMON STOCK
<PAGE>
AMENDMENT NO. 1 TO
WARRANTS FOR THE PURCHASE OF SERIES A COMMON STOCK
Amendment No. 1 to the Warrants for the Purchase of Series A Common
Stock, dated as of October 29. 1999, by IMPAC Group, Inc. (the "Company"), a
Delaware corporation.
WITNESSETH:
WHEREAS, the Company, a Delaware corporation, BT Capital Investors,
L.P. ("BTI"), and Phoenix Home Life Mutual Insurance Company ("Phoenix" and
together with BTI, each a "Purchaser," and collectively the "Purchasers") have
entered into a Securities Purchase Agreement, dated as of January 11, 1999 (the
"Purchase Agreement"); and
WHEREAS, pursuant to the Purchase Agreement, the Company issued (i)
to BTI a warrant to purchase 4,174.998 shares of Series A Common Stock of the
Company (the "BTI Warrant") and (ii) to Phoenix a warrant to purchase 2,765.332
shares of Series A Common Stock (the "Phoenix Warrant" and, together with the
BTI Warrant, the "Warrants"); and
WHEREAS, pursuant to Section 14 of the Warrants, the Company is
authorized to amend the Warrants without the approval of BTI and/or Phoenix in
order to correct any provision contained therein which may be defective or
inconsistent with any other provision therein; provided that any such amendment
does not in any way adversely affect the interest of BTI and/or Phoenix; and
WHEREAS, the following amendement does not in any way adversely
affect the interest of BTI and/or Phoenix.
NOW, THEREFORE, in consideration of the foregoing, the Company
hereby amends the Warrant as follows:
ARTICLE 1.
AMENDMENTS
Section 8 of the Warrant shall be deleted in its entirety and
replaced with the following:
2
<PAGE>
"(a) No Holder may offer to sell, assign, transfer or otherwise
dispose of ("Transfer") any Warrant or Warrant Share except in
transactions exempt from registration under the Securities Act or in
a sale registered under the Securities Act. In connection with any
proposed Transfer pursuant to such an exemption, the Company may
request an opinion of the Holder's counsel that such Transfer is not
in violation of the registration requirements of the Securities Act
or other applicable law; provided, however, that no such opinion
will be required for any Transfer to an Affiliate of the Purchaser
making such Transfer, if such Affiliate is an "accredited investor"
as defined in Rule 501 under the Securities Act of 1933, as amended.
For the purposes of this Section 8, "Affiliate" shall have the
meaning set forth in the Stockholders Agreement.
(b) Each certificate representing the Warrant Shares shall bear a
legend in or substantially in the following form:
"THE SHARES EVIDENCED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"). NO
TRANSFER, SALE OR OTHER DISPOSITION OF THESE SHARES MAY BE MADE IN
THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT UNDER THE ACT
WITH RESPECT TO THESE SHARES OR THE AVAILABILITY OF AN EXEMPTION
FROM THE REGISTRATION REQUIREMENTS OF THE ACT." "
ARTICLE 2.
GENERAL PROVISIONS
Section 2.1. This Amendment No. 1, together with each Warrant,
constitutes such Warrant in its entirety and supersedes all prior Warrants. Each
Warrant, as amended by this Amendment No. 1, is hereby ratified and confirmed in
all respects and shall continue in full force and effect.
Section 2.2. Capitalized terms used and not defined herein have the
respective meanings ascribed to them in the Warrants.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
3
<PAGE>
IN WITNESS WHEREOF, the Company has duly executed this Amendment No.
1 as of the date first written above.
IMPAC GROUP, INC.
By: /s/ David C. Underwood
-----------------------------------
Name: David C. Underwood
Title: Chief Financial Officer
<PAGE>
Exhibit 10.119
AMENDMENT NO. 1 TO
SECURITIES PURCHASE AGREEMENT
Among
IMPAC GROUP, INC.
BT CAPITAL INVESTORS, L.P.
and
PHOENIX HOME LIFE MUTUAL INSURANCE COMPANY
Dated as of October 29, 1999
<PAGE>
AMENDMENT NO. 1 TO SECURITIES PURCHASE AGREEMENT
Amendment No. 1 to the Securities Purchase Agreement, dated as of
October 29, 1999, by and between IMPAC Group, Inc. (the "Company"), a Delaware
corporation, BT Capital Investors, L.P. ("BTI"), Phoenix Home Life Mutual
Insurance Company ("Phoenix" and together with BTI, each a "Purchaser," and
collectively the "Purchasers").
W I T N E S S E T H:
WHEREAS, the parties hereto have entered into a Securities Purchase
Agreement, dated as of January 11, 1999 (the "Purchase Agreement"); and
WHEREAS, the parties hereto wish to amend certain of the terms and
conditions of the Purchase Agreement; and
NOW, THEREFORE, in consideration of the foregoing and the respective
representations, warranties, covenants and agreements set forth in this
Amendment No. 1, the parties hereto, intending to be legally bound, agree as
follows:
ARTICLE 1.
AMENDMENTS
Section 3.08 of the Purchase Agreement shall be deleted in its
entirety and replaced with the following:
"Section 3.08 Transfer of Securities. (a) Each Purchaser
agrees that it will not offer to sell, assign, transfer or otherwise
dispose of ("Transfer") any of the Securities except in transactions
exempt from registration under the Securities Act or in a sale
registered under the Securities Act. In connection with any proposed
Transfer pursuant to such an exemption, the Purchasers agree that
the Company may request an opinion of the Purchaser's counsel that
such Transfer is not in violation of the registration requirements
of the Securities Act, or other applicable law; provided, however,
that no such opinion will be required for any Transfer to an
Affiliate of the Purchaser making such Transfer, if such Affiliate
is an "accredited investor" as defined in Rule 501 under the
Securities Act of 1933, as amended. For the purposes of
2
<PAGE>
this Section 3.08, "Affiliate" shall have the meaning set forth in
the Stockholders Agreement.
(b) Each certificate representing the Securities shall bear legends
in or substantially in the following form:
"THE SHARES EVIDENCED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"). NO
TRANSFER, SALE OR OTHER DISPOSITION OF THESE SHARES MAY BE MADE IN
THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT UNDER THE ACT
WITH RESPECT TO THESE SHARES OR THE AVAILABILITY OF AN EXEMPTION
FROM THE REGISTRATION REQUIREMENTS OF THE ACT."
(c) BTI agrees that so long as any shares of Preferred are
outstanding it and/or its Affiliates (as defined in Section 3.08(a))
will own and retain the right to vote at least a majority of such
shares; provided, however, that BTI and any of its Affiliates may
Transfer any shares of Preferred (and thereby fail to own and retain
the right to vote such shares) to the extent necessary to comply
with Regulation Y (12 C.F.R. PART 225) of the Board of Governors of
the Federal Reserve System. Prior to any such sale, at the request
of the Company BTI and its counsel will meet with the Company to
review and discuss BTI's analysis of its non-compliance with
Regulation Y."
ARTICLE 2.
COVENANTS
Upon surrender to the Company of any certificate representing shares
of Preferred, the Company shall issue to the holder of the original certificate
a new certificate, which shall represent the same number of shares of Preferred
and shall bear the legend set forth in Section 3.08(b) of the Purchase
Agreement, as amended hereby. The Purchasers shall surrender any certificate
representing shares of Preferred in accordance with this Article 2 pursuant to a
letter of transmittal in the form of Exhibit A hereto.
ARTICLE 3.
GENERAL PROVISIONS
3
<PAGE>
Section 3.1. This Amendment No. 1 may be executed in one or more
counterparts. each of which executed counterparts shall be deemed to constitute
an original and all of which, taken together, shall be deemed to constitute one
and the same instrument.
Section 3.2. This Amendment No. 1 (together with the Purchase
Agreement and the Schedules delivered in connection therewith) constitutes the
entire agreement of the parties and supersedes all prior agreements and
undertakings, both written and oral (other than the Purchase Agreement and the
Schedules delivered in connection therewith), between all or any of the parties,
with respect to the subject matter hereof. The Purchase Agreement, as amended by
this Amendment No. 1, is hereby ratified and confirmed in all respects and shall
continue in full force and effect.
Section 3.3. Capitalized terms used and not defined herein have the
respective meanings ascribed to them in the Purchase Agreement.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
4
<PAGE>
IN WITNESS WHEREOF, the parties hereunto have duly executed this
Amendment No. 1 as of the date first written above.
IMPAC GROUP, INC.
By: /s/ David C. Underwood
----------------------------------------
Name: David C. Underwood
Title: Chief Financial Officer
BT CAPITAL INVESTORS, L.P.
By: /s/ Heide Silverstein
----------------------------------------
Name: HEIDE SILVERSTEIN
Title: DIRECTOR
PHOENIX HOME LIFE MUTUAL
INSURANCE COMPANY
By: /s/ Christopher Wilkos
----------------------------------------
Name: CHRISTOPHER WILKOS
Title: Vice President, Corporate Portfolio Management
PHOENIX HOME LIFE
<PAGE>
Exhibit A
IMPAC GROUP, INC.
1950 North Ruby Street
Melrose Park, Illinois 60160-1178
Attention: Legal Department
Ladies and Gentlemen:
Reference is made to (i) Amendment No. 1 to the Securities Purchase
Agreement (the "Amendment"), dated as of __________, 1999, by and among IMPAC
Group, Inc. (the "Company"), BT Capital Investors, L.P. ("BTI"), Phoenix Home
Life Mutual Insurance Company ("Phoenix") and (ii) the Securities Purchase
Agreement, dated as of January 11, 1999, by and among the Company, BTI and
Phoenix (the "Purchase Agreement"). Capitalized terms used but not defined
herein shall have the meanings set forth in the Purchase Agreement.
In accordance with Article 2 of the Amendment, we hereby surrender
the enclosed certificate representing _________ shares of Preferred in exchange
for the issuance by the Company of a certificate representing the same number of
Preferred and containing the legend set forth in Section 3.08 of the Purchase
Agreement, as amended.
Best regards,
6
<PAGE>
Exhibit 18.1
March 24, 2000
Board of Directors
IMPAC Group, Inc.
1950 N Ruby Street
Melrose Park, IL 60160
Dear Directors:
We are providing this letter to you for inclusion as an exhibit to your Form 10-
K filing pursuant to Item 601 of Regulation S-K.
We have audited the consolidated financial statements included in the Company's
Annual Report on Form 10-K for the year ended December 31, 1999 and issued our
report thereon dated March 24, 2000. Note 4 to the financial statements
describes a change in accounting principle from the last in, first out to the
first in first out method for certain inventories. It should be understood that
the preferability of one acceptable method of accounting over another for
inventory accounting has not been addressed in any authoritative accounting
literature, and in expressing our concurrence below we have relied on
management's determination that this change in accounting principle is
preferable. Based on our reading of management's stated reasons and
justification for this change in accounting principle in the Form 10-K, and our
discussions with management as to their judgment about the relevant business
planning factors relating to the change, we concur with management that such
change represents, in the Company's circumstances, the adoption of a preferable
accounting principle in conformity with Accounting Principles Board Opinion No.
20.
Very truly yours,
/s/ PricewaterhouseCoopers LLP
PricewaterhouseCoopers LLP
<PAGE>
Exhibit 21.1
------- ----
List of Subsidiaries
of IMPAC Group, Inc.
--------------------
Name Jurisdiction of
- ---- Organization
------------
AGI Incorporated Illinois
Klearfold, Inc. Pennsylvania
KF-Delaware, Inc. Delaware
KF-International, Inc. U.S. Virgin Islands
IMPAC Europe Limited England and Wales
IMPAC Europe Holdings Limited England and Wales
Levelprompt Limited England and Wales
Thamesdown Colour Limited England and Wales
Tinsley Robor Limited England and Wales
Tinsley Robor Audio and Computer
Services Limited England and Wales
TR ESOP Trustee Limited England and Wales
James Upton Limited England and Wales
Tinsley Robor Labels Limited England and Wales
IMPAC Sales Limited England and Wales
Sonicon Limited England and Wales
Tophurst Properties Limited England and Wales
Pinepoint Limited England and Wales
Printing Resources Limited Ireland
Van de Steeg Packaging B.V. The Netherlands
James Upton Holding B.V. The Netherlands
James Upton B.V. The Netherlands
James Upton GmbH Austria
Music Print B.V. The Netherlands
Admat Labels Limited England and Wales
S. Tinsley & Company Limited England and Wales
TRG Graphics Limited England and Wales
Arun Labels Limited England and Wales
R&B Litho Reproduction Limited England and Wales
Icon Communications Limited England and Wales
TR Displayprint Limited England and Wales
Pinepoint Colour Response Limited England and Wales
Tinsley Robor Packaging Limited England and Wales
Atlantic Packaging LLC Delaware
Commercial Lithographing LLC Delaware
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-1-1999
<PERIOD-END> DEC-31-1999
<CASH> 4,535
<SECURITIES> 0
<RECEIVABLES> 62,729
<ALLOWANCES> 2,125
<INVENTORY> 23,982
<CURRENT-ASSETS> 98,672
<PP&E> 220,724
<DEPRECIATION> 103,280
<TOTAL-ASSETS> 394,062
<CURRENT-LIABILITIES> 74,199
<BONDS> 255,959
17,337
0
<COMMON> 0
<OTHER-SE> 46,571
<TOTAL-LIABILITY-AND-EQUITY> 394,062
<SALES> 307,754
<TOTAL-REVENUES> 307,754
<CGS> 216,527
<TOTAL-COSTS> 216,527
<OTHER-EXPENSES> 60,674
<LOSS-PROVISION> 1,529
<INTEREST-EXPENSE> 22,913
<INCOME-PRETAX> 7,661
<INCOME-TAX> 3,384
<INCOME-CONTINUING> 4,297
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,297
<EPS-BASIC> 0
<EPS-DILUTED> 0
</TABLE>
